Climate disclosures – Are you a trailblazer or an ostrich?

For corporations around the world, climate-related regulations are coming soon. And after talking to clients about the new SEC rules and IFRS S2 standards, I’ve noticed four distinct styles of readiness to meet climate disclosures.

As companies start to work toward reporting and compliance, each of these categories will face its own challenges.

1. The trailblazer

Trailblazing companies have gone for it and already started to implement climate risk reporting processes before regulation comes into force.

At the root of this head start is the realization that compliance won’t be easy. The new disclosure requirements may significantly challenge a company’s ability to identify and analyze its climate-related risks and opportunities – in many cases, for the first time.

By getting ahead of the curve, trailblazing companies recognize that not only are they in a good position to comply with the new regulations, but they can also gain an upfront understanding of the risks and opportunities they face. In turn, this will help them to adapt, mitigate and build climate resilience into their business and supply chains.

It clearly pays to be a trailblazer. The sooner you understand the risks and opportunities of climate change, the sooner you can manage them and set your company on the right strategic path.

2. The pragmatic planner

The next class of companies have been busy working out how the climate risks and opportunities they disclose will affect their business. To this end, they’ve been carrying out impact assessments and modelling potential mitigations, adaptations and alternative strategies.

Practical to a fault, “pragmatic planners” have also looked at climate regulation’s impact on their systems, data and the people they will need to put in place to gather and analyze data on climate change and its associated risks and opportunities. Many of these firms are now becoming particularly focused on the nuances of regulations, such as quantifying climate-related transition and physical risks, as well as understanding the financial impact of multiple climate scenarios.

Such scenario-based analysis of climate risk can be particularly challenging. Companies may need to invest in additional climate and financial modeling expertise and/or purchase vendor solutions, as well as in IT infrastructure for running the scenarios.

3. The wait-and-see-er

These organizations are in a holding pattern and won’t do much in the way of analysis or securing budgets until the regulation is formally adopted.

One positive for the “wait and see-ers” is that this may save them on costs as vendor solutions take shape and more consensus builds on required disclosure levels.

On the downside, the clock is already ticking on compliance. Plus, by hanging fire, firms may miss out on understanding key climate and business risks and lose market share or growth opportunities to competitors. Wait at your peril!

4. The ostrich

To be honest, I haven’t met any companies that qualify for this “head-in-the-sand” category. But with IFRS S2 and SEC climate disclosures set to affect more than 100 countries, the chances are that some firms are largely ignoring the standards or hoping they will be delayed.

Other “ostriches” may simply have greater immediate concerns in 2024. After all, it is a big shift in mindset for companies to prioritize long-term risks spanning 50 to 80 years over monthly targets.

On your marks, get set …

For all four categories of company, the new IFRS S2 standards and SEC climate disclosure rules provide a pathway forward to understanding their unique climate risks and opportunities.

Whatever class you fall into, it makes sense to start the journey sooner rather than later for the good of your firm, employees and all stakeholders.

So, how ready are you?