Speed needed on financial impact of climate change disclosure

Asset owners and their managers need to encourage more companies to disclose the financial impact of climate change on their businesses using an internationally recognised code, according to a new report.

The Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board, said in its latest status report that more than 1,500 organisations have expressed their support for its recommendations on highlighting the risk posed to companies.

This represents an increase of over 85% since 2019.

However, the TCFD said the level of disclosure remains low, with just a six percentage-point increase between 2017 and 2019.

Meanwhile, just one in 15 of the companies reviewed disclosed information on the resilience of its strategy under different climate-related scenarios, significantly lower than that of any other recommended disclosure.

Mary Schapiro, head of the TCFD secretariat, said: “Investors are increasingly demanding climate-related disclosures from the companies they invest in, and this demand is driving global momentum around the TCFD recommendations across financial and non-financial sectors.”

She said the TCFD had provided a foundation that was “improving the quality and consistency of this type of disclosure” and should help encourage a standardised approach across sectors and regulatory jurisdictions.

“We look to companies and investors to utilise the tools we have provided to accelerate the pace of progress,” she added. 

The body also warned that while TCFD-aligned reporting by asset managers and owners to their clients and beneficiaries has increased over the past three years, it believes it still may not be sufficient.

It said more needs to be done to ensure clients and beneficiaries have the right information to make financial decisions. The TCFD said it recognises the challenges associated with making disclosures, but faster progress is needed from asset managers and asset owners.

The TCFD also announced a public consultation on how forward-looking climate metrics used and disclosed by asset owners, asset managers, banks, and insurance companies can be incorporated into the code.

Michael Bloomberg, chair of the TCFD, said: “The work that governments and businesses are doing to address the devastation caused by the coronavirus is also an opportunity to build a stronger, more resilient, and more sustainable economy – and transparency and disclosure have an important role to play.

“The more companies know about their risks and opportunities related to climate change, and the more information investors have, the better we will be able to allocate resources and make progress.”

Earlier this month, the Bank of England’s executive director for markets Andrew Hauser said he expected the code eventually to become mandatory.