ANALYSIS

G20’s climate reporting proposal

A G20 group, chaired by Michael Bloomberg, has released its final recommendations for company disclosure of corporate climate risk, shifting the onus for reporting from the sustainability department to the boardroom.

The Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) calls for increased governance that will bring climate change onto the board agenda.

The 32-member task force, which includes Jane Ambachtsheer of Mercer and Eloy Lindeijer of PGGM, calls for climate-related information to be integrated into the mainstream financial reports of companies. This would make climate risk a key corporate agenda item and would allow information to be accessed in a consistent and comparable way.

The TCFD structured its report around four areas: governance, strategy, risk management, and metrics and targets. The group’s other recommendations include disclosures that would help investors understand how their investee companies assess climate-related risks and opportunities.

Investors and the companies in which they invest need to consider their long-term strategies and the efficient allocation of capital, the TCFD states.

“Organisations that invest in activities that may not be viable in the longer term may be less resilient [during] the transition to a lower-carbon economy; and their investors will likely experience lower returns,” the report states. “Compounding the effect on longer-term returns is the risk that present valuations do not adequately factor in climate-related risks because of insufficient information. As such, long-term investors need adequate information on how organisations are preparing for a lower-carbon economy.”

The TCFD was launched by Michael Bloomberg and Mark Carney, chair of the FSB, at the COP21 climate conference in 2015.

The climate research provider institutional investors use, CDP, has committed to adopting and implementing the report’s recommendations across all sectors. In 2016, nearly 6000 companies disclosed environmental data through CDP.

CDP says addressing climate risk is a path to outperformance, with companies on its “climate A list” outperforming the market by 6 per cent over four years. Jane Stevensen, engagement director at the research provider, says mainstreaming corporate climate risk information is a key recommendation of the report.

“Despite broad recognition that issues related to climate change represent major risks to companies around the world, disclosure about those risks has been lacking. Making this a board responsibility will change that,” she says.

The recommendations will be fully incorporated into CDP’s platforms for the disclosure cycle of 2018, so businesses disclosing through the research provider can be assured they are adhering to the TCFD’s guidelines.

CDP will continue to work with investors and companies to ensure market adoption of the TCFD recommendations and support mandating disclosure over time.

“We are strong advocates of mandating and enforcing universal company disclosure to obtain consistent, comparable and high-quality information [from] companies who resist voluntary norms,” Stevensen says. “We believe policy intervention is necessary to drive the cultural behaviours and action required. This should be taken into account by the governments of the G20 as they consider how to respond to the TCFD’s recommendations.”

Chair of the the Institutional Investor Group on Climate Change (IIGC), and chief executive of PKA, Peter Damgaard Jensen, said greater climate-related financial disclosure is crucial to secure more complete, meaningful, reliable and consistent data across all companies and sectors.

“Given their importance at the top of the investment supply chain, large asset owners and asset managers also recognise they have an important role to play in driving the swift and widespread adoption of this framework,” he said.

IIGCC is a forum representing 138 large investors across 11 countries with more than $21 trillion in assets.

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