Most asset managers in the UK have now set themselves a 2050 target to achieve net zero greenhouse gas emissions from their operations, but are failing to say how climate change would hit their bottom line, according to a report.
The findings come from a thematic review published last week by the Financial Reporting Council (FRC) assessing the quality and maturity of climate-related metrics and targets disclosures.
The review analyses Task Force on Climate-Related Financial Disclosures (TCFD) disclosures from 20 companies’ 2022 annual reports across four sectors – materials and buildings, energy, banks, and asset managers.
Overall, the UK’s corporate governance regulator said key findings showed “an incremental improvement in the quality of companies’ disclosure of net zero commitments and interim emissions targets”.
However, it said, disclosures of concrete actions and milestones to meet targets were sometimes unclear, and comparability of metrics between companies remained challenging.
Mark Babington, the FRC’s executive director of regulatory standards, said: “This review highlights the continued need for clearer, more decision-useful disclosures of companies’ plans to transition to a low-carbon economy.
“We encourage companies to focus on explaining targets, actions, and any impacts on the financial statements,” he said.
Babington said: “With greater maturity in reporting, we expect clearer and more concise disclosures reflecting how companies measure and manage their individual climate risks and opportunities.”
In the review, the FRC said it considered four overarching questions – whether firms’ climate-related metrics and targets reporting had improved since last year; if they were adequately disclosing their plans; whether they were using consistent and comparable metrics, and finally, whether companies were explaining how their targets had affected the financial statements.
Regarding asset managers, the FRC found that only one of the five firms assessed actually published data on the potential financial impact of climate change on the group’s assets and income.
All five asset managers presented some financed emissions from their investment portfolios – or intended to do so next year – with the majority of these calculated in line with the PCAF industry standard.
“Most also presented a temperature alignment metric, although there is not yet a commonly accepted approach to temperature alignment calculations,” the London-based agency said in the report.
It said that most asset managers had set a net-zero target for 2050, and the majority also had some interim emissions targets in place, with net-zero targets in most cases including Scope 1, 2 and 3 emissions.
The FRC said asset managers varied considerably in their sophistication in the management and reporting of climate risk.
“Some front-runners have voluntarily been complying with TCFD requirements for several years, and have sophisticated climate risk management and reporting in place, while others are just starting out on this journey,” it said.
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