Update on Climate Change Reporting
In June, the Task Force on Climate-Related Financial Disclosure (“TCFD”) issued a
status report to provide an overview of current disclosure practices as they relate to the TCFD 2017 recommendations. As a reminder, TCFD is a market-driven initiative established by the Financial Stability Board and comprised of 31 members from across the G20. The TCFD released its
final recommendations providing a framework for companies and other organizations to develop more effective climate-related financial disclosures in June 2017 (See Figure A). The status report, which is in part the result of a survey conducted by TCFD on companies’ efforts to implement the TCFD recommendations as well as investors’ views on the usefulness of climate-related financial disclosures, finds that:
- Disclosure of climate-related financial information has increased since 2016, but is still insufficient given the speed at which changes are needed to limit the rise in global average temperature.
- The top area identified by users of climate-related financial disclosures as needing improvement is for companies to provide more clarity on the potential financial impact of climate-related issues on their businesses.
- Of the companies using scenario analysis to assess the resilience of their strategies, most do not disclose information on the resilience of their strategies.
- While sustainability and corporate responsibility functions are the primary drivers of TCFD implementation efforts, risk management, finance and executive management are increasingly involved as well.
TCFD notes that it is considering clarifying elements of the supplemental guidance it issued as an annex to its 2017 recommendations, developing process guidance for companies on how to introduce and conduct climate-related scenario analysis and identifying business-relevant and accessible climate-related scenarios. TCFD expects to issue another report in September 2020. As a reminder, TCFD-based reporting will become
mandatory for signatories to the United Nation’s Principles for Responsible Investment (“UN PRI”) in 2020. See Figure B for a list of just a few of the nearly 500 U.S.-based asset owners, investment managers and service providers that currently are PRI signatories.
Also in June, the Commodity Futures Trading Commission’s (“CFTC”) Market Risk Advisory Committee held a public meeting to discuss (1) the impact of climate change on the future stability of the global financial system; (2) the current U.S. and international initiatives seeking to address climate-related financial risks; (3) the financial industry’s approaches to managing and mitigating climate-related financial risks; and (4) future challenges for regulators and market participants in the derivatives industry. In his
opening statement, Commissioner Rostin Behnam stated that “[a]ssessing climate-related market risk must be a priority — and it must start now,” pointing to the rising worldwide economic cost of natural disasters and the efforts taken to date by the CFTC’s international counterparts, including the efforts of the Network for Greening the Financial System and TCFD.
RECOMMENDATIONS AND SUPPORTING RECOMMENDED DISCLOSURES (FIGURE A)
|Governance||Strategy||Risk Management||Metrics and Targets|
|Disclose the organization’s governance around climate-related risks and opportunities.||Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.||Disclose how the organization identifies, assesses, and manages climate-related risks. ||Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. |
|a) Describe the board’s oversight of climate-related risks and opportunities.||a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. ||a) Describe the organization’s processes for identifying and assessing climate-related risks. ||a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.|
|b) Describe management’s role in assessing and managing climate- related risks and opportunities. ||b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. ||b) Describe the organization’s processes for managing climate- related risks. ||b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (“GHG”) emissions, and the related risks. |
| ||c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.||c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. ||c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. |
Source: “Taskforce on Climate-related Financial Disclosures: Status Report.” June 2019
SAMPLE OF U.S. UN PRI SIGNATORIES (FIGURE B)
- MetLife Investment Management
- Bank of America Global Wealth and Investment Management
- Morgan Stanley Investment Management
- State Street Global Advisors
- TPG Capital Advisors, LLC
- Goldman Sachs Asset Management
- J.P. Morgan Asset Management
|Are your investors UN PRI signatories? The full list of UN PRI signatories is available here. |
Find more related articles in our Developments in Governance and Disclosure: Summer 2019 report.