Meeting a deadline in the midst of a pandemic seems like a good test of corporate resiliency and, according to a recent survey of Canadian Principles for Responsible Investment signatories that I conducted on behalf of my consulting firm Real Alts, the majority of respondents likely passed.
The survey found that almost 80 per cent of respondents met the annual PRI reporting deadline on March 31, 2020, just two weeks after the country entered lockdowns. In addition, only eight per cent of respondents reported having trouble meeting the deadline due to the novel coronavirus.
The fact that most respondents were able to report on time in the midst of significant business disruptions in late March is consistent with other data on bankruptcy and stock volatility that suggests strong environmental, social and governance practices may be associated with corporate resiliency.
However, before I give respondents a gold star for resiliency, I have to report a perplexing issue with the survey results. It found that all respondents said that new mandatory climate change questions included in this year’s PRI reporting requirements did not create a problem with submitting on time. However, further analysis of the survey shows that many respondents submitted their PRI report without completing the Task Force on Climate-related Financial Disclosures self-evaluation process, which five of the PRI report’s climate change questions were based on.
Specifically, when asked whether their organization had used the relatively new form of resiliency testing called scenario analysis to plan how to manage stress on these climate-related risks and opportunities, just 24 per cent of respondents had done so.
The respondents’ experiences seem to follow a pattern reported by TCFD last year. Of the 11 disclosures recommended by TCFD, the one with the biggest reporting increase was identifying climate-related risks and opportunities on business strategy. This suggests firms are finding it easier to do this work. However, there was only a marginal increase in reporting on scenario analysis over the last three years. The TCFD viewed the low increase in scenario reporting as significant and attributed it to “. . . the early stage of the learning curve for these analyses.”
The time and effort required to undertake scenario analysis may be at the heart of the difficulty in completing the TCFD questions in the PRI report. The survey showed that, on average, signatories had to put in a medium amount of time and effort into climate-change reporting they undertook. The time and effort to complete the scenario analysis section in the midst of a pandemic may have been too large a burden for these organizations.
Despite the heat of a global pandemic, the fact that PRI signatories surveyed were able to adapt quickly and report on time, is promising. But making a firm or investment strategy resilient is a journey, not a destination. Now is the time to build resiliency to climate change through scenario analysis, before a climate change-related disaster takes us by surprise.
Catherine Ann Marshall is the principal consultant at RealAlts. These views are those of the author and not necessarily those of the Canadian Investment Review.