Should Climate Risks Be Included in Sustainability Reports?

Ed Note: to hear more on this issues consider taking our GRI-certified course in sustainability reporting – next week in Mountain View! Author Emilie Mazzacurati will be a guest speaker.

Historically, sustainability reporting has been largely about the firm’s impact on society and the environment. Is the firm using up a lot of resources? Polluting? How does it impact local communities’ lives and livelihoods? How does it treat its employees? And so much more. Recently though, stakeholders have also been asking for disclosure on risks and opportunities related to climate change. Are the firm’s operations at risk for a Category 5 hurricane? Will its supply chain be impacted by more frequent floods in Bangladesh? How will the firm procure water or agricultural goods in a dryer world? How will it pay for shipping in a world with high carbon prices? It could be argued that including climate change impacts into sustainability reports turns sustainability reporting on its head: when a firm reports on the impact climate change may have on its operations, supply chain or business model, it is really reporting on the impact of the environment on the firm, not the other way round. So, should climate risks be included in sustainability reports?

Climate risk disclosure still lagging

Recent trends in climate risk disclosure seem to support the view that climate risks don’t belong in sustainability reports: the Center for Energy and Environmental Solutions (C2ES) recently released a comprehensive report on Weathering the Storm: Building Business Resilience to Climate Change. They compared S&P 100 companies’ responses to Carbon Disclosure Project questionnaires to their sustainability reports, and found that 85 out of 100 S&P companies listed potential impacts from climate change on their company in their CDP questionnaire, but only 35 of these also mentioned those impacts in their sustainability reports. The top five potential impacts listed by companies were disruption in production capacity (57 percent), increased operational costs (47 percent), inability to do business, increased capital costs and reduced demand for goods and services (less than 15 percent for the last three).

Is climate change a material issue?

It might also be that the fifty S&P 100 companies that listed climate risks in their CDP questionnaire but not in their sustainability reports decided that climate risk was not material – yet. And that’s a valid argument: the CDP questionnaire is an excellent place to discuss all and any research and analysis related to climate risks specifically, while the GRI asks companies to focus on material issues – issues that “reflect the organization’s significant economic, environmental and social impacts,” or that “substantively influence the assessments and decisions of stakeholders.” Yet the fact is, we’re still lacking granular data on how climate change will impact temperature, hydrology and sea-level rise in many places around the world, and the actual magnitude and timescale of the impacts of climate change are still uncertain. This means many companies are simply not in a position to assess whether or how their operations or supply chain will be impacted. So for many companies, climate risk disclosure involves saying things like “we anticipate there could be impacts, but we don’t know for sure or we don’t know how bad it will be.” That makes it hard to tell if those issues are material.

GRI requires reporting of climate risks and opportunities

Even in this context of uncertainty, many companies should include more information on climate risk. The Global Reporting Initiative Framework contains several indicators specifically focused on climate change. Some of these indicators are widely used, such as EN 16-17 (EN 15-19 in the G4) on GHG emissions. Yet there’s another lesser-known indicator, EC-2, that solicits input on “the financial implications and other risks and opportunities for the organization’s activities due to climate change.” As the G4 is putting added emphasis on supply chains, this indicator is going to become all the more relevant for companies with suppliers in vulnerable countries [link ND-Gain] around the world. The range of potential impacts is large – and while not all sectors or companies will be impacted, many firms that may not be thinking about climate change today will see dramatic impacts. This makes climate risks material for many companies, even with missing data and uncertain impacts: whether or not the company’s management is actively assessing what the impacts of climate change will be on the business is a material issue – at least until proven that the firm won’t be affected.

Investors are stakeholders, too

One group of investors has been particularly vocal regarding climate disclosure: investors. Theoretically, publicly-traded companies are already required to disclose their climate risk exposure in their financial filings, Form 10-K. The Securities and Exchange Commission (SEC) outlined in their 2010 guidance what companies were supposed to include – regulatory risks, risks related to the physical impacts of climate change, and indirect risks to supply chain and market conditions. In reality, though, few companies even mention climate change in their 10-K form – only a third of S&P 100 companies do, according to that same C2ES report. Ceres and the Investor Network on Climate Risks (INCR) wrote to the SEC earlier this summer to request the regulatory agency “devote greater attention” to what was clearly a material issue for investors, climate change. General guidance on how to report climate-related risks and opportunities is now available – the Climate Disclosure Standard Board has released a detailed Climate Reporting Framework with specific language and advice on what to include, and the Sustainability Accounting Standards Board is in the process of developing detailed, sectoral sustainability disclosure standards which will include sector-relevant key performance indicators for climate change.

How to assess climate exposure?

The hard work that remains for the vast majority of businesses, S&P 100 and beyond, is to adequately assess, quantify, and manage climate risks. Pulling together the adequate data, scientific literature, and cross-referencing it with a company’s current operations and long-term strategy to identify the most salient issues can be a daunting work – but for many companies there will be a silver lining in the form of new business opportunities, reduced operational costs or increased resiliency to risks across the board. How is your company dealing with climate change? Have you identified risks and opportunities? Tell us more in the Comments section.


Emilie Mazzacurati is the Managing Director of Four Twenty Seven, a climate consulting firm. Four Twenty Seven specializes in assessing, quantifying, and managing climate risks, and developing business resilience strategy. To find out more, join us for a GRI Certified Training Course in Mountain View, CA. The course will include an exclusive two-hour session on assessing and disclosing climate risks within the GRI framework.

