Climate Risk Awareness and Disclosure in Asia

Having established the relationship of climate risk to firm’s financial profitability, the importance of data disclosure on climate risk and the dispersion of this disclosure for Emerging Market companies, we turn our focus on an intra-region Asian analysis, using a comprehensive unique set of 350 Asian companies that reported to CDP in 2017.

According to the CDP Hong Kong and South East Asian Report 2017, 350 companies from Hong Kong, China, Indonesia, Thailand, Malaysia, Singapore, and the Philippines are requested by CDP to fill in the questionnaires and scored accordingly. CDP nominal grade distribution (numeric CDP score not disclosed on the website) and the completeness of environmental disclosure on Bloomberg in each of the seven countries is manifested in the Figure 5 and 6.

Figure 5: CDP grade distribution for the 350 Asian Companies reporting to CDP (A-Leadership; B-Management; C-Awareness; D-Disclosure; F-Failure to provide sufficient information for evaluation)

As expected among the 350 companies, 326 have been disclosing some information to get a CDP rating. However, 80% of them failing to provide sufficient information for evaluation hence get an F rating. Only HK, Thailand and Singapore have B-level Awareness (2ndhighest), while none makes it to the A-Leadership position (1sthighest). Concerning country performance, Singapore ranks the best with only 66% of companies fail to disclose information for evaluation. Indonesia and Malaysia rank the lowest with almost 98% and 80% of companies failing to pass the minimum stage F-failure to disclose.

While CDP rating is used to calculate the transition risk, for the physical risk, we have to rely on complete environmental disclosure reported in Bloomberg as displayed in Figure 6. Hence, to avoid misleading result due to incomplete reporting, our working sample size drastically shrinks from 326 to 85 companies only (seeTable 1). This reduced sample set is the base for calculating the correlation between climate risk (as well as physical risk) and financial KPIs in the Asia region.

Figure 6: Bloomberg disclosure level for the 350 Asian Companies that report to CDP

General information of companies (market value, sector distribution) in different regions is briefly summarised inTable 1.In brackets is the % of companies for that sector relative to the country sample. M stands for millions.We use aunique set of 350 Asian companies that reported to CDP in 2017. However, only 85 companies have complete environmental data disclosure in Bloomberg.

Table 1: Asia market coverage.

Hong Kong, Thailand and Malaysia have the largest share of companies reporting to both CDP and Bloomberg. Interestingly the sectors that dominate across Asia are financials, industrials and consumer discretionary. Although not presented here, provided in the Appendix 2 Table 4 consumer staples/discretionary, and financials are the two sectors that report the most in climate-related issues.

Given the data on the company level per country, we attempt to represent the climate risk on a country level. Average physical risk, average transition risk and average total climate risk per company based in different regions are summarised in asTable 2. As of June 2018, only 85 companies have CDP rating and Bloomberg data to evaluate physical and transitional risks. Physical risk is based on the absolute scale of emission form companies. The transition score range from 0.5-3 with 0.5 lowest and 3 the highest possible.

As indicated in the table, the colour gradient displays the seriousness of different risks. The darker the colour, the higher the risk. As shown, Thai companies have the highest physical risk, while Malaysian companies have the highest transition risk. While these results are by far not conclusive given the limited data set, they are partially indicativeof the level of risk related to climate risk on company level is given a specific country. Note that physical risk is measured only on the company level and not country-specific physical risks such as extreme weather, water scarcity, etc. We do not comment in China as the small sample size.

Table 2: A heat map for climate risk in Asia. It is the average physical, transition and climate risk per country given the number of companies that have full disclosure in CDP and Bloomberg.


This sections further explores the relation of climate risk to company valuation combining inter with an intra-region analysis. For better understanding and easier comparison, we include the numbers for MSCI EM ETF and US companies as shown in Table 3.

