Climate management and accounting platform (CMAP)’s are to play an increasing important role in the improvement of climate risk reporting around the world. Three market leaders have teamed up for the Japanese market.
As the importance of climate disclosure increases, corporates are increasingly desperate for strong support in improving their reporting.
While climate disclosures are up around the world, a lot of work is required to improve them.
Since April 2022, the Tokyo Stock Exchange (TSE) has required some of its listed companies to disclose climate-related information based on the recommendations put forth by the Task Force on Climate-Related Financial Disclosures (TCFD).
The companies that fall under the requirements are in a newly established category of top-tier companies on the TSE known as “prime”. The new section of the market includes 1,841 companies under the TSE’s reclassification earlier this year in a bid to increase market competition.
Companies in the prime market must adhere to the TSE’s Corporate Governance Code, which was revised in June 2021 to include disclosure initiatives on a company’s sustainability in line with international frameworks such as the TCFD. The first set of climate disclosures are expected to be submitted this summer for firms that end their fiscal year in March.
Under the TCFD recommendations, companies are required to calculate the Scope 1, 2, and 3 emissions of their business. The calculation of these emissions is complex, often misunderstood, and requires a significant amount of data.
However, the accuracy of this data is key to establish a baseline of where companies are currently with regards to their emissions, to accurately inform future decarbonisation strategies as well as assess physical climate risks based on volume of emissions.
CMAPs offer companies a solution to alleviate this reporting burden, while ensuring that wider stakeholders have the data they need to assess risks.
Improving quality of climate disclosures globally is crucial
Transparency and efficiency is key in order to submit accurate and high-quality climate disclosures. As the physical and transitional risks of climate change accelerate over the coming years, accurate and high-quality climate disclosures are essential to notify stakeholders on how companies plan to manage these risks and inform decision-making across the business and financial sectors.
Countries that have already trialled mandatory climate disclosures have noted that while they saw a rise in the number of climate risk disclosures since putting in place requirements, the quality of the disclosures are still not up to par.
A recent review of climate disclosures by UK’s top financial regulator, the Financial Conduct Authority (FCA), found that while over 90% of companies now included a climate disclosure in their financial reports, there were “instances where companies had indicated that they made disclosures consistent with the recommended disclosures, but the disclosures themselves appeared to be very limited in content”.
The areas where companies struggled most were strategy, metrics and targets, and providing clear explanations for how net zero targets are to be achieved. The lack of substantial reporting in these pillars for climate disclosures leaves a knowledge gap that could inhibit effective analysis of wider climate risks, and thus the ability for governments and businesses to take the right course of action to manage these risks.