Analysis of the 2019 EY Global Climate Risk Disclosure Barometer showed that the quality score of climate-related financial disclosures within the real estate, buildings and construction sector has improved – from 23% in the 2018 analysis, to 26% in 2019. However, the sector still achieved average scores when compared with the other sectors. Coverage and quality scores are awarded by EY to each company as part of the analysis, on the basis of how they addressed or implemented all of the 11 recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). The overall improvement, when compared with 2018, could reflect the rising level of awareness about the vulnerability of assets (such as building and infrastructure) to physical risks, as well as the potential opportunities from a shift in the demand for sustainable building materials and practices.
The quality of climate-related information varied significantly between companies included in the sample. In some cases, companies reported very little information relative to climate change, while others detailed advanced climate models, and calculated the potential impact of physical and transitional risk on their business and the real estate portfolio.
Of all the areas, coverage of the TCFD recommendations on targets and metrics was the most widely addressed, with an average coverage score close to 75% among all the companies assessed. The other three TCFD areas (governance, strategy and risk management) were covered significantly less — on average, companies covered less than half of the recommendations. Companies in the French, Brazilian and US markets were the top performers, generally covering all areas of the TCFD recommendations.
Of the companies assessed, roughly one-third scored below 5% for the overall quality of their climate-risk disclosures. This shows significant discrepancies in terms of the quality of climate disclosures across markets. Some companies scored zero in quality — mostly located within the Asian and South American markets (an exception is Brazil).
We examined how the real estate, buildings and construction sector performed against the four areas, through which the TCFD recommendations are structured.
Governance
Half of the companies in the sector did not include any description of their climate governance structure, indicating this as a key area for improvement. There were also only a few front-runners that included detailed descriptions of the board’s oversight and management’s role in assessing and managing climate-related risks and opportunities.
The overall poor performance of the sector could partly be because of the poor level of disclosures on governance — as a robust climate governance structure is the first step toward an efficient climate and risk management strategy.
Only a few top performers obtained the maximum quality score for governance. These companies provided an in-depth description of their governance structures around climate change — often detailing the activities of the committee — and the reporting structure and responsibilities of the board members. Often, the most detailed and TCFD-aligned information was found in their responses to the Carbon Disclosure Project (CDP).
Strategy
Over half of the companies assessed provided some description of their risks and opportunities related to climate change, and also their potential impact on the organization’s strategy. Often, these disclosures lacked detail and contained limited references to the process for identifying the risks and opportunities, and for estimating their quantitative impact.
Approximately, one-fifth of the companies assessed were identified by EY as good performers — these companies listed both physical and transitional risks as well as opportunities for different time horizons. Almost half of the companies disclosed some form of quantitative estimation on the financial impacts of the different risks and opportunities, although only a few companies made a clear reference to the assumptions and methodology used.
