With the exception of the financial sector, reporting on climate targets for Dutch companies is often a temporary exercise.
This is the main conclusion of the EY Barometer to detect climate risks for the Netherlands 2021. In this publication, the annual reports of 64 Dutch companies are evaluated according to how well they report on climate targets. A division was created into financial companies, non-financial companies, and other companies. The starting point for this is the Framework for Action of the Task Force on Climate-Related Financial Disclosures (TCFD) of the Financial Stability Board (FSB). TCFD’s eleven recommendations on climate reporting relate to four themes: governance, strategy, risk management and objectives.
a little consistency
First, the positive point is striking. The overall picture for the Netherlands is that climate reporting is already well established. 75 per cent of Dutch companies participate in it, and more than 60 per cent worldwide. Remarkably, of the four themes of the Centre, the objectives component is the most developed in the Netherlands. For example, more than half of the companies evaluated (53 percent) present concrete goals to reduce carbon dioxide emissions and reduce their environmental footprint.
However, the quality of reports on the other three themes of the Center is modest and lags behind the global picture. It is recognized that there is a certain degree of governance around climate targets and there are specific targets in the form of target numbers. There is often some form of risk management as well, but there is hardly any coherence. Moreover, the strategic component is often missing. For example, when it comes to integrating climate models and identifying key performance indicators for risks and opportunities, there is still much room for improvement.
By the way, this does not apply to the financial sector in the Netherlands, which is doing well at the international level. In fact, the progress made in climate reporting over the past year is entirely attributable to the financial statements. Banks, insurance companies, investment institutions, and pension funds are already leading the way. This is probably due in part to the fact that the financial sector has been used in reporting to external supervisors for many years. The next important challenge for the financial sector is to report the carbon impact of the emissions financed in their investment portfolios.
underused climate scenarios
Important shortcomings in the Dutch business community’s reporting relate to governance and strategy. Although companies report in 44 percent of cases that board and/or management are involved in climate-related topics, what exactly these activities entail remains unclear. Another important point for business improvement is the form in which you report on climate-related topics. A large percentage of companies do this through rating agencies or put that information into separate reports, while the TCFD framework calls for that information to be published with the financial statements. In this way, users of the annual report can simultaneously assess climate management and fiscal policy.
The extent to which climate scenarios are used as part of the Strategic Approach is also not in place worldwide. In the Netherlands, only a quarter of companies use such scenarios, compared to 41% worldwide. The financial sector is once again showing its best side in this complex subject of the ordinary business community. Not surprisingly, this sector has extensive experience in risk management and is more knowledgeable in thinking about scenarios and models than other sectors.
Looking at the category of non-financial companies (in agriculture, transportation and energy for example) we have to conclude that their performance is below average compared to their international peers. In fact, only climate targets are reported. On the other hand, the reporting of strategic treatment of risks and opportunities is very poor. Companies that play an important role in the energy transition should definitely rely on this.
Incidentally, a remaining category of sectors (real estate, telecoms, retail and healthcare) are worse off in terms of climate reporting. This is not illogical, because they do not belong to the TCFD key sectors. Moreover, it is less focused than other sectors when it comes to achieving climate goals. However, these sectors will inevitably have to make a contribution.
The Netherlands Climate Risk Disclosure Scale 2021 evokes the impression that it is essentially a low-hanging fruit focused on climate impact reports. There is still a lot of steps to be taken on the more complex parts. Given the whole, the result should be that there is more than enough room for improvement. It is hoped that the business community will benefit from this space in the coming years. Because we urgently need to accelerate if we are to achieve the 2030 climate goals set out in the Dutch climate agreement.
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