The pressure to meet the higher bar for climate risk information set by Europe has seen UK-headquartered Shell taking a lead by disclosing its risk scenario for net zero emissions by 2050.

Shell disclosed risk under which the world reaches net zero emissions by 2050 in its financial statements last year. Shell priced this risk to upstream and integrated assets at between $17bn and $23bn.

It is clear that company boards need to raise their awareness about the risk to balance sheets stemming from climate change, particularly since some aspects of these risks are not covered by conventional insurance. Investors are increasingly demanding the inclusion of climate-focused risk assessments in financial reports.

In 2022, the UK became the first G20 country to enshrine in law mandatory requirements for Britain’s largest companies and financial institutions to report on climate-related risks and opportunities, in line with recommendations from the Task Force on Climate-Related Financial Disclosures

However, Carbon Tracker found this year that just 34 per cent out of 140 of the world’s most-polluting companies included some information in financial statements about how they manage climate-related financial risk. US-based companies were less likely to report along these lines.

The European Securities and Markets Authority, the securities regulator, has repeatedly told companies and auditors that climate risk should be considered throughout financial statements.

The US securities regulator has enacted a rule that will require basic company disclosures on climate risks but could leave big polluters free to keep their entire carbon footprint and other risk factors under wraps. 

“American corporations that want to operate in Europe are going to have to abide by regulations around disclosure and reporting that they have been fiercely lobbying against in the US,” said Mark Campanale, founder of the Carbon Tracker think-tank.

 “You could end up having the most amazing regulatory regime in Europe around climate and carbon but losing your industrial base, listings or capital to the US; regulatory arbitrage is to be feared.”

From next year the EU will expect large and listed companies to publish their carbon footprint from direct operations and energy usage, as well as their contribution to both suppliers’ and customers’ emissions, under the corporate sustainability reporting directive (CSRD).

At least 10,300 companies outside the EU will eventually be caught by these rules, including more than 3,000 American companies, according to analysis by Refinitiv, part of the London Stock Exchange Group.

 The UK is one of a dozen countries, including  Japan, New Zealand, Hong Kong and Singapore, which have all indicated that they plan to align with a set of extensive disclosure requirements released by the most prominent voluntary initiatives.

These include the International Sustainability Standards Board and its precursor, the Task Force on Climate-related Financial Disclosures.

As a result, some companies have recently withdrawn their listing from stock exchanges in EU bloc countries to sidestep the tough requirements that will take effect for next year’s set of reports.

The regulatory burden on company managers, directors and officers is significant hence the importance of selecting an insurance broker which closely examines comprehensive policy wordings that capture coverage for the widest range of regulatory investigations as well as more traditional claims.

W Denis are one of the largest independent insurance brokers in the UK and arrange competitive insurance solutions.  To discuss this further with a broker at W Denis, please make arrangements with Daniel Moss at [email protected] or on 0044 (0)113 2439812.