The Imperative for Corporate Climate Action After COP26

As world leaders return to their home countries following two weeks of discussions at COP26, the work resulting from the negotiations now begins. Many observers were pleasantly surprised at the number of potentially impactful agreements that were achieved, ranging from enhanced emission reduction targets to greater attention to climate adaptation and climate finance.

Among the key outcomes from COP26 were:

It has since been reported that the combination of pledges (nationally determined contributions) may be sufficient to help limit global warming to 2.4 degrees Celsius above pre-industrial levels by the end of the century. However, the IPCC’s analysis has indicated that warming above 1.5° C may still result in increasingly significant climate change impacts. Limiting global warming to 1.5° C will not only require stronger pledges, but dramatic change and demonstrable action from governments and corporations

Global observers will be watching for clear evidence of action in the months and years after COP26. Nothing short of strong measures to abate greenhouse gas (GHG) emissions, progress on achieving net-zero GHG emissions, and a transformational change to all sectors of our economy will need to be achieved. Further warming is inevitable, and as such adaptation and resilience will also need to be prioritized, increasing the expectation from governments to transparently showcase how they are funding and strengthening climate resilience at home and abroad.

The focus on action extends to corporate activities and disclosures

Climate risk is investment risk – and that remains as true after COP26 as it did before. Whether COP26 is viewed as a success or a disappointment, companies and investors will continue to face risk and opportunities from climate change. There is greater focus being placed on setting science based GHG reduction targets, as well as on establishing credible timelines and action plans to meet those targets. Investors require better and more detailed information on how their investments will contribute to an equitable low carbon transition. At the same time, as climate pledges and actions remain insufficient to limit the worst impacts of climate change, investors are also looking to companies to demonstrate how they plan to enhance climate resilience, not only for their own operations, but also in their supply chains, and for their communities.

The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are the de facto global standard for companies to disclose climate-related risks and opportunities to investors. TCFD-aligned disclosures have typically involved companies describing their climate-related governance, an understanding of their risks and opportunities, existing risk management processes, and some climate-related metrics and targets. The Task Force has also rightly indicated that companies need to now be prioritizing action and disclosing on the actions they plan to take to preserve investor value in a world that is low-carbon and resilient.

The TCFD has more specifically begun recommending that companies develop Transition Plans that are anchored in climate scenario analysis, subject to effective governance, are actionable and specific, credible, periodically reviewed and updated, and annually reported. The TCFD has recently also published a more detailed guidance on effective metrics and targets to clearly demonstrate company performance against climate-related targets.

Disclosing climate action may soon become regulated

The TCFD recommendations were released as a voluntary global framework. Since then, thousands of companies have begun disclosing information in alignment with the recommendations. At the same time, regulators and investors are increasingly requiring TCFD disclosures from issuing entities.

Securities regulators in the United Kingdom, New Zealand, Singapore, and others have indicated that listed entities will soon be required to disclose in alignment with the TCFD. The chair of the U.S. Securities and Exchange Commission (SEC) has asked his staff to develop a mandatory climate risk disclosure rule proposal for public reporting issuers.

In Canada, the Canadian Securities Administrators (CSA) have released a request for comment on the proposed national instrument which would require disclosure of information (largely) in alignment with the TCFD recommendations. While consultations are ongoing, it is expected that Canadian listed entities will also soon be expected to disclose climate-related information.

In 2021, the Government of Canada committed all Crown corporations to adopt the Task Force on Climate-Related Financial Disclosures as part of their reporting, with Crown corporations holding more than $1 billion in assets starting to report in 2022 at the latest, and the corporations with less than $1 billion in assets starting to report in 2024 at the latest.

Even before regulators mandate disclosure investors, for whom TCFD disclosures are designed to inform, are already expecting disclosure from their investees, actual or potential. From BlackRock, the largest global institutional investor, to the so-called “Maple 8” Canadian pension funds, many large and influential investors have stated that they want to see climate disclosure and climate action from investees.

The expectations of COP26 pledges echo those of the TCFD, investors, and regulators: the time for inaction has ended, and there will be increasing accountability from all global actors, including corporates, to do everything possible to secure a low-carbon and climate resilient future.

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We work with Fortune 50 companies, global institutional investors, and companies at all stages of the climate journey to conduct TCFD gap analysis and benchmarking, engage in climate scenario analysis, develop net zero targets and actionable roadmaps to implementing transition and adaptation action plans.

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