Hundreds of issuers and investors are coming together in support of a voluntary reporting framework, led by Michael Bloomberg, that aims to provide greater clarity about the risks and opportunities posed by climate change.
237 companies, with a combined market cap of more than $6.3 tn, have signed up to support the Task Force on Climate-Related Financial Disclosure (TCFD).
150 of those companies are financial institutions – including Blackrock, Vanguard, State Street, NBIM, Hermes Investment Management – managing combined assets of more than $81.7 tn.
TCFD was established in 2015 by the Financial Stability Board (FSB) with the goal of establishing a voluntary and consistent reporting framework that could be used across different industries and geographies. After a two-year research and feedback period, TCFD released its reporting recommendations in June 2017.
The recommendations focus on reporting around four key areas:
- Governance: the organization’s governance around climate-related risks and opportunities
- Strategy: the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning
- Risk management: the processes used by the organization to identify, assess and manage climate-related risks
- Metrics and targets: the metrics and targets used to assess and manage relevant climate-related risks and opportunities
‘Climate change poses both economic risks and opportunities but right now companies don’t have the data they need to accurately measure the risks and evaluate the opportunities,’ Michael Bloomberg, chair of the task force and former New York City mayor said at a press conference last week. ‘That prevents them from taking protective measures and identifying sustainable investments that could have strong returns. The task force’s recommendations will help change that by empowering companies to measure and report risks in a more standardized way.’
Mark Carney, FSB chair and governor of the Bank of England, said that a progress report on the implementation of the TCFD framework will be given at the Argentine G20 summit this time next year.
The framework encourages companies to provide guidance on risks and opportunities posed by different climate-based scenarios, adjusting the guidance based on the severity of the change – for example, explaining how shifting temperatures may affect business performance over time, with predictions adjusted based on different temperature change scenarios.
‘The disclosure of organizations’ forward-looking assessments of climate-related issues is important for investors and other stakeholders in understanding how vulnerable individual organizations are to transition and physical risks and how such vulnerabilities are or would be addressed,’ the framework says.
The subject of climate-related disclosure is a complicated one, with many different reporting standards springing up.
Alongside the TCFD, issuers can follow guidelines from the Carbon Disclosure Project (CDP), Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB).
Issuers that choose to follow the TCFD framework will also be compliant with the other reporting guidelines, according to the TCFD’s website.
In a recent interview with Corporate Secretary, Janine Guillot, director of capital markets policy and outreach at SASB, talked about the challenges of building a standardized reporting framework for issuers.
‘ESG disclosure today can often be very much one size fits all, with companies reporting the same type of information regardless of industry,’ Guillot said. ‘We’re not advocating for that – we very much believe the most relevant information regarding business performance is specific to industries.
‘So the question becomes whether there are differences between companies that would make it difficult to standardize information even within an industry – and there’s no doubt that’s possible.’