Emilie Mazzacurati

Emilie Mazzacurati is CEO of Four Twenty Seven (, an award-winning market research and advisory firm that brings climate intelligence into economic and financial decision-making. Founded in 2012 and based in the San Francisco Bay Area, Four Twenty Seven helps Fortune 500 companies, investors and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain.

5 responses

  1. But nobody except you believers, news editors and politicians have ever said a crisis WILL happen as science has NEVER said it WILL happen as they only agree and say it COULD and might and probably and……. happen. So whats to believe?

    So how close to unstoppable warming will science take us before they end this costly debate and finally say their own 28 year old MAYBE crisis WILL happen, complete unstoppable warming?

    Get up to date people, we don’t have to love this planet with fear like neocons:

    *Occupywallstreet now does not even mention CO2 in its list of demands because of the bank-funded and corporate run carbon trading stock markets ruled by politicians.

    *Science has never agreed it WILL be a crisis, only could be a crisis and it’s been almost three decades.

    *Not one single IPCC warning has ever said any crisis WILL happen, only 28 years of “maybe” a crisis. Prove me wrong.

    *Canada killed Y2Kyoto with a freely elected climate change denying prime minister and nobody cared, especially the millions of scientists warning us of unstoppable warming (a comet hit).

    *Julian Assange is of course a climate change denier.

    *Obama had not mentioned the crisis in two State of the Unions addresses.

    Definition of Fear Mongering; Saying a CO2 crisis will happen when science has only agreed it could, not would be a crisis.

    1. Good ol’ memememe. What is your point exactly? Define crisis? There is no one in this conversation who does not agree climate change will be a problem. Its is 100% certain to be something we need to deal with. Whether it’s armageddon or something manageable is debatable. Is that your point?

  2. Really interesting article and very well articulated. The description you use of the problem I completely agree with, especially in regards to what invesors want to see and in that same regard, what information is currently not disclosed accurately to them. However I think it could be expanded more on the relationship between climate change risks (and opportunities!) and how GRI is currently being used by different companies. Whilst most now do use GRI, is has effectively become a tick boxing exercise, where they can state they are taking sustainability to the ‘core’ business strategy because they have a self-assessed GRI A+ report. However, because it does not state where these disclosures have to be made, companies can essentially bury the information in their website and tick it off. There is an oil company who I won’t name in the FTSE 100 who, for instance, have ticked off that box which says “the financial implications and other risks and opportunities for the organization’s activities due to climate change.” And then state they have done so on the website. The web page in question failed to mention risks, oppportunities, implications and, for that matter, climate change itself! So companies at the moment can essentially use GRI as greenwash, stating that they are addressing sustainability/climate change without actually doing so. This company got an A+.

    Secondly, whilst the importance of using materiality is integral to stong reporting, it would be very difficult to use that as an excuse as to why companies are not including their climate change risks. Current practice for sustainability reporting seems to fail quite strongly on presenting information that is material. Rather they wish to report on what makes a company look good. If you go through most sustainability reports, you will find that non-material information, such as including a single solar panel on a single premise for a trans-national corportation gets included! So it is very difficult to state that as the reason why companies are failing to address this. From the company perspective they are using materiality defined as ‘if it is a positive thing, but immaterial, it must be material, but if it is a large negative, well, we better hold on and wait and wait and wait before deciding if it is material’.

    Besides, as you’ve mentioned, you would have to question the use of disclosing such important information such as climate change risks in sustainability reports anyway, especially to investors. Most companies are now preparing 60+ page sustainability reports, much of the information that is included in not externally assured. But that is also partly a failing of GRI currently, as the criteria can be so broad that companies can just inflate their report to bury any bad news.
    The answer to how companies can best rectify is certainly no easy answer, as nobody wants bad news, particulary if they have no control of it such as climate change. CDSB’s Framework I definitely feel is the strongest out there to doing so as it links up the financial aspects properly and gets them into an annual report so as useful to investors. In terms of wider sustainability SASB work is becoming increasing interesting. Both are more effective as they serve more purpose, in my opinion then a simple box ticking exercise and there is alot less wiggle room for greenwash when applied properly. Unfortunately, I can’t see how GRI in its current guise, and I must stress that part because the premise of their work is strong it is only how it is currently being utilised by companies that is problematic, can possibly increase the amount of companies disclosing their climate change risks. Well this was a longer response then I intended!

    1. You raise an excellent point with regard to the GRI, Mr B Oddy, which is that GRI “assurance” does not say anything about the quality of the content and the disclosures themselves, only that the company has somewhat acknowledged the issue in line with the GRI reporting framework. Since GRI is a voluntary exercise, it’s up to the stakeholders / users of the report to raise the issue with the company if they consider the disclosure insufficient.
      The reporting guidelines that are being developed with regard to climate risk for investors by CDSB and SASB are much more specific, but once again will only be implemented if there is converging pressure from regulators, investors, and from the street – but it will take time!

    2. True what you’ve said… EC2 is a core indicator which is very often not reported in financial terms (as recommended by GRI) – or even just given a fleeting mention just for the A+ part. Let’s see how companies (or if companies) report on climate change related risks, with GRI G4 on the horizon.

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