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Climate Change Hero

Climate Change Blog

  • 15
  • March
  • 2017


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Major Investment Manager Makes Climate-Related Disclosure a Priority for 2017-2018

Earlier this month the world’s largest asset manager, BlackRock, Inc., announced five “engagement priorities” for the coming year. Improving climate risk disclosure made BlackRock’s priority list alongside the more traditional areas of focus: governance, corporate strategy, compensation and human capital. BlackRock stated it will “engage companies most exposed to climate risk to understand their views on the TCFD [Task Force on Climate-related Financial Disclosures] recommendations and to encourage them to consider using this reporting framework as it is finalized and subsequently evolves over time.”

By announcing that it will encourage the public companies in which it invests to adopt the TCFD’s recommendations, BlackRock has taken a significant step in promoting the implementation of TCFD’s recommendations by those companies. BlackRock further announced that it may vote in favor of shareholder proposals addressing climate-related risk disclosure at annual meetings this year. This is an important signal to companies preparing for the upcoming proxy season and evaluating their readiness for shareholder proposals focused on climate change and particularly on climate-related disclosure and reporting. The number of such proposals has been increasing in recent years and they have been drawing higher numbers of votes. If institutional investors such as BlackRock throw their support behind these proposals, their chances of passing may substantially improve.

What are the TCFD’s recommendations?

The TCFD released a set of Recommendations on December 14, 2016. The TCFD is a 32-member industry-led task force established by the Financial Stability Board, an international group that monitors and makes recommendations about the global financial system. BlackRock was represented on the task force. By the TCFD’s own account, its report sets forth “widely adoptable recommendations on climate-related financial disclosures that are applicable to organizations across sectors and jurisdictions.” The TCFD further recommends that climate-related financial disclosures be included in public filings. The TCFD specifies in its Recommendations four “core elements” of climate-related financial disclosures:

  1. Governance: the organization’s governance around climate-related risks and opportunities
  2. Strategy: the actual and potential impacts of climate risks and opportunities on business, strategy, and financial plan
  3. Risk Management: the process used to identify, assess, and manage climate-related risks
  4. Metrics and Targets: the metrics and targets used to manage climate-related risks and opportunities.

For each core element, the TCFD sets forth recommendations for disclosures:


The Recommendations provide more detail on each of these recommended disclosures as well as supplemental guidance for companies in financial and non-financial sectors. In the non-financial sectors, the recommendations focus on 12 industries that account for the largest proportions of greenhouse gas (“GHG”) emissions, water use, and energy use. Because the TCFD believes that for many companies climate risks will emerge over time, the Recommendations propose that companies employ particular methods, such as “Scenario Analysis,” to identify and assess future climate risks and environmentally beneficial opportunities that may be disclosed.

The Recommendations note that in most G-20 countries, companies with public debt or equity are required to disclose material climate risks, but that the lack of a standardized framework makes it difficult for those companies to determine what should be included in their filings. The difficulties faced by such companies in determining how to disclose climate-related risks is clearly seen in the context of required disclosures with the Securities and Exchange Commission (“SEC”) for publicly traded companies in the United States. The SEC’s 2010 climate disclosure guidance broadly describes obligations to explain the impacts of potential climate regulations and physical impacts of climate change on a company’s business when those impacts are material. However, critical reports by watchdog and other environmental organizations have noted discrepancies between the climate risks companies disclose in their SEC filings and the broader climate risk information that tends to be reported to voluntary scorecard organizations, such as the Carbon Disclosure Project. The Recommendations conclude that the ultimate success of the TCFD’s disclosure standards will depend upon their early and widespread adoption by companies and note that “a variety of stakeholders”—including stock exchanges, investment consultants, and credit rating agencies—can contribute to the adoption of these new standards.

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Margaret E. Peloso

Margaret E. Peloso Partner