GUERNSEY: Still jurisdiction of choice for sustainable finance investments, according to new report.

As published on guernseypress.com, Friday 11 November, 2022.

The latest EY Global Climate Risk Barometer shows companies are doing more to disclose climate risks, but many are failing to act on decarbonisation.

The report, now in its fourth year, also found that despite a steep increase in the number of companies providing disclosure on climate impacts, the quality of reporting is not improving. Just one-third of organisations mention the impact of climate change on their business in financial statements.

The report examined the efforts of more than 1,500 businesses in 47 countries to publish information, based on the 11 recommendations set by the ask 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).

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

The average quality score sits at 44% – just slightly above the score of 42% in last year’s survey. A score of 100% would demonstrate that a company is disclosing all of the details needed.

Despite burgeoning regulatory and political activity around climate change, and clear improvements in disclosure rules over the past 12 months – including the proposed standards from the newly created International Sustainability Standards Board (ISSB) – businesses are struggling to take practical steps towards decarbonisation. For example, only 29% of companies surveyed say that they report on the impact of climate change in their financial statements – a sign that they don’t have the data they need or that they have not calculated the impact, and more than half of the references to climate impact in these statements are qualitative rather than quantitative.

‘This survey suggests that 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,’ said Peter Miller, an assurance partner at EY in Guernsey.

‘In Guernsey, boards are required to consider the impact of climate change on their business strategy and risk profile and, where appropriate, make “timely climate change-related disclosures” as detailed in the GFSC’s Guernsey’s Finance Sector Code of Corporate Governance. More recently the Guernsey Financial Services Commission looked at safeguarding measures for investors against the potential risk of false or misleading sustainability claims and published its Guidance for Collective Investment Schemes on measures to counter the risk of greenwashing.

‘The increasing demand for financial products that support lower carbon economies is in part evidenced by The International Stock Exchange (TISE) now catering for transition bonds and transition issuers with the launch of a new transition offering within its sustainable finance segment. Guernsey continues to be agile with its innovation in this space, which positions it well to be considered as a jurisdiction of choice for sustainable finance investments.’

A total of 49% of organisations surveyed globally responded that they have conducted scenario analysis – which is also a TCFD recommendation – to examine the likely scale and timings of particular risks and prepare for the worst-case outcomes. 75% responded that they have conducted risk analysis, and 62% have undertaken opportunity analysis, while 61% have disclosed decarbonisation strategies.

The survey also shows that companies are paying attention to both ‘transition risks’ – stemming from changes in the economy brought about by climate change, for example slower growth in specific sectors – and ‘physical risks’ that are a direct result of changes in climate, such as the consequences of increased rainfall. Last year, companies were more focused on physical risks (55%) than on transition risks (25%).

The quantity and quality of disclosure varies widely across the countries surveyed, with the best quality of disclosure including South Korea and Ireland, as well as several in Southern, Central and Eastern Europe, with the UK scoring highest of all on both quality and coverage.

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