With Southeast Asia being one of the most vulnerable regions to climate change, companies in two of its markets, Singapore and the Philippines, are increasingly aware of the financial impact of climate change. However, they require the right expertise in managing climate risks and better data availability to undertake climate financial reporting, according to a survey conducted by leading global advisory, broking and solutions firm WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company.
The study also found:
- Two-thirds of respondents have had discussions on the financial impact of climate change at the board level.
- Half of the firms consider climate change under their sustainability agenda and 25% view it as a key strategic issue.
- More than half of the Singapore respondents have a process for identifying, assessing and managing climate-related risks and opportunities. In Philippines, 24% of firms have disclosed or are ready to disclose their processes for identifying, assessing and managing climate-related risks or opportunities. More than half of the Philippine respondents (55%) intend to disclose this information but need to do more preparation work.
- Half of respondents are currently using or actively discussing the use TCFD framework to manage and report its climate-related risks and opportunities.
From 2023, listed companies in Singapore will progressively be required to disclose their climate-related risks based on Task Force on Climate-related Financial Disclosure (TCFD) recommendations, while those in the Philippines will be required to comply with the sustainability reporting guidelines set by the country’s Securities and Exchange Commission (SEC). With more companies in the region obliged to undertake climate financial reporting based on recommendations by TCFD, the state of readiness to comply is varied.
Key challenges faced by companies include a shortage of in-house capability on climate risk. followed by a lack of data availability and standardized metrics. Closely linked to these challenges are areas where companies expect to need the most support for TCFD implementation. Half of companies see scenario modelling as a key area where advice and external support is needed. Other key areas include setting climate-related metrics and targets; conducting a transition risk assessment; and identifying an approach or format for TCFD reporting.
James Wong, Director, Strategic Risk Consulting, Asia, WTW.
“Given the specialist nature of the work, it is not surprising that companies lack certain capabilities to support TCFD implementation. Looking ahead, we can expect to see heightened stakeholder attention on climate-related risk management in the region. This signifies the importance of partnering with experts who can offer relevant data and expertise to support climate change governance,” said James Wong, Director, Strategic Risk Consulting, Asia, WTW.
“In addressing the growing call for a consistent framework and set of standards for climate-related reporting alongside comparable metrics, we have invested in data, expertise and technology to develop a comprehensive climate diagnostic tool. Companies will have the ability to generate tailored, instantaneous insights which can be adopted for TCFD reporting.”
Journey towards a culture of climate disclosure and responsibility
The survey findings show that business units which most often take the lead on climate-related financial risks and opportunities are sustainability, risk management and corporate strategy, closely supported by the finance function. This underlines the importance of multiple functions working together to assess risks and opportunities, understand the financial impacts and source the required investments to fund mitigation actions for an organization’s climate transition journey.
One of the ways to create a wider culture of climate disclosure and responsibility is to extend climate objectives into remuneration policies. Only 14 percent of Philippine and Singapore respondents have fully implemented or started to incorporate climate-related targets in their executive incentive metrics, while 28 percent are now considering or are likely to introduce such targets in executive incentive plans.
“With increasing regulatory and investor pressure on climate change, it is likely that these numbers could rise in the foreseeable future. Although the current actions are primarily focused on satisfying compliance requirements, regulators, exchange rules and/or basic investor or consumer expectations, it is critical for business leaders to integrate climate and by extension Environmental, Social and Governance (ESG) actions into its company strategy and operations where these drive specific and quantified business opportunities in their climate transition journey,” added James.