Over 100 business leaders worldwide have backed the final recommendations of a global task force set up by the G20 to disclose how companies manage climate-related risk, in a move that could divert trillions of investments away from polluting fossil fuels.
The Task Force on Climate-Related Financial Disclosures (TCFD) issued its final recommendations on Thursday (29 June), urging companies to report on how they manage the risks to their business from climate change and greenhouse gas emission cuts.
A rise in temperatures of six degrees this century would see $43 trillion wiped off the value of financial markets, according to research commissioned by Aviva, the UK insurance company. This makes company disclosure vital to ensure investors have the information they need to assess the impact of climate risk on their portfolios.
If the task force recommendations were followed through, it would divert trillions of dollars away from fossil fuels, as investors pull their money out of polluting industries and flee for the long-term security of clean technology assets like renewables energies.
The TCFD was called for by the Group of 20 economies and set up by the G20’s Financial Stability Board (FSB). Its recommendations are voluntary, but when the task force issued its draft report in December 2016, some of its members argued they should become mandatory.
“While we welcome the recommendations, we don’t believe voluntary disclosures will get us far enough, fast enough to effectively combat climate change,” said Steve Waygood, Chief Responsible Investment Officer at Aviva Investors.
“Research shows it is only when governments mandate disclosure that you get it at the scale required to make it consistent and comparable,” Waygood said in a statement issued in February.
As the task force issued its final recommendations on Wednesday (28 June), it received backing from over 100 business leaders who publicly committed to support them. The CEOs signing up to the recommendations came from companies representing over $2 trillion in revenues and with over $11 trillion in assets under management, including EDF, Unilever, HSBC Holdings and Swiss Re.
Michael Bloomberg, the chair of the task force, commented: “Climate change presents global markets with risks and opportunities that cannot be ignored, which is why a framework around climate-related disclosures is so important.”
There are three main types of climate-related risks, according to Aviva:
- Physical risk to investment assets posed by extreme weather events such as floods and droughts, which can hit property valuation.
- Transition risk, referring to hazards associated with the transition to a low-carbon economy. The implementation of a global carbon budget, for example, would render the vast majority of fossil fuel reserves ‘stranded’ or unusable, hitting extractive companies’ business models.
- Litigation risk, which is related to the potential effects of compensation claims on carbon extractors and emitters.
FSB Chair Mark Carney said: “The Task Force’s recommendations have been developed by the market for the market. They set out the disclosures that a wide range of users and preparers of financial filings have said are essential to understanding a company’s climate-related risks and opportunities.”
In Europe, few companies have taken the step to disclose their exposure to climate risk, however. A survey by the WWF of the 80 largest asset owners in Europe showed that only 30 agreed to disclose their data.
“More efforts will be needed to improve the lack of disclosure of holdings data, in part due to a current lack of regulation requiring so in some countries,” the WWF said, calling on the task force recommendations to be made mandatory.
The TCFD will bring its final recommendations to the G20 at its meeting in Germany in July.
Similar efforts are underway at European level. In December, the European Commission set up a High Level Expert Group on sustainable finance to work on climate-related financial disclosure and other sustainability reporting recommendations. The group is expected to conclude its work in December.