Making climate change risk more mainstream

The Financial Stability Board (FSB) has today recommended through its Taskforce on Climate-Related Financial Disclosure (TCFD) that companies based in G20 nations adopt a range of best practices to report on environmental risks. The group was set up by Bank of England Governor Mark Carney in his role as head of the FSB.

The aim of the taskforce’s recommendations is to shift reporting of climate risk to financial disclosures. The recommendations provide a global standard to ensure companies are reporting information at board level. Making this readily accessible to investors allows understanding of climate risk in investment decisions.

The recommendations cover four areas for companies to consider:

• Governance
• Strategy
• Risk management
• Metrics and targets

The report includes details about specific disclosures that organisations should include in financial filings. The taskforce recommends companies publish a 2 degree scenario business plan and ‘appropriate’ greenhouse gas emissions.

Mindful of the risks faced by the financial sector’s investments in fossil fuel based industries, there is also sector-specific guidance for asset owners, banks and insurance companies. Other high carbon industries that have specific sector guidance include: energy; transportation; buildings and materials; and, agriculture and forestry. CDP will be launch specific questionnaires for these industry sectors in 2018. 

Although the recommendations put forward by the TCFD are voluntary, they could be incorporated into climate related legislation in G20 countries in the future. France’s Energy Transition Law already requires France-domiciled asset owners and managers to report climate factors and carbon emissions footprints by June 2017.

The recommendations are now open for consultation.

Our view – mainstreaming climate change risk can only be a good thing

The global transition to a low-carbon economy is both necessary and inevitable. Political momentum, including COP 21 and the Sustainable Development Goals, shows that climate change is now an important focus area for governments, businesses and civil society.

Some companies are starting to adapt to climate change risk and acting on low-carbon opportunities. However, the speed of adoption and magnitude of effort is not enough. We hope that the recommendations published by the TCFD will help push companies to do more, and do it faster.