70 percent of FTSE 100 companies are not meeting stakeholder expectations on climate-related disclosures despite the increase in net zero pledges from larger companies, according to analysis from Insig AI, a leading AI and machine learning company serving the asset management industry.
Insig AI analysed climate-related disclosures published by the largest 100 listed companies in the UK over the past seven years (2015-2021). They found that the leading 30 companies are setting the bar for the volumes of disclosure that investors can expect around how a company is managing its climate-related risk, and reporting around issues such as decarbonisation and net-zero. At the same time, 69 companies fell below the average volume of disclosure in 2021.
Insig AI’s analysis found a wide discrepancy between these leaders and the laggards within the FTSE peer group, with the bottom 30 companies reporting 87 percent less on these issues than the leaders in 2021.
FTSE leaders typically feature high-impact sectors such as materials, energy and industrials, but when these sectors are excluded, the gap between leaders and laggards is still evident for other sectors. In the consumer staples sector , Associated British Foods (ABF), Coca-Cola and Sainsburys have a disclosure gap of 85 percent to the sector laggards, Ocado, Tesco and Imperial Brands in 2021 (see appendix).
With the Task Force on Climate-related Financial Disclosures (TCFD) applicable to all sectors and now mandatory on a comply or explain basis for the FTSE, it raises the question of readiness to meet regulatory standards and exposes that many major corporations are still being reactive rather than proactive in their approach to reporting.
Analysis of the correlation between market cap and levels of disclosure over the past seven years reveals some positive correlation as expected (energy, industrials, communications services, materials), with some notable exceptions; the real estate sector for example shows the strongest negative correlation which, given their key role in the green transition, is surprising (see appendix).
This comes at a time when Tesla was removed from the S&P ESG Index as part of its annual update. Tesla was found ‘ineligible for index inclusion’ due to black marks on ESG criteria which included a lack of a low-carbon strategy, fines relating to emissions and waste, and codes of business conduct. Insig AI’s analysis of Tesla’s recent disclosures reveal that in the lead up to the evidence points S&P picked up on, they lagged behind sector leaders when it came to the detail now being demanded by ratings agencies and investors alike.
Commenting on the analysis, Diana Rose, Head of ESG Research, Insig AI said:
“With TCFD reporting becoming mandatory in the UK, and the race to net zero very much on, the bar is being raised in investor expectations and consumer assumptions on how large corporates manage their climate risks and impacts.
The Tesla case is a reminder that while there are multiple places to gather evidence of a company’s ESG profile, publicly available documents are the fundamental way in which companies are expected to report investment relevant ESG information and be held to account.
We recognise that high quality climate disclosure takes time to establish, and the pace of regulatory change has put many on the back foot. Ratings agencies are looking for a vast array of metrics in line with ever emerging frameworks, and investors are grappling with what’s important.
But the traction of the TCFD is a strong indicator that the need to get a handle on climate risk isn’t about to go away. The UK has an ambition to be a centre for sustainable finance and our largest corporations will have to get better at making more information available. Despite the burden that comes with comprehensive reporting, other benefits come from engaging on these challenges and it’s a strategic opportunity to take leadership as we transition to a low carbon economy.”