Will 2020 be the year of mandatory climate disclosure?
Leading experts believe that it is "highly likely" that disclosing climate-related data to the Task Force on Climate-related Financial Disclosures (TCFD's) will become mandatory and have called on business professionals to start collecting and mapping data now.
Experts from Avara Foods, Landsec and the Climate Disclosure Standards Board (CDSB) discussed how businesses should interact with the recommendations of the TCFD to improve sustainability, as part of a webinar that is now available to watch on-demand.
The speakers were in unanimous agreement that climate disclosure would become mandatory in the near future, and urged businesses to start their TCFD journey now.
“The G7 country national banks are in close discussions on TCFD and the role it will play and a number of European national banks are making these disclosures mandatory, therefore, other private banks working in those countries will have to adopt these disclosures,” Avara Foods’ energy compliance and sustainability manager Baishakhi Sengupta said during the webinar.
“As more info comes out on the risks of climate change and inaction from companies I wouldn’t be surprised if this becomes mandatory because I cannot see how the World Bank or the UN will allow financial volatility to wreak havoc across the globe.”
Launched in December 2015 by Bank of England governor Mark Carney, the TCFD has since welcomed former New York Mayor Michael Bloomberg as chair of the group to lay-out the recommendations to help businesses identify and disclose information wanted by investors and other external shareholders to assess the climate-related risks and opportunities of individual companies. Notably, the recommendations call on companies to include impacts of different scenarios – including the 2C pathway of the Paris Agreement – and what this would mean for businesses.
Efforts to disclose climate-related data aligned to the TCFD's recommendations have increased by more than 50%, but concerns remain that companies aren't providing enough information to inform the investor community.
The TCFD’s latest status report expresses concerns that “not enough companies are disclosing decision-useful climate-related financial information”. A survey accompanying the report found that 91% of respondents plan to “fully or partially implement” the TCFD recommendations, and that 76% are already using them as part of decision-making processes. Two-thirds of respondents claimed they will have integrated climate-related financial disclosures by 2022.
One of the main benefits of the TCFD is providing clear data to the investor community on emissions performance. With nations like the UK needing to unlock billions in capital to reach their net-zero targets, the webinar speakers claimed that TCFD will grow in importance. In fact, the Climate Disclosure Standards Boards (CDSB’s) project manager Gemma Clements noted that New Zealand was consulting on making disclosure mandatory at a national level and that Japan was using summits and forums to accelerate the conversation on disclosure.
“We are seeing signals that this will become mandatory,” Clements said. “Excitingly, we’re seeing a lot of action in New Zealand and Japan and we’re seeing places around the world where disclosure is becoming increasingly important so it is highly likely it will become mandatory in the next few years.
“My advice to businesses would be don’t let perfect be the enemy of the good. This is coming, so get started now and remember it’s a journey.”
The UK will not meet its 2050 net-zero goal unless corporates and investors are legally mandated to report on their climate risks and the actions they are taking to mitigate them, the Aldersgate Group has warned.
According to the Group, mandatory disclosures in this format would “provide a level playing field across the economy, provide meaningful and comparable information to investors and ensure that business and investment strategies are aligned with the UK’s net-zero target”. This assertation, the body claims, has only been given after sizeable input from leaders in business, policy and civil society.
This new mandate should initially apply to all investors and to all businesses currently required to report through the Streamlined Energy and Carbon Reporting (SECR) scheme – before being expanded by the mid-to-late 2020s.
This notion is echoed in the UK’s new Green Finance Strategy, which CDSB notes, “draws on a similar recommendation of the Network for Greening the Financial System (NGFS)”, which is a network of central banks set up to help reach the Paris Agreement.
The strategy is set to place UK financial services at the centre of efforts to tackle climate change and reduce emissions to net zero by 2050 and features investment and funding increases into green projects, infrastructures and homes and is built on findings from the TCFD. Specifically, the Strategy includes expectations for publicly listed companies and asset owners to disclose climate risk and impact data by 2022 and to work with regulators as to whether this becomes a mandatory requirement.
Landsec is one such UK firm that has undertaken extensive data collection and disclosure in alignment with the TCFD. The firm’s sustainability reporting manager Fernanda Amemiya outlined that the TCFD recommendations could be overlayed on existing reporting frameworks in relation to governance, strategies and metrics and targets. Most of the additional effort, she claimed, was determining the gaps in risk projections and management.
Amemiya noted that “physical risks to assets” including energy costs, weather forecasting, natural catastrophes and actual physical hazards such as flooding and coastal surges and “chronic physical risks” including overheating risks had all be explored and the risks determined. As the image below shows, Landsec has also listed the financial implications of risks and has implemented a shadow price of carbon for all investment decisions, as part of its new net-zero strategy.
Amemiya was in agreement that disclosure would become mandatory, saying: “I believe it is going to become mandatory. The UN PRI is already making it mandatory to all investor signatories and I truly believe that this will be the movement in the future.
“Just start this process by trying to learn and understand the risks and the disclosure process will become a learning experience as a result.”
The webinar took place at 11am on Tuesday 10 December and offered advice and insight from sustainability and finance experts on how businesses can use TCFD recommendations to improve sustainability strategies and align business outlooks with the growing demands of green investors.