IN BRIEF:
• While climate-related disclosures have improved, they still fall short of the necessary pace to effectively combat climate change.
• A significant number of companies recognizes the risks associated with climate change, yet only a small percentage has developed actionable plans to address these challenges.
• To facilitate a sustainable future, businesses must take bold and immediate steps toward decarbonization and energy transition.
The pressing challenge of climate change demands swift and decisive action; however, many companies are lagging in their efforts to achieve net-zero emissions in line with the 2015 Paris Agreement. According to the 2024 EY Global Climate Action Barometer, only 41% of large companies worldwide have established a transition plan aimed at mitigating climate change, even as global temperatures rise.
Moreover, a significant number of organizations hesitates to set long-term greenhouse gas (GHG) reduction targets, with just over half (51%) committing to goals that extend beyond 2030. The Barometer further reveals that only 36% of companies have incorporated climate-related financial impacts into their financial statements, despite 67% having performed scenario analyses that indicate an understanding of potential climate risks.
This gap between corporate intentions and tangible actions on decarbonization is alarming. Now in its sixth year, the Barometer provides a critical assessment of global advancements in climate-related disclosures. While there has been a significant rise in disclosure coverage — from 61% in 2018 to 94% in 2024 — the quality of these disclosures has not kept pace. In 2024, the average quality score for disclosures is only 54%, an increase from 31% in 2018.
ASSESSING CLIMATE DISCLOSURES
Various factors contribute to companies’ reluctance to providing comprehensive climate disclosures. Concerns about disclosing sensitive business information, the potential for accusations of greenwashing, and fears of legal repercussions from stakeholders can all deter transparency. Some organizations may not have made adequate progress on climate initiatives to present a favorable narrative.
Companies’ climate disclosures are significantly influenced by regulations. The relaxation of environmental regulations during the Trump administration may discourage some companies to report climate-related information. Additionally, the EU Simplification Omnibus Package could impact climate reporting by narrowing the scope of companies obliged to comply with sustainability-related EU directives. This reduction in regulatory requirements and priority may lead to decreased transparency in climate disclosures among affected companies.
INDUSTRY TRENDS AND INSIGHTS
Regulatory developments and increasing pressure from stakeholders are fostering improvements in the quality of climate disclosures across various sectors. However, the Barometer highlights a concerning lack of urgency among companies to take meaningful action against the climate crisis. Despite this, some progress in climate disclosures has been noted, primarily driven by regulatory changes.
HIGH PERFORMERS AND UNDERACHIEVERS
Countries with robust climate reporting regulations, such as the UK (with a quality score of 69%) and the EU (60%), demonstrate enhanced disclosure quality and a greater likelihood of having transition plans in place. Conversely, limited advancements in countries like India, the US, and China raise concerns, given their substantial contributions to global emissions.
The Middle East, Southeast Asia, and India continue to lag in both disclosure quality and coverage, although all three regions have experienced improvements of over 20% since last year’s study. Companies are increasingly motivated to report to meet stakeholder expectations regarding climate action and the integration of sustainability into their business strategies.
In the Philippines, companies are still mainly driven by compliance with the Securities and Exchange Commission’s (SEC) regulatory requirements for sustainability reporting. Leading companies though have disclosed their climate strategy, targets and commitments, demonstrating their capacity for more comprehensive climate disclosures. Having an established regulation in place will serve as a catalyst for companies to enhance their climate reporting practices.
PREPAREDNESS FOR ISSB STANDARDS
The International Sustainability Standards Board (ISSB) has rolled out voluntary standards that many jurisdictions are planning to adopt. As a result, the proportion of companies disclosing in accordance with the IFRS S2 Climate-related Disclosures recommendations has risen significantly.
The highest readiness scores for ISSB adoption were recorded in Taiwan and the UK (both at 68%), reflecting the proactive measures taken by these jurisdictions.
In the Philippines, the adoption of ISSB standards will be implemented in phases, beginning with mandatory disclosures in 2027 covering 2026 data. This rollout will be tiered according to market capitalization. In addition, the SEC, in collaboration with the Philippine Stock Exchange, Inc. (PSE), is actively developing the Philippines Sustainability Reporting Roadmap this year. This initiative seeks to create a structured and globally aligned approach to sustainability reporting within the country, potentially driving companies to enhance their climate disclosures. Given this, it is anticipated that an increasing number of companies will also begin aligning their sustainability disclosures with IFRS S2.
ECONOMIC IMPLICATIONS OF CLIMATE RISKS
Many companies are reluctant to recognize the financial implications of climate-related risks in their financial statements. While most disclosures are qualitative descriptions of these risks, some companies choose to conduct climate scenario analysis. This approach assists them in evaluating the potential impacts of climate change and translate those effects into quantifiable financial implications.
The Barometer indicates that only 36% of surveyed companies have acknowledged climate-related financial impacts, a modest increase from 33% last year. This stagnation is concerning, particularly given that the average GDP for the 51 assessed countries is projected to decline by 35% by 2100 without further climate action. Only 17% of companies in the Americas recognize that climate risk could significantly impact their financial performance, despite the high risk of adverse effects on GDP in the US and Canada.
PATHWAYS TO ACHIEVING SUSTAINABILITY
The current level of transition planning and target-setting is insufficient to enable decarbonization and mitigate the severe consequences of climate change. Only 41% of companies have developed transition plans, while 21% lack a plan but have indicated intentions to create one.
Organizations with transition plans generally exhibit higher-quality climate disclosures. However, the inaction on transition planning contradicts the ambitious climate objectives many companies have established. A significant majority (83%) of companies has set short-term targets aimed for achievement by 2030.
C-LEVEL CONSIDERATIONS
Despite the challenges companies face in transitioning to net-zero, they can accelerate their efforts. First, integrating transition planning into the core business strategy is essential. This involves developing a comprehensive, actionable plan based on science-based targets that includes clear short- and long-term goals for Scope 1, 2, and 3 emissions. Additionally, companies should incorporate climate risk into their financial statements. By adopting quantitative analysis to measure climate-related risks and opportunities, organizations can ensure a direct link to financial reporting. This connection will help them identify potential financial impacts and explore new business opportunities that arise from climate action.
Moreover, companies may look at other climate-related opportunities that they can take advantage of such as investing in renewable energy, supporting innovative technology solutions, and participating in carbon credit markets to offset their emissions. By actively pursuing these opportunities, companies can contribute to climate change mitigation while also enhancing their competitive advantage in the market.
Finally, leveraging data effectively is crucial for informed decision-making. By capturing and analyzing relevant data, companies can enhance their real-time decision-making capabilities and better prepare for future climate challenges. This includes comprehensive reporting on TCFD pillars and GHG emissions, which can aid in setting net-zero targets and developing strategies to mitigate climate risks.
TACKLING THE GROWING CLIMATE CRISIS
The 2024 EY Global Climate Action Barometer highlights the pressing need for companies to significantly improve their climate-related disclosures to effectively tackle the growing climate crisis. Organizations must prioritize the development of robust transition plans, ensure that their scenario analyses are integrated with financial reporting, and establish scientifically grounded targets for both the short and long term.
By taking these essential steps, businesses can not only align with global climate goals but also position themselves as leaders in the transition to a sustainable future.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Benjamin N. Villacorte is the sustainability services leader of SGV & Co.