Financial services pulls ahead on climate change reporting as regulators spur action

The FSB said that a recently released TCFD (Task Force on Climate-related Financial Disclosures) report finds encouraging progress on climate-related financial disclosure, but also need for further progress to consider financial risks. A total of 785 organizations are now supporters of the TCFD, including the world’s largest banks, asset managers and pension funds, responsible for assets of $118 trillion.

To better understand current climate-related financial disclosure practices and how they have evolved, the Task Force reviewed reports for over 1,100 companies from 142 countries in eight industries over a three-year period. In addition, the Task Force conducted a survey on companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of climate-related financial disclosures for decision-making.

While the Task Force found some of the results of its disclosure review and survey encouraging, it has concerns that not enough companies are disclosing decision-useful climate-related financial information. The Task Force reviewed financial filings, annual reports, integrated reports, and sustainability reports. It found that:

  • Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors.
  • More clarity is needed on the potential financial impact of climate-related issues on companies.
  • Of companies using scenarios, the majority do not disclose information on the resilience of their strategies.
  • Mainstreaming climate-related issues requires the involvement of multiple functions.

FSB chair Randal Quarles said that: “The Task Force continues to provide a forum for market participants to develop and use a valuable private-sector solution to assess climate-related business risks. The increased participation levels confirm the value of these voluntary disclosures, allowing the public, markets, and investors to better monitor risks.”

Michael Bloomberg, chair of the TCFD said: “We remain encouraged by the continued growth in the number of companies adhering to the guidelines of the TCFD – it means businesses are better informed about the risks they face, and investors are more capable of making sound decisions. However, we’re also clear-eyed about the serious threat that climate change poses. In order to keep people out of harm’s way, and build a more resilient global economy, we need more companies to follow their lead – and soon.”

In 2015, at the request of the G20 Finance Ministers and Central Bank Governors, the Financial Stability Board (FSB) and its chair Mark Carney established the industry-led TCFD.

Read the full release

In another survey released separately, climate change non-profit CPD, which runs the global disclosure system for environmental information said that the world’s biggest companies (total $17 trillion market cap) reported facing $1 trillion in climate change risks, with the financial services industry representing almost 80% of the total potential financial impacts in the sample set.

CPD’s report covers 6937 companies who reported data to CDP in 2018, including a sample based on the 500 biggest global companies by market cap, 366 of which reported to CDP. It analyzes the risks and opportunities related to climate change reported by companies in 2018 in line with TCFD.

Report findings include:

  • 215 biggest global companies report almost $1 trillion at risk from climate impacts, with many likely to hit within the next 5 years
  • Companies report potential $250 billion in losses due to the write-offs of assets
  • Climate business opportunities calculated at US$2.1 trillion, nearly all of which are highly likely or virtually certain
  • Potential value of sustainable business opportunities almost 7x the cost of realizing them ($311bn in costs, $2.1 trillion in opportunities)
  • Financial companies forecast $1.2 trillion in potential revenue from low emissions products & services
  • Financial services industry represents almost 80% of the total potential financial impacts in the sample set
  • Fossil fuels companies report more opportunities than risks from the low-carbon transition, raising questions about what they are reporting

Over 80% see major climate impacts, including extreme weather patterns, rising global temperatures and increased pricing of greenhouse gas emissions. Around $500 billion of costs are rated as likely to virtually certain, with higher operating costs linked to legal and policy changes making up a significant risk.

Nicolette Bartlett, director of Climate Change for CDP said in a statement that while research shows that financial organizations see the most opportunities and value at risk from climate change, a more concerning story may sit behind this statistic: “It is likely that this growing awareness is partly caused by the increased scrutiny of regulators and stakeholders. And the potential gaps in awareness and disclosure elsewhere in the economy present real risks. Regulators and investors should take note, and all companies from all industries need to step up.”

Read the full release

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