CSR: Climate Risk Reporting – A Lesson from Japan

It has been repeatedly reported that global Carbon Emissions are continuing to spiral upwards. The scientists have warned that our planet may already have passed climate change “tipping points”. The risks that companies face if they keep on continuing their operations without making any changes are more extreme than ever.

No company can escape the wrath of global warming, considering their contribution to climate change through their CO2 emissions, and the effects on their operations as a result of it.

The FSB Task Force on Climate-related Financial Disclosures (TCFD) was launched in 2015 to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. It issued its recommendations two years later where it outlined the risks that companies needed to account for. These include physical risks such as increased severity of extreme weather events, longer-term shifts in precipitation and temperature and increased variability in weather patterns, and the risks associated with the transition to a lower-carbon global economy, such as policy and legal actions, technology changes, market responses and reputational considerations.

The TCFD developed four recommendations on climate-related financial disclosures, structured around four thematic areas:

1. Governance on climate-related risks and opportunities

2. The actual and potential impacts on the organisation’s businesses, strategy and financial planning

3. Processes used to identify, assess and manage climate-related risks

4. Metrics and targets

Companies all over the world have extended their support to these recommendations and adopted it in their climate reporting. Most of these companies are from Japan. With more than 200 companies supporting the TCFD, the country has emerged as a leader, getting ahead of the US, which has 123 companies and UK with 129 companies supporting it. The list of adoptees comprises of top industry leaders including Toyota, Mazda, NTT Docomo, Sony, Mitsubishi UFJ Financial Group, and Tokio Marine Insurance.

The support by the corporate community could have something to do with the active interest that the government of Japan is taking in reporting climate risk. With India aiming to reduce the emission intensity of the economy by 33 to 35 per cent from 2005, the country can certainly learn a few things about promoting climate risk reporting from the Japanese government.