The financial benefits of corporate climate action are 15 times higher than the risks inherent in not transitioning business practices in readiness for a low carbon future, an analysis of disclosures from the world's largest companies has found.
A questionnaire sent by non-profit CDP to 80 percent of companies listed on the S&P 500 index revealed that companies see a multi-trillion-dollar opportunity in the shift to products, services and markets that can drive the transition to a low-carbon economy.
The findings, published earlier this month, reveal the companies pin the aggregate financial benefits of climate action at roughly $4.8 trillion — a figure dwarfed by the financial impacts associated with climate-related risks, found to sit between $272 billion and $334 billion.
Amir Sokolowski, CDP's global director of climate change, said the new data highlighted growing corporate awareness of the economic opportunities associated with the net zero transition. "This new data clearly illustrates that not only are major corporations taking the climate crisis seriously, but that in doing so, they are putting themselves in a strong position for aligning with global best practice and recognizing how to benefit from the transition to a net zero economy," he said.
The findings are part of a CDP report into U.S. companies' preparedness for climate change, informed by a questionnaire sent to more than 400 companies with more than $28.2 trillion in market capitalization, including Microsoft, Starbucks and Walmart.
The findings are part of a CDP report into US companies' preparedness for climate change, informed by a questionnaire sent to more than 400 companies with more than $28.2 trillion in market capitalization.
The questionnaire evaluated companies on their climate governance, emissions targets, financial planning and alignment with the framework established by the Taskforce for Climate-related Financial Disclosures (TCFD).
CDP welcomed a "marked increase" in the adoption of TCFD principles at companies, noting that more than half of firms surveyed were 90 to 99 percent aligned with the framework's key recommendations.
However, the non-profit also pointed to significant "room for improvement" given that just 14 percent of firms had provided information on all relevant questions in the CDP's climate change questionnaire.
"Many big brands have set targets and have boardroom oversight over climate issues, but far fewer have a strategy to achieving their net zero goals and targets, or an understanding of how climate risks play out across their entire business," said Sokolowski. "Disclosure must also go beyond the impacts captured by the TCFD recommendations. Rather than focusing only on financial and risk-based data, it is crucial that companies strive to measure their impacts on people and planet more widely."
Rather than focusing only on financial and risk-based data, it is crucial that companies strive to measure their impacts on people and planet more widely.
While more than 80 percent of the disclosing companies identified both climate-related risks and opportunities, only 63 percent included their entire supply chain in their risk assessments, meaning many businesses are facing climate-related risks that are failing to report on.
TCFD disclosures have been adopted by a growing number of governments and regulators around the world as the standard for climate-related financial disclosures, with existing and impending rules being drawn up in the U.S., EU, and U.K. based on the initiative's recommendations.
CDP North America's head of corporations and supply chains, Simon Fischweicher, said the adoption of TCFD disclosure standards was evidence across the economy. "Since the launch of the TCFD recommendations five years ago, CDP is pleased to have played a role in bringing the TCFD Framework into real-world practice," he said. "It is encouraging to see that the majority of S&P 500 companies are providing TCFD-aligned disclosures, which is significant as it puts them in a strong position to comply with current and future reporting requirements from the Securities and Exchange Commission."
However, while the number of corporates reporting on climate-related risks and opportunities may be increasing year-on-year, the net zero movement is also continuing to face resistance from some of the world's most powerful investors. The results of CDP's latest climate questionnaire come as reports have revealed that the Glasgow Financial Alliance for Net Zero (GFANZ) could be hit by an exodus of U.S. banks as concerns grow among financiers that a failure to deliver on decarbonization commitments could leave them exposed to legal action.
GFANZ and its subsidiaries have come under fire from environmental campaigners who have argued the requirements it places on members will fail to deliver global climate goals.
The Financial Times reported this morning that some of the most high profile members of the group have said they feel "blindsided by tough climate criteria" introduced by GFANZ, which could result in businesses that fail to deliver credible net zero strategies being kicked out of the group.
GFANZ is the umbrella group for a string of alliances formed over the last 18 months across the financial sector, which commit members to setting net zero targets and developing credible investment strategies for ensuring both short and long-term emissions goals are met.
GFANZ and its subsidiaries have come under fire from environmental campaigners who have argued the requirements it places on members will fail to deliver global climate goals, most notably its decision to not mandate that members to immediately end financing of oil, gas and goal projects.
But the Financial Times reported that a number of U.S. banks believe GFANZ's membership requirements are too stringent and will open institutions and their shareholders up to legal liabilities. The banks have argued the requirement to commit to a phase-out of coal, oil, and gas financing is not supported by equally robust government action on climate change and have complained that the technology required for them to hit net zero targets does not yet exist.
The bank's stance could trigger a wider standoff between corporates and various net zero groups, which are ramping up pressure on businesses to ensure climate targets are backed by credible decarbonization strategies. It seems increasingly likely that some leading businesses will quit such groups in the coming years — or else be asked to leave. But, as CDP's latest update demonstrates, thousands of businesses will deliver ever more ambitious net zero strategies, safe in the knowledge that playing a leading role in the clean energy transition will deliver many more opportunities than it does costs.