G20 task force issues plan for climate-related financial disclosure

The global task force set up by the G20 has developed a voluntary framework for companies to disclose the financial impact of climate-related risks and opportunities.

The Task Force on Climate-Related Financial Disclosures (TCFD) was set up by the G20’s Financial Stability Board to provide such a framework to improve the ability to assess and price climate-related risk and opportunities.

In a report just released, the TCFD developed recommendations for climate-related financial disclosures, applying to financial sector organisations, including banks, insurance companies, asset managers and asset owners.

The framework draws support from more than 100 companies with 11 trillion dollars of assets.

The TCFD said organisations should disclose their governance around climate risks and opportunities and the actual and potential impacts of those risks and opportunities on the business.

The task force also said that organisations should take into account a global climate pact to limit global average temperature rise to below two degrees Celsius.

The TCFD also said they should also disclose the processes used to identify, assess and manage risks and opportunities and the metrics and targets used to assess and manage them.

Although several disclosure frameworks have emerged to meet this demand, there is no single standardized framework across the Group of 20 leading economies.

Reacting to the framework, Mr Mark Carney, who is the governor of the Bank of England said: “The Task Force’s recommendations have been developed by the market for the market. Widespread adoption will provide investors, banks and insurers with that information, helping minimise the risk that market adjustments to climate change will be incomplete, late and potentially destabilising.”

Although the guidelines are voluntary some of the board’s 32 members would like them to become mandatory.

It also recommended organisations to provide climate-related financial disclosures in their public annual financial filings.

No fewer than 100 business leaders and their companies, such as insurance groups AXA and Aviva, oil major Royal Dutch Shell, mining group BHP Billiton and Virgin Group, have committed to support the recommendations.

Mr Peter Jensen, chief executive of Danish pension fund manager PKA and chair of the Institutional Investors Group on Climate Change said: “Investors are pleased to see this industry-led forum publish a robust framework applicable across all sectors and jurisdictions.Greater climate-related financial disclosure in line with the TCFD’s four widely adoptable recommendations is crucial to secure more complete, meaningful, reliable and consistent data across all companies and sectors.”

There are concerns in the financial community that assets are being mispriced because the full extent of climate risk is not being factored in, threatening market stability.

As a result, demand is growing from investors, shareholders, lenders, underwriters and the public for more meaningful and transparent climate-related financial information.

 

 

Mazino Dickson