Investors worth $8.5trn call for mandatory climate risk reporting for big businesses

The IA joins bodies like the Aldersgate Group in calling for stricter TCFD disclosure requirements

Ahead of its annual general meeting earlier this month, the Investment Association (IA), which represents investors with more than £8.5trn in assets under management, asked all FTSE-share companies on its reports to report in line with the Task Force on Climate-Related Disclosures’ (TCFD) recommendations.

Almost three-quarters of this cohort disclosed how climate change has impacted business strategies, which the IA called “significant progress”. However, only 53% of these businesses reported in line with all four pillars of the TCFD’s recommendations, covering governance, strategy, risk management, metrics and targets.

The latter of these pillars includes scenario analysis – a requirement for businesses to assess the physical and transition risks to their operations and value chains in a range of warming scenarios, the Paris Agreement’s “well-below” 2C pathway included.

While noting that many of the businesses are planning to improve their TCFD alignment by 2022 – as will be required of premium-listed firms by the Financial Conduct Authority under the Green Finance Strategy – the IA concluded that broader and more ambitious regulation is needed.

It released a statement urging Ministers and regulators to apply a “comply or explain” requirement on TCFD-aligned reporting all 1,140 businesses listed on the UK stock exchange. Such a move, the IA believes, will result in the disclosure of “consistent, clear and comparable” information.

“This disclosure will enable investors to price climate risk effectively into their investment decisions and – as long-term stewards  – to provide support and challenge to companies to transition to more sustainable business models,” the IA’s senior policy adviser for stewardship and corporate governance Sarah Woodfield said.

Is change coming?

With the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations having surpassed 1,000 supporters earlier this year, calls were already mounting for Governments to mandate climate risk disclosure in line with this framework pre-pandemic. The Covid-19 crisis has presented extra dimensions of interconnected and long-term risk, bringing the green finance conversation further still up the agenda.

The UK Government has said it will mandate TCFD-aligned disclosures for certain large organisations within three years, under its Green Finance Strategy. Its finance strategy for COP26 includes plans to help businesses prepare for disclosure, alongside warning that stricter requirements on which organisations are required to disclose could come soon. But with the conference delayed by a full year, these resources have not yet been publicly launched.

Ministers had previously argued that voluntary disclosures were adequate – contrary to the arguments made by many governance, stewardship and sustainability experts in the finance sector.

A survey of 500 businesses in the UK earlier this year found that less than one in ten are assessing and disclosing climate risk as a priority.

Sarah George