Initiatives get climate risk reporting guidance wrong, says WRI
A few physical hazards remain uncovered and others get low coverage in climate risk reporting guidance for businesses currently provided by disclosure initiatives, warned the World Resources Institute (WRI) in a whitepaper pubilshed this week. The research organisation has delved into the guidance of six disclosure initiatives; namely the Carbon Disclosure Project, the Climate Disclosure Standards Board (CDSB), the EU Non-financial Reporting Directive (NFRD), the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-Related Financial Disclosures (TCFD).
When reflecting on hazards, WRI asks the following question: What potential hazards, as measured by changes in climatological systems, may occur in the geographic locations of a company’s assets, operations, supply chain, and customers, and at what probability? Thus, according to WRI's analysis, five kind of hazards, and not the least, are missing in all guidance documents it assessed. These include ocean acidification, ice/permafrost melt, hail and dust storms as well as tornadoes. Companies and financial institutions would face a blind spot to “potentially costly hazards,” provided they align themselves on the initiatives’ guidance to report on physical climate risk. “Ocean acidification puts some of the most profitable commercial fisheries at direct risk, potentially shrinking global mollusc production by $100 bn by 2100,” said WRI. Moreover, four other hazards – extreme precipitation, extreme wind, extreme sea level and landslides – are covered at low level by the guidance.
“Nor does the guidance refer to a comprehensive set of metrics for quantifying physical climate risk (hazard, vulnerability, exposure, impact and risk). This suggests a lack of a common understanding and approach to identifying and assessing physical climate risks. It is clear that further work is needed to help bridge science and the private sector on issues of climate impacts,” pinpointed WRI. Disclosure initiatives currently only cite metrics for five hazards (flooding, sea level change, sustained temperature rise, water stress and changes in precipitation pattern) but are not in line with the Intergovernmental Panel on Climate Change (IPCC)’s recommendations.
Better knowledge, data and approach required
The solution will come from better scientific knowledge of the private sector, better data and a better approach, WRI believes. “If the private sector is to effectively manage climate risks, they need to keep pace with the leading climate science. Currently, few resources are dedicated to tailoring findings from climate science for the private sector,” the research organisation pointed. As for data, WRI stressed that many companies and financials “simply do not have enough high-quality, open-source, practical data for the physical climate hazards relevant to them.”
The institute said it will soon launch a dashboard of curated data and visualisations on physical climate hazards, accompanied by an explanation of the climate science and potential financial impacts. Other avenues encompass the translation of scientific data into a quantitative hazard index and the downscaling of climate models to finer resolutions. WRI said that a widely accepted, open-source, science-based framework for physical climate risk assessment, one co-created with private sector actors, could provide common ground for analysis. In its view, that should imply the setting of a standard taxonomy for physical climate hazards and “corresponding guiding principles and methods to quantify hazards, exposure and vulnerability.”