Also, when compared with 2018, more companies in this sector have begun to provide some information on their approach to incorporating scenario planning into their climate strategy development. This is likely driven by a combination of factors, including:
- The rise in energy prices across certain markets
- The increase in price of the European emission allowances for liable companies under the EU Emissions Trading System (EU ETS)
- The business and supply chain disruption due to physical risks
- The growing pressure from some of the largest companies who are gaining a better understanding of their Scope 3 emissions (which encompasses the operations of manufacturing) and setting ambitious emissions reduction targets
Among the lowest-scoring manufacturers were those from emerging markets, such as Latin America, Asia and Russia, where the manufacturing sector operates within less regulatory frameworks.
We examined how the manufacturing sector performed against the four areas, through which the TCFD recommendations are structured.
Governance
The majority of companies only provided high-level information on the governance structure, with regards to the oversight and management of sustainability aspects. A large number did not provide any specific reporting on the governance issues in relation to climate change.
Higher-scoring manufacturers offered a more detailed disclosure on the type and frequency of board-level engagement with climate-related questions and also have provided insights into the interaction between the board and management. This was particularly done by those manufacturers that had provided a detailed disclosure to Carbon Disclosure Project (CDP).
However, by reporting on structural and procedural governance aspects, most manufacturers failed to clearly articulate the relative importance of climate-related matters in terms of the overall business strategy. Companies also struggled to illustrate the extent to which oversight of climate issues informed corporate decision-making at board and management levels. Linking the description of the climate oversight processes to the vision of the overall business strategy and core business model presents a major and continued challenge for robust transparency in this context.
Strategy
Over half (51%) of the companies achieved a low score for quality (below 20%) in this area, with a significant segment failing to provide any information on climate strategy.
Among the higher-scoring companies were many CDP responders. These manufacturers used the reporting framework to detail specific climate-related risks together with an indication of the likelihood and magnitude of impact. However, despite the granularity of disclosures regarding the identification of specific climate-related risks and opportunities, many manufacturers still fell short and did not provide detailed insights into the organizational responses to address those impacts and the link to the overall business strategy.
Some of the highest-scoring manufacturers published a stand-alone report on their climate strategy. These reports comprehensively articulated the relative materiality of climate factors to the business strategy as well as the company’s vision and management approach.
When compared with 2018, more manufacturers have provided some information on their approach to incorporating scenario planning into their climate strategy development. Higher-scoring companies outlined the type of reference scenarios they used for assessing business resilience and also indicated, at least in general terms, how scenarios were used in decision-making at different levels of the organization. However, these companies failed to provide a detailed and quantified articulation and explanation on the organization's outlook (i.e., competitiveness and resilience) for the different climate-related scenarios. Overall, scenario assessment is an area where even leading manufacturing companies are still at the early stage of developing their approaches.
