AI-powered study benchmarks climate reporting across whole market

Sponsored ContentAs corporate climate statements move into the mainstream, many investor relations (IR) and sustainability professionals must now answer new questions from the C-Suite, boards, and other internal stakeholders:

  • ‘Are we doing enough for the climate?’
  • ‘How do we know that our efforts are going in the right direction?’
  • ‘Who does it better than us?’

To understand where they are in their climate reporting journey, ESG and sustainability functions at companies will often benchmark themselves against 10 to 20 industry peers. But what if they could look across a sector or market while also taking advantage of the superior ability of artificial intelligence (AI) and natural language processing (NLP) to consistently categorize and quantify natural language?

Climate and machine learning experts at Nasdaq have done just that by publishing a new study on climate disclosures from companies across the S&P 500 and Russell 3000. climate reporting and set it to work through 10,000 documents and 30 million sentences in SEC filings, mainly annual reports and proxy statements.

The study examines some of the most important climate disclosures experienced by companies, including board monitoring, risk identification, greenhouse gas measurement, target setting and scenario analysis. Based on their performance, the companies were then divided into one of four groups: ‘undisclosed’, ‘beginning’, ‘established’ and ‘advanced’.

The results show that, between 2021 and 2022, US broadcasters have significantly increased their climate reporting. The number of companies without climate disclosures fell from 11 percent to 2 percent in the S&P 500 and from 31 percent to 17 percent in the Russell 3000. At the same time, the percentage of companies in the ‘advanced’ stage doubled in both indexes. was .

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AI-powered research shows climate reporting benchmarks across the market

“There was a huge increase in companies in the early and advanced stages of climate disclosure, which represents a significant shift to the right of these climate-growth curves from 2021 to 2022,” says Emily Menz, senior climate technology analyst at Nasdaq. ‘This shows increased pressure from stakeholders, such as regulators and investors, and the climate is simply becoming dominant.’

Aging level

To qualify for the ‘advanced’ stage, companies must report on climate scenario analysis or Scope 3 emissions measurements. The number of issuers in this category remains small, at 15 percent for the S&P 500 and 4 percent for the Russell 3000, Menz notes. “It’s hard to do,” he explains. “It requires a lot of resources: dedicated personnel over the course of a year, external consultants and internal procurement across business units.”

Menz points out that investors usually don’t expect companies to be in the growth phase, but rather that they express their intentions for the future and show continued growth. A survey conducted by Nasdaq earlier this year reveals that procurement priorities for climate reporting include Tier 1 and Tier 2 reporting, short-term emissions reduction targets and quality disclosures, including TCFD-compliant reports – all of which fall into the ‘beginning’ and ‘established’ categories.

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“The best thing companies can do to convince their investors is to clearly define, based on their stage of sophistication, how the climate fits into their business model, their intentions for the future and how they will manage it. consider risk,” Menz says. “It can be done at any level of sophistication – companies can start thinking about it now.”

Sectoral fragmentation

The study also reveals the climate access of different sectors. Not surprisingly, companies with the highest risk of transition are the most advanced in climate reporting. Oil and gas companies make up the largest proportion of names in the ‘developed’ category.

At the other end, biotechnology, software, pharmaceuticals and healthcare equipment are the main laggards. These sectors have shown increased ambition in 2022, with many companies moving from the ‘non-disclosure’ phase to the ‘start’ phase of climate reporting.

“Historically, these sectors have not been very affected by climate change,” says Viktor Aghajanyan, ESG research and development specialist at Nasdaq. ‘But that is changing. For example, healthcare equipment companies often rely on a small number of specialized manufacturers. This puts their business at risk of extreme weather events.’

Where information is publicly disclosed, Nasdaq finds that annual reports are the most common place for climate risk information, while proxy statements tend to focus on climate governance. In the S&P 500, 91 percent discuss management’s monitoring of climate or ESG in the proxy statement, compared to 20 percent in annual reports. In contrast, 83 percent mention climate-related risks in annual reports, compared to 37 percent in proxy statements.

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Among the Russell 3000, the levels of public disclosure are lower but still show a steady upward trend: 56 percent of the index commented on climate monitoring in the proxy statement in 2022, compared to 42 percent of the year it’s already out.

“These trends are likely to continue into 2023,” says Menz. ‘We recommend that companies formalize climate monitoring at board and executive level, with clear communication channels and processes for board updates across all functions, including risk, supply chains, communications, investor relations, product and start operations and facilities.’

After all, Menz and Aghajanyan say the Nasdaq study is just the starting point to help internal corporate sustainability and IR teams tasked with climate responsibilities to quickly measure their efforts across the market, identifying gaps in disclosure or opportunities. determine the leadership. “We’re excited to combine our knowledge of climate with machine learning to find insights at scale,” says Menz. “It will be a game changer for internal ESG working groups to assess where they are on their climate journey.”

Click here to access the full Nasdaq report, which includes detailed charts and commentary:

  • Our main findings
  • Growing trends in climate disclosure
  • Classification of industries according to maturity level.

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