Nearly nine in 10 investment professionals doubt that climate risks are being correctly priced into company valuations, a major poll reveals.

The survey, conducted by the prominent Global Sustainable Investment Alliance (GSIA), found an overwhelming 87% of respondents do not believe markets are consistently and correctly pricing climate risks into company and sector assessments.

Disbelief was highest in the US and UK (97% and 95%, respectively) and lowest in Japan (77%, with 23% unsure).

The poll, which comprised responses from nearly 300 asset managers, owners and advisors from around the globe, sought to explore whether the investment industry is successfully implementing the influential Task Force on Climate-related Financial Disclosures (TCFD).

Established in December 2015, the TCFDs are viewed as a crucial tool to help companies identify and disclose consistent information about their material climate-related financial risks and opportunities.

The recommendations are also applied to asset owners and managers in their reporting to stakeholders.

According to the survey, while the number of organisations supporting the TCFD recommendations has grown, investors are generally dissatisfied with publicly-traded companies’ climate-related disclosures.

Globally, 59% of respondents expressed being “very” or “somewhat” dissatisfied with these disclosures, while just 16% were “somewhat satisfied”.

Not a single asset manager or investor reported being “very satisfied.”

Geographically, respondents in the US were by far the most likely to be dissatisfied with companies’ climate disclosures, at 77%, while Canadian and European investment professionals were most likely to be “somewhat” satisfied, at 25% each. 

Meanwhile, TCFD implementation also appears sketchy among investment professionals themselves.

While one-third of survey respondents (34%) said they have already incorporated TCFD disclosures into their investment analysis, more than a quarter (27%) admitted they have no confirmed plan to carry out this implementation.

A further quarter (26%) said they plan to incorporate TCFD disclosures into their investment decisions by the end of 2020.

Respondents in the UK, US, and Australia were most likely to have already incorporated TCFD disclosures into their investment analysis (50%, 47%, 42% respectively), while those in Japan, Canada and US were the least likely to do so (at 46%, 31%, and 30% respectively).

Worryingly, the percentage of asset managers, investors and professionals who are actually reporting in line with the TCFD recommendations is very low and lags the percentage who incorporate them into their analysis. 

Only 16% of total respondents are already reporting in line with the TCFD recommendations, while 19% stated they intend to do so in 2020.

Those based in the UK were most likely to be reported in line with the recommendations (35%), while those in Europe and Australasia were most likely to be in the planning stages (66% and 59% plan to in 2020 or are exploring the possibility).

Respondents in Japan and the US were least likely to consider reporting in line with TCFD, with 53% and 38% respectively stating they had no plans to do so.

“The vast majority of respondents believe the markets are not pricing climate risks correctly,” the GSIA survey report states. “This mispricing points to the potential for an abrupt and disorderly re-valuation of assets as these risks are realized.

“By disclosing climate-related risks and opportunities, and providing transparency about how they are being managed, organisations that report in line with the TCFD recommendations are providing investors with decision-useful information that, when incorporated into investment analysis, could help to facilitate a smoother transition,” the report added.

Last Updated: 20 December 2019
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