Early climate disclosures lack quantification and strategy, analysis finds

Australian firms are acknowledging serious climate risks in their mandatory climate disclosures, but few are quantifying these risks into financial figures, according to a recent analysis by sustainability consulting company Environmental Resources Management (ERM).

The company analysed 33 disclosures lodged by firms subject to Australia’s mandatory climate reporting regime, which has required large companies to make climate-related financial disclosures in their annual reports since January 2025.

ERM found that two-thirds of companies had declared one or more material climate risks, but fewer than a third had listed any quantified financial impact on their earnings, balance sheet or cash flows. Furthermore, most had allocated little or no capital to address the significant climate exposures they disclosed.

Dr Mary Stewart, ERM’s lead partner of corporate sustainability and climate change ANZ, said the next step was for companies to build credible transition plans.

“Now companies have publicly acknowledged the financial risks associated with climate change, the next step is to build a strategy to remain profitable in a world that is decarbonising and physically changing, and back their commitments with a credible transition plan,” she said.

“Investors in particular need decision-useful information, and the onus is on reporters to quantify the risks they are declaring as material, including financial impacts, and explain how they intend to mitigate them.”

ERM found that particular gaps were present in companies' reporting of scope 3 emissions, an area of analysis that most companies had deferred through first-year exemptions.

“The important work of quantifying Scope 3 emissions can also not start soon enough,” Stewart warned reporting entities.

“Given the scale of these value chain emissions for most businesses, this is both a major gap in Australia's climate disclosure landscape and an opportunity for businesses, opening the door to a materially stronger position with investors and customers.”

ERM found that mining and energy companies were leading the way in quantifying financial disclosures, while financial services businesses were lagging.

"Climate disclosure maturity reflects proximity to risk. Energy and mining companies have been living with transition pressure for years, and that shows up in a more sophisticated understanding of climate risk and a more strategic approach to managing it,” Steward noted.

“For financial services the exposure is just as real, but the urgency to act just isn’t there from some of the early reporters.”

While gaps existed in the first round of Australian reports, ERM said this was to be expected. Furthermore, it said that governance structures and board accountability for climate risk had matured, with scope 1 and 2 emissions broadly being disclosed and externally assured.

ERM said it hoped companies’ catalogued climate risks would start to drive material decision-making as companies’ risk understanding matured.

"The gap between identified climate risk and capital deployed to address it is stark. Companies are disclosing significant financial exposures in one breath while allocating next to nothing to address it in another,” Stewart said.

“That is not a disclosure challenge, it is a governance challenge. Our broader read is cautiously optimistic. The first year of reporting was never going to be perfect, and the picture it reveals of significant unquantified risk and absent transition plans is exactly why this regime exists.”