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How EY can Help
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Supporting organizations with physical and transition risks associated with climate change, and assisting them with market and regulatory changes.
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This year’s Barometer highlights that companies have only made limited progress on referencing climate-related financial impact in their financial statements. Just 36% of companies surveyed have done so - an incremental increase on last year’s figure of 33%.
The lack of progress in this area should be a cause for alarm. Analysis conducted for the Barometer reveals that the average GDP for the 51 countries assessed is expected to decrease by 35% by 2100 if no further climate action is taken.
Only 17% of companies in the Americas report that climate risk could have a potentially high financial impact on their business. This is despite the US and Canada being among the economies with the highest risk of negative impact on GDP due to climate change. Notable examples include the 2021 Texas winter storm, which inflicted widespread damage in Texas, leading to power and water supply disruptions. The estimated cost of this event is around US $195 billion. In the same year, the Californian wildfires resulted in approximately US $10 billion in damages. Despite these events, many companies are still holding back from connecting climate risk with financial impact potentially as a result of differing time horizons. Typically, companies plan financially for three to five years ahead, while climate risks may not become apparent until much later. Another issue could be that companies are not effectively identifying risks due to inadequate scenario analysis.
Regardless of the reason, companies cannot afford to overlook the potential financial impact of climate risk on their business over the medium to long term. They could use their transition plans to explain how their business model is likely to be affected by the shift to a net-zero economy.