Accelerating Corporate Climate Action: The Role of Policy

This is an updated version of a policy brief first published in September 2019. The brief originally examined the impact of climate-related policy on a sample of 366 of the world’s biggest companies, worth $28 trillion in market cap, as disclosed through the CDP platform in 2018. We have now added a second part, consisting of an analysis of companies’ readiness for disclosure legislation, based on a broadened sample of 2,376 companies.

Key messages, derived from analysis of the two samples, are:

What do companies disclose about the impacts of climate-related policy?

• Policy, both current and anticipated, is a major driver of actions taken by companies to manage climate change impacts;
• The costs of managing policy-related risks are lower than the potential financial impacts for the majority of industries;
• Policy can create financial opportunities, by driving demand for products & services and revealing cost savings;
• Policy uncertainty is a risk, but the anticipation of policy is a powerful opportunity driver.

How ready are companies for disclosure regulation?

• Companies consider enhanced emission reporting regulations a low impact transition risk;
• Almost a quarter of companies respond to all TCFD-aligned questions within CDP’s information request. A further 50% are responding to almost all of them;
• Disclosure and corporate action go hand in-hand. Four times as many companies have set a science-based target within the group of companies who respond to all TCFD-aligned questions, than within the group of companies who don’t;
• Companies identify a variety of opportunities that can arise from reporting legislation.

Policymakers and business are taking action, but to achieve the goals of the Paris Agreement a step change is needed.

Key recommendations to policymakers are:

• Submit enhanced Nationally Determined Contributions (NDCs) by 2020, that are in line with the Paris Agreement’s goals, and are consistent with long term strategies and national policies.
  Over 50% of companies analyzed disclose that policy could present an opportunity to their business. 25% of the companies analyzed view uncertainty around policy as a financial or strategic risk driver. NDCs can provide clarity for business, by setting a clear direction of travel towards low-carbon economies, particularly when consistent with long term strategies and other national policies.
• Ensure a conducive policy environment for globally standardized climate-related disclosure, mandating, where appropriate, the adoption of the recommendations of the Taskforce for Climate-related Finance Disclosure (TCFD).
  By disclosing through CDP, the 366 companies analyzed, along with all companies who disclose to CDP, are already providing high quality, consistent, comparable, TCFD-aligned data at scale. Disclosure requirements that embed the TCFD Recommendations within national jurisdictions would create multiple economic benefits, help to accelerate the low-carbon and climate-resilient transition, and ensure management of risks is embedded within the real economy.
• Set a price on carbon that is consistent with achieving the Paris Agreement’s goals, as per the work of the High-Level Commission on Carbon Prices.
  Carbon pricing is the most commonly reported driver of policy-related opportunities within the 366 companies analyzed. And whilst carbon pricing is also the most commonly disclosed policy-related transition risk, companies are highly likely to report they are taking steps to manage that risk by taking action to reduce emissions. Recognizing the benefits of a carbon price and anticipating future regulation, a third of the 366 companies analyzed have already set an internal carbon price, with a further 20% planning to do so in the next two years. To achieve the global temperature target of the Paris Agreement, the High-Level Commission recommends carbon prices of at least US$40–80/tCO2 by 2020 and US$50–100/tCO2 by 2030 within the global economy.

Frequently reported climate risks

Anticipated magnitude of impact of different policy risks