Businesses worldwide have so far failed to put plans and funds in place to tackle climate change risks. This has derailed progress on vital global environmental goals, according to the latest EY 2024 Global Climate Action Barometer.
Now in its sixth year, the Barometer looks at the extent to which organisations across the globe are reporting on — and acting to mitigate — climate change risks.
The latest edition, released on March 13, scrutinised the efforts of more than 1,400 businesses in 51 countries across 13 business sectors, examining their transition plans and the information they publish based on the 11 recommendations set by the Task Force on Climate-related Financial Disclosures (TCFD).
Among this sample are “over 100” firms from Southeast Asia, spanning Indonesia, Malaysia, Philippines and Singapore, according to EY.
The Barometer scores companies on the number of recommended disclosures that they make and the detail they provide, says EY. On the former, the number of businesses providing at least some information on each of the recommended disclosures is at its highest point since the survey began.
A score of 100% means information is being disclosed on all recommendations, and the global average score for 2024 is 94%, up from 90% in 2023.
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In Southeast Asia, the average coverage score for 2024 is 91%, an improvement from 81% in 2023.
However, the quality of disclosures remains “worryingly low”, says EY. “The average quality score sits at 54%, edging up just slightly from 50% last year, indicating that many companies are avoiding sharing detailed information with customers, investors and other stakeholders.”
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A score of 100% indicates that all the details needed are being disclosed. Countries and regions with the highest quality disclosure records are the UK (69%), South Korea (62%), Japan (61%), Southern Europe (61%) and Western/Northern Europe (61%).
Meanwhile, the Middle East (29%) sits at the bottom of the pack. In Southeast Asia, the quality of climate disclosures is 43%, up from 34% in 2023.
Biggest emitters least prepared
Companies are not prepared to meet the crucial goals of the 2015 Paris Agreement, says EY, not without setting targets to limit emissions and temperature rise, and strengthening their ability to adapt to the impacts of climate change.
Only slightly more than two-fifths of companies (41%) worldwide have shared their transition plans to help mitigate the risks of climate change.
Companies in the Asia-Pacific region are less likely to produce transition plans than their peers in Europe. Only 33% of companies in the region have a transition plan in place.
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While disappointing, the region’s low levels of transition planning are perhaps unsurprising, given the significant barriers to transition, says Arina Kok, EY’s Asia-Pacific Climate and Decarbonisation Solutions Leader. “There are high levels of coal dependency in many countries, and renewable energy is often comparatively expensive. The region also has regulated energy markets, which inhibit differentiated pricing policies.”
Firms located in the world’s biggest emitters are even less likely to have transition plans, notes EY. Only one-third (32%) of US businesses have disclosed their transition plans. In China, the transition plan adoption rate is at a mere 8%.
In contrast, adoption of these plans in the UK and Europe is 66% and 59% respectively. EY attributes this to successful regulatory regimes, “underlying the importance of regulation as a means to drive action”.
Even fewer companies have made clear financial commitments to support their transition plans. Just 0.4% of Southeast Asian respondents have disclosed operational expenditure (expenses arising from day-to-day business operations) and 1.3% have reported capital expenditure (money invested in a business’ assets for future gains). This is much lower than the 4% global average for opex and 17% global average for capex.
Praveen Tekchandani, Singapore Climate Change and Sustainability Services Leader and Partner at Ernst & Young, says: “It is heartening to see that the coverage of recommended disclosures among Southeast respondents has improved. However, it appears that many companies may still be considering climate disclosure as a tick-in-the-box exercise than risk management — hence good coverage but poor-quality disclosures.”
He adds: “More needs to be done as the stakes are high, given Southeast Asia being one of the regions that is most vulnerable to climate change risks.”
EY sets out six actions firms can take to bring about needed change:
- Develop a robust action plan rooted in science-based targets, informed by detailed scenarios and backed by financial investment
- Reflect climate risks in financial statements and explore financial opportunities
- Use data to inform decisions and drive action on risks and opportunities
- Provide sustainability teams with sufficient resources — the funding, information and people needed — to achieve stated goals
- Equip boards with the skills to provide effective governance on transition strategy
- Explore cross-sector collaboration including with governmental and public sector bodies
The current US administration’s stance toward sustainability will likely have a wide-reaching impact that extends to Southeast Asia, says Praveen. “Companies will benefit if they truly consider climate-related risks and opportunities in decision-making as we continue to see climate disruptions intensifying and financially impacting businesses.”
Charts: EY
