Mark Carney and Michael Bloomberg set out recommendations for climate disclosure adoption
The first global, industry-led effort to create recommendations for climate-related financial disclosures has been published by the Task Force on Climate-related Financial Disclosures (TCFD).
The Financial Stability Board's TCFD has today (14 December) released its much-anticipated report, which proposes how businesses should voluntarily disclose climate-related information under traditional financial filings in order to thrive in a low-carbon economy. Specifically, the TCFD calls on businesses to promote senior management engagement on climate-related issues.
Launched last December 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.
The Financial Stability Board’s (FSB) chair Mark Carney said: “The disclosure recommendations will give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change. As a private sector solution to a market issue, the Task Force has focused on the practical, material disclosures investors want and which all capital-raising companies can compile.”
The draft recommendations, which will now be scrutinised during a 60-day consultation period, focus on four areas reflecting how organisations can operate, govern, strategise and manage risk. The TCFD has gone to lengths to ensure that all recommendations are adoptable by all company types, can be included in mainstream financial filings and create forward-looking information on climate impacts.
Using experts from the private sector to draw up the recommendations, the TCFD wants companies to include impacts of different scenarios – including the 2C pathway of the Paris Agreement – and what this would mean for businesses.
The Taskforce ultimately calls on companies to immediately adopt climate-disclosure and add a sense of flexibility to evolve as the practice matures. It calls on companies to promote senior management into the conversations surrounding disclosure, adopt scenario analysis and support the understanding of sectoral exposures to climate issues.
The TCFD’s chairman Michael R. Bloomberg said: “The Recommendations of the Task Force on Climate-related Financial Disclosures report represents an important effort by the private sector to improve transparency around climate-related financial risks and opportunities. Climate change is not only an environmental problem, but a business one as well. We need business leaders to join us to help spread these recommendations across their industries in order to help make markets more efficient and economies more stable, resilient, and sustainable.”
Commenting on today's TCFD recommendations, Paul Simpson, chief executive of corporate environmental disclosure organisation CDP, said: “We welcome the TCFD recommendations as they have the potential to further 'normalize' climate information in companies mainstream financial filings.
"Nearly 6000 companies disclosed through CDP this year representing some 60% of global market capitalisation. However, many companies have yet to align business strategies with the requirements of the Paris agreement and the TCFD recommendation on scenario analysis will enable better information for investors to assess this risk.
"We thank the Task Force for their leadership and look forward to working together on our shared goal of driving forward disclosure. The next step will be for the G20 governments to consider whether such disclosure should become mandatory over time."
Money makes the world go round
With investors worried that the next financial crash could be climate-related, the TCFD has previously warned that companies failing to carry out "stress tests" for their business plans against risks associated with climate change face the possibility of economic decline or bankruptcy.
Carney has also spoken of the issues surrounding financing the low-carbon transition. In September, he warned that the transition was filled with potential paradoxes that could lead to either the current generation having no "direct incentive" to drive change, or actually transitioning too quickly to the point where financial stability would be damaged.
The Bank of England governor has also claimed that close to $7trn will need to be spent on new green infrastructure across the globe in order to cut carbon emissions over the next 20 years.