Enhancing financial transparency to mitigate climate change: Towards a Climate Risks and Opportunities Reporting Index

As climate change introduces more risks and uncertainties into the economy and the financial system, information failures limit the understanding of its financial impact on companies. In order to create the necessary conditions for transparency regarding these risks, the Financial Stability Board has set up an international working group, the Task Force on Climate-related Financial Disclosures (TCFD), with the aim of enhancing climate related corporate disclosures. On the basis of these recommendations and using a rigorous methodology, we develop an original composite index: the Climate Risks and Opportunities Reporting Index (CRORI). This reliable and reproducible index is the first indicator providing a standardized measure of the extent to which companies comply with the TCFD’s recommendations. Then, in order to ensure the robustness of our index, we calculate the CRORI of CAC 40 companies over the period 2015-2018. Using various statistical techniques (Cronbach alpha, principal component analysis, etc.), we conclude that the CRORI methodology is satisfactory. Moreover, such an empirical analysis gives a first insight into the evolution of companies’ compliance with the TCFD recommendations. Our results reveal a trend towards improved voluntary disclosure of climate-related information, particularly in the case of large companies and CO2-intensive companies.