How will climate transition planning empower you to shape the future?
Climate change is the greatest existential threat facing humanity today — although you probably wouldn’t realize this from the climate disclosures of the world’s biggest companies. Most are still not reflecting the physical or transition risks associated with climate change in their financial statements. Neither do many communicate a plan for transitioning to a net-zero economy, with capital and operational expenditures (capex and opex) projections still not in place. The unavoidable takeaway from these omissions is that most companies remain woefully unprepared for the disruption that is upon us.
While it is true that many companies have gradually improved their disclosures over the years, current disclosure quality does not indicate that companies are taking sufficient tangible action to address climate change. As a result, they are not transitioning at the rate needed to hit net zero by 2050 or achieve the goals of the 2015 Paris Agreement.
Inaction — rather than action — has been a familiar theme of this report, which has tracked corporate progress on mitigating climate change for the past six years. So it is disappointing to see the same theme continuing to prevail in 2024.
To help highlight the need for acceleration of climate transition progress, the name of the report has been changed. Previous editions were known as the Climate Risk Barometer. This year, the report has been renamed the Climate Action Barometer.
In addition to its new name, this edition of the Barometer emphasizes the importance of action through its heightened focus on transition planning. It offers insights into why companies are not currently meeting their transition targets or are not disclosing their plans at all — despite mounting scientific evidence of the looming climate crisis across the world and its potential impact on all businesses.
Additionally, the Barometer scrutinizes the lack of connectivity between companies’ climate risk disclosures and their financial statements. This is a major concern, given that climate change will almost certainly be a material risk for many — if not all — businesses over the medium to long term.
The disconnect between companies’ ambition and action on the decarbonization agenda can be attributed to a range of challenges. These include the pressure to balance profitability with climate goals, the unavailability and expense of low-carbon technologies, a shortage of green skills, a political backlash against sustainability in some markets and sectors, and the very real complexities involved with setting and achieving targets.
Regardless of these challenges, companies’ key stakeholders — including investors, regulators, employees, and customers — all rightly expect them to act. Last year was the warmest on record, according to the National Oceanic and Atmospheric Administration, while around two billion people are expected to face average temperatures of 29°C or higher by 2030. This will result in more heatwaves, forest fires, and droughts, with much wider social and economic threats for lives and livelihoods identified by the Intergovernmental Panel on Climate Change and others.
Only by taking decisive and meaningful action will we accelerate decarbonization and the energy transition necessary to shape a sustainable future with confidence. It will be a difficult and complex task, but one we must tackle now — for the future of business as well as the future of our world.
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