G7 agree on 'historic steps' to make climate reporting mandatory
Chancellor of the Exchequer Rishi Sunak met with finance ministers in London this weekend, with discussions leading to a historic agreement that G7 nations will mandate climate reporting in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD).
G7 finance ministers made a commitment at the meeting to make it mandatory for corporates to report climate impacts and investment decisions, alongside new measures to strengthen central company beneficial ownership registries to crack down on environmental crime.
The agreement to mandate climate disclosure does not yet have a timeframe attached, but the wider G20 group of nations are also set to discuss the topic, potentially meaning that an international agreement could be achieved prior to the COP26 climate negotiations in Glasgow this November.
“We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants,” G7 finance ministers said in the final communique.
"This will help mobilise the trillions of dollars of private sector finance needed, and reinforce government policy to meet our net-zero commitments."
The UK was the first major nation to confirm plans to mandate climate disclosure back in November 2020.
The proposals would see any company with more than 500 employees and more than £500m in annual turnover in the UK disclose potential risks associated with climate change and the net-zero transition into annual reports. The recommendations are in line with the TCFD and look set to impact more than 1,500 companies.
A consultation from the Department for Business, Energy and Industrial Strategy (BEIS) has now been launched with a view to enforcing the report approach from April 2022.
At the G7 meeting, ministers also backed work by the International Financial Reporting Standards Foundation that will seek to develop a new global standard for sustainability reporting that builds on the TCFD framework.
There are now more than 1,500 companies that support the TCFD’s recommendations, including corporates with a combined market cap of $12.8trn and investors with $138.8trn of assets under management collectively. This is an enormous uptake of 85% since 2019.
The G7 also welcomed the launch of The Taskforce on Nature-related Financial Disclosures (TNFD) which launched on Friday (4 June), which has an overarching aim to align corporate reporting and financial spending to alleviate nature-related risks.
Additionally, the G7 agreed to tax reforms that would see multinationals pay their fair share of tax in the countries they do business in. A global minimum rate of 15% for each country that a business operates in looks set to be introduced.
The rules would apply to global firms with at least a 10% profit margin – and would see 20% of any profit above the 10% margin reallocated and then subjected to tax in the countries they operate.
Chancellor Rishi Sunak said: “These seismic tax reforms are something the UK has been pushing for and a huge prize for the British taxpayer - creating a fairer tax system fit for the 21st century.
“This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”
The G7 also committed to support poor and vulnerable countries to address health and economic challenges raised by the Covid-19 pandemic. A new commitment builds on the $650bn general allocations of Special Drawing Rights (SDRs) issued earlier this year. Finance Ministers and bankers at the G7 meeting called for the SDRs to be implemented by the end of August 2021 and G7 nations will consider voluntary agreements to use SDRs to support vaccinations and greener economic recoveries in other countries.
The G7 also committed to publishing details of lending on a loan-by-loan basis, although some critics believe that support should be provided in the form of grants. The G7 will implore the G20 and private-sector creditors to do the same.
Green group reaction
Erkki Liikanen, chair of the IFRS Foundation Trustees, said:
“We welcome the G7 Finance Ministers’ support for our work to develop the global baseline of sustainability-related financial disclosures and our ongoing dialogue with key stakeholders regarding the proposed establishment of an International Sustainability Standards Board ahead of COP26.”
Lord Karan Bilimoria, president, CBI, said:
“Finance has a critical role to play in driving an inclusive recovery as well as helping businesses across sectors respond to the climate crisis and social challenges. Increasing international alignment across sustainable finance regulatory and policy frameworks should be at the forefront of any and all plans.
“As hosts of G7 and COP26, it is great to see the UK must pick up the mantle on this global agenda which will help build sustainability for all."
Catherine McGuinness, deputy chair of the International Regulatory Strategy Group, said:
“We welcome the presidency’s commitments on tackling climate change announced by the Chancellor. The IRSG called in our recent report for tackling gaps in TCFD adoption amongst jurisdictions to be a priority, so it is very encouraging to see moves by the G7 towards mandatory climate-related financial disclosures based on the TCFD framework.
“This is an important step forward, and one that will help create a pathway to a successful COP26 in Glasgow and pave the road to deliver net-zero emissions globally. Similarly, we are pleased to see the G7 taking steps to tackle illicit finance and environmental crimes.”
Shaun Spiers, executive director, Green Alliance, said:
“It is good to see finance ministers starting to integrate climate and biodiversity into their economic thinking. Requiring companies and banks to report their impact on climate change marks important progress towards making economies more sustainable. Recognising the importance of the Dasgupta review is the first step to considering the true value of nature to the public purse.
“We now need these major economies to invest heavily in a green recovery and support developing countries to do the same. Pledges to reach $100bn are hugely welcome and must now be met and matched with an investment plan for adaptation and mitigation.”
Dr Emily Shuckburgh, director, Cambridge Zero, said:
“Efforts announced today by the G7 to drive the global economy towards net-zero greenhouse gas emissions and stamp out illicit financing of environmental crimes are fundamental to tackling climate change.”
Bethan Livesey, director of policy, ShareAction, said:
"We welcome the news that G7 economies will follow the UK in making TCFD disclosures mandatory and are supportive of common international reporting standards.
“Investors need consistent and comparable information about the environmental and social impact of companies. The power of the TCFD framework to address climate change risks and opportunities will be greatly enhanced by it becoming standard practice globally. We hope others will follow the G7’s lead.”
Chris Cummings, chief executive, Investment Association, said:
"The G7's commitment to introducing mandatory climate-related reporting against the TCFD framework is a crucial milestone in tackling climate change. The shift to a more sustainable global future relies on coordinated action from the world's largest economies. Ensuring high-quality and comparable data on the impact of climate change lies at the heart of this and will shine a spotlight on the actions needed by policymakers and companies to achieve net-zero emissions.
“As an industry which invests in companies around the world to deliver sustainable value on behalf of both UK and overseas savers and investors, we welcome this commitment which will enable us to take informed investment decisions which support these aims."
edie's TCFD masterclass
edie's next webinar will take place on Wednesday 23 June and will focus on how businesses can get to grips with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The masterclass is hosted in association with edie’s Sustainable Investment Conference 2021 – a two-day virtual event which takes place on 13-14 July 2021. The event unites corporates, asset managers and asset owners for frank discussion around disclosure priorities, roadblocks and innovations. Find out more and secure your ticket here.