Global investors set out expectations of companies on climate risks and opportunities

The Institutional Investor Group on Climate Change (IIGCC) has published a set of investor expectations for company action on climate risk. 

In particular, the IIGCC expects companies to:

1. establish a climate governance framework;
2. undertake physical climate risk and opportunity assessment;
3. develop and implement a strategy for building climate resilience; and
4. identify and report against metrics to demonstrate progress over time.

Minimum expectations are that investors expect companies to: 

• make a commitment at board level to consider physical climate risks and opportunities, in addition to transition risk;
• demonstrate board responsibility and accountability for physical climate risks and opportunities, and report on directors’ expertise and experience; 
• commit to enhanced disclosure of material physical climate risks and opportunities, including in financial statements;
• maintain a physical asset register and disclose the location of those assets;
• disclose the hazards assessed and timeframes used for risk assessment; 
• disclose how and why other hazards were omitted from the analysis;
• disclose the two or more climate scenarios used to assess indirect and longer-term impacts and any external expertise used;
• disclose the outputs of scenario analysis, including exposure to direct climate impacts due to the location of facilities, the types of future risks the company is exposed to, and estimated financial impacts from material risks and any opportunities identified; 
• disclose how the company is integrating these outputs into strategic business decisions relating to risk and opportunity management;
• disclose how the company defines materiality, including criterial thresholds; 
• disclose the actions to be taken to manage material risks from physical climate impacts; 
• disclose how the company will finance this approach; 
• disclose the opportunities that have been identified to invest in and/or provide adaptation solutions;

Investors also expect companies to report on and show progress against the following metrics: 

Risk metrics

• companies must disclose against metrics related to: (a) impacts from recent extreme weather events; (b) impacts of weather variability; and (c) future risks of climate change; 
• as a minimum forward-looking metric, companies should quantify and report on the proportion of assets or business activities materially exposed to physical risks, based on key categories of commonly accepted risks.

Opportunity metrics

• expenditure (capex and opex) associated with adaptation and building corporate climate resilience; and
• revenues from the provision of adaptation solutions, as defined by the EU Taxonomy criteria for ‘substantial contribution’ to adaptation where possible.

Impact metrics (quantitative or qualitative) 

• a quantitative or qualitative assessment of the climate resilience benefits for people in the workforce, local communities, or natural ecosystems.

The IIGCC has written to 50 publicly listed companies it claims are highly exposed to physical climate risk asking them to properly identify and respond to physical events such as flooding and droughts. 

The IIGCC is the European membership body for investor collaboration on climate change. It has more than 330 members (mainly pension funds and asset managers) across 22 countries, with over €39 trillion in assets under management.