Our comprehensive analysis displayed inTable 3 leads us to conclude that:

  1. The complete disclosure rate on Bloomberg is much higher in the US than in the Asian market, almost double.
  2. CDP scoring A-range (leadership level) is much higher in the US than in the Asian region. Many Asian companies still receive an F-score from CDP, meaning failure to provide sufficient information for rating.
  3. Climate risk is overall negatively correlated with P/E and P/B ratios, indicating potentially hidden and unpriced risks.
  4. This relationship is even stronger for Bottom 50 MSCI EM ETF companies.
  5. Thailand and China both display a consistent negative relationship between climate risk and firm valuations.
  6. While the sign of the correlation and the magnitude are essential, their statistical significance is equally relevant for us to conclude the relationship. This is extremely important especially for China, Singapore and the Philippines only a handful of companies disclose climate risk as represented in the last row of Table 2.

Among 350 Asian companies reporting to CDP, 326 have been disclosing some information to get a CDP rating. Nonetheless, 80% of them failing to provide sufficient information for evaluation hence get F-level rating. Our sample shrinks further as we require full disclose in Bloomberg as well.

Based on our analysis, our findingshows that companies in Singapore, HK and Thailand seem to have the lowest transition risk while Malaysian companies rank as the highest. The opposite seems true for physical risk, with HK and Thailand (and China) have the highest level, hence the highest probability that more stringent regulations or global warming-relatedrisks such as drought or flooding will affect their operations and therefore their cash flows.

Lastly, we observe an overall negative relationship between climate risk (and physical risk) and company valuations captured by P/E and P/B ratios. This is an essential result for asset managers, and asset owns for valuations and portfolio allocations. Climate risk will no longer be a second-order risk. Once considered a hidden and extreme risk, climate risk it should be considered a systematic risk and therefore demand a risk premium. Next step is to price climate risk.

Our analysis has obvious limitations arising from data shortage. Correlation coefficients need to be tested for significance. More comprehensive data and regression analysis are needed to capture a more robust relationship between climate risk and firm performance.For practical use, this study can be easily extended to find the most resource-efficient companies in Asia companies that generate more sales with less carbon, water and waste.


Andersson M., Bolton, P., Samana, F., 2016, Hedging Climate Risk, Financial Analysts Journal, May/June 2016, Vol. 72, No. 3:13-32.

BlackRock, 2016. Adapting portfolios to climate change---implications and strategies for all investors. Blackrock investment institute.

Basu, S., 1977, “Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis”, The Journal of Finance, Vol 32, No.3, 1977, 663-682.

Basu, S., 1982, “The relationship between earnings‟ yield, market value and return for NYSE common stocks”, Journal of Financial Economics, 12 (1983) 129-156.

Berkman, H., Jona J., Soderstrom S. N., 2018, Measurement and Market Valuation of Climate Risk by: SSRN

BP Statistical Review of World Energy Report, 2018,, (Accessed January 2019)

CDP. 2017. Hong Kong & South East Asia Report 2017. CDP.

Ceres, SEC Sustainability Disclosure Sear Tool,, (Accessed June 2018)

CICERO. 2017. categorizing climate risk for investors. CICERO

CICERO. (n.d.). Center for International Climate Research. Retrieved from categorising climate risks for investors:

Deutsche Bank: Measuring Physical Climate Risk for Equity Portfolios, 2017

Jong, M., Nguyen, A., Weathered for Climate Risk: A Bond Investment Proposition, Financial Analysts Journal, May/June 2016, Volume 72 Issue

McKinsey, 2008, How Climate Change could Affect Corporate Valuations,

MSCI, 2018 ESG trends to watch, January 2018, (Accessed June 2018)

Hong, H., Frank Weikai Li F., Xu J., 2017, Climate Risks and Market Efficiency, Forthcoming Journal of Econometrics, 2017

Howard, A., Hassler, M., 2018, How will the physical risks of climate change affect companies? Schroders, 2018: (Accessed January 2019)

KPMG, The KPMG Survey of Corporate Responsibility Reporting 2017,

Stephen J. Brown, 2016, Climate Risk, Financial Analysts Journal, May/June 2016, Vol. 72, No. 3:9-10

Task Force on Climate-related Disclosures,

Trinks, A., Gbenga, I., Machiel, Scholtens, B., 2018, Carbon Intensity and the Cost of Equity Capital,SSRN (accessed January 2019)