TCFD 2019 status report on climate-related disclosure finds improvement, but “progress must be accelerated”
At the WSJ’s CFO Network Annual Meeting this week, the WSJ reported, speakers warned that finance chiefs were “underestimating how climate-related risks, such as extreme weather and changing consumer views on environmental issues, could affect their companies’ bottom lines, and they need to make climate risk assessments a bigger priority.” As reported by the NYT, a member of the CFTC has cautioned that it is “‘abundantly clear that climate change poses financial risk to the stability of the financial system,’” comparing the financial risks from climate change “to those posed by the mortgage meltdown that triggered the 2008 financial crisis.” And, in a survey conducted by a major investment bank of over 600 investors with about $21.5 trillion in assets globally, large investors indicated that they “expect environmental factors will become more pertinent to their investments than traditional financial criteria over the next five years, with more than 80 percent indicating it would be a ‘material risk’ not to integrate ESG factors.” NGOs and other stakeholders have emphasized that transparency is important to allow investors and the financial markets to understand companies’ risk management and corporate governance practices and to make informed decisions regarding capital allocation. In that context, the 2019 status report on company disclosure regarding climate-related risks and opportunities, just released by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, sheds some light on the extent of the progress companies are making in helping investors and others better understand those risks.
The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has recently issued its exhaustive final report—Recommendations of the Task Force on Climate-related Financial Disclosures—and supporting materials, designed to provide a standardized framework and detailed guidance for “voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.” To develop its recommendations, the task force spent 18 months consulting with a wide range of business and financial leaders. According to the press release, “[o]ver 100 business leaders and their companies with a combined market cap of around $3.5tn and financial institutions responsible for assets of about $25tn have publicly committed to support the recommendations.” The disclosure recommendations are organized around four core elements—governance, strategy, risk management and metrics and targets. The Task Force also developed supplemental guidance for financial industries along with companies in energy, transportation, materials and building and agriculture food and forest products. This type of information is expected to enable markets to better “price risk” and allow investors to make more informed decisions. The task force urged companies to include this information as part of their annual SEC or comparable filings to ensure the application of adequate governance processes. Although there is no specific timeframe for adoption, the task force encouraged companies to adopt as soon as possible, keeping in mind that climate reporting will certainly evolve over time.