Businesses globally have improved their disclosure of climate risks but are not yet taking the needed action to address those risks and respond to the needs of investors and customers, according to the latest EY global climate risk barometer.

The report, now in its fourth year, examines the efforts of more than 1,500 businesses in 47 countries to publish information, based on the 11 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which was established to improve and increase reporting of climate-related financial data.

The barometer scores companies on the number of recommended disclosures that they make (coverage) and the extent or detail of each disclosure (quality).

The latest barometer shows that more organisations are now providing some level of information on each of the recommendations than in previous years.

Where a score of 100% would show information being disclosed on all recommendations, this year’s average score is 84%, an increase from 70% in 2021.

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"We’re witnessing a sea change in the regulatory landscape around sustainability and climate risk, with new regulatory bodies and proposed standards, as well as examples of individual countries introducing their own rules – so it’s not a surprise that companies around the world are improving their disclosure," said Lorraine McCann, director of climate change and sustainability services at EY Ireland.

Countries with rigorous climate disclosure regulation; a proactive investor community; and strong signals from policymakers, tend to see the highest scores.

The UK scored highest of all on both quality and coverage, ahead of countries including Ireland, South Korea, and several in southern, central and eastern Europe.

However, companies are struggling to improve the quality of their disclosure, with an average quality score of 44%, up slightly from 42% last year. A score of 100% would demonstrate that a company is disclosing all of the details needed.

“The TCFD recommendations are clearly having an impact from a disclosure perspective (Ireland has increased in coverage from 62% to 88% since last year) – but the quality of disclosures is still not where it needs to be," McCann added.

"In fact, the quality of disclosures in Ireland has reduced from 59% in 2021 to 51% in 2022. This tells me that more companies are focused on ticking the box across the relevant TCFD disclosure areas, and failing to address the critical question which is “what is the financial impact of climate change in the financial statements?”

“Many firms are not disclosing enough detail on their climate risks; and they aren’t translating reporting into meaningful action to tackle the problem. This is where we need to see much more progress. If disclosure is to make an impact on decarbonisation it can’t be half baked.”

Businesses are also struggling to take practical steps on decarbonisation, with only 29% saying that they report on the impact of climate change in their financial statements, which EY described as a sign that they don't have the data they need or that they have no calculated the impact.

Furthermore, over half of the references to climate impact in these statements are qualitative rather than quantitative, but half (49%) have conducted scenarios analysis to examine the likely scale and timings of particular risks and prepare for the worst-case outcomes.

Three-quarters (75%) responded that they have conducted risk analysis, and 62% have undertaken opportunity analysis, while 61% have disclosed decarbonisation strategies.

Companies are also giving more balanced consideration to the different types of risks than in previous years, including transition risks stemming from changes in the economy brought about by climate change and physical risks that are a direct result of changes in the climate such as increased rainfall.

Last year, companies were more focused on physical risks (55%) than on transition risks (25%).

Companies have also shown particular improvement in strategic planning around climate risks. The barometer scores organisations' strategies for examining the extent to which they factor in climate risks and opportunities into their plans or how to build resilience through diversification.

The coverage score for strategy has risen to 81%, from 65% in last year’s survey, indicating that more companies are at least disclosing some information in this area.

"There are signs of progress, not least in businesses’ efforts to build climate impacts into strategies, put in place risk planning, and publish decarbonisation strategies," McCann continued.

"But the fact that less than one-third of organisations report on climate impact in their financial statements, shows there is a pressing need for more action.

"We’re also seeing a growing trend for ‘greenwishing’ where companies set hugely ambitious climate targets, with little or no clear plan to achieve them. That might help companies in the short term, but without realistic targets they’ll be on a hiding to nothing.”