A global task force comprising representatives from some of the world’s biggest companies and most important financial institutions last month issued a voluntary framework for disclosure of the impact of climate change on their operations.
The body, headed by former New York mayor Michael Bloomberg and Bank of England chair Mark Carney, was established by the G20 due to growing concerns that many firms faced significant risk from global warming, but were not reporting the problem, or if they were, they were not doing so in a consistent manner.
A number of national, regional or sectoral disclosure frameworks have been developed, but no single standardised scheme covering the whole of the G20.
At the same time, the financial risk of climate change between now and the end of the century, runs from $4.2 trillion at the low end up to $43 trillion, according to a 2015 study by the Economist Intelligence Unit.
Thus a lack of open reporting could result in market instability. A range of market actors, including investors, lenders, credit rating agencies and the insurance industry, have for some time called for greater transparency with respect to climate-related financial disclosure, both on the risk and opportunity sides of the ledger.
As a result, over much of the last year, more than 100 companies worth some $11 trillion in assets, worked through the Task Force on Climate-Related Financial Disclosure (TCFD) to draft a common set of guidelines.
In June, the TCFD issued its final report, which said that organisations should disclose climate risks and opportunities, and also their governance and processes used to identify, assess and manage these issues. Such reporting should be made during their annual public financial filings.
The framework guidelines are voluntary, but some firms believe they should be mandatory in order to ensure a level playing field.
A country-specific review of the report’s implications for Canada by the UN-supported Principles for Responsible Investing (PRI) organisation, said that the next steps domestically should be for Ottawa, as well as federal and provincial regulators including the Canadian Securities Administrators, to endorse the TCFD recommendations, and that the Toronto Stock Exchange and TSX Venture Exchange should reference them in their reporting guidance.
The PRI also said that Canada currently has limited corporate disclosure covering so-called ‘ESG’, or environment, social and governance factors—those elements used to measure the sustainability and ethics of a business. In addition, climate change tends to be grouped under the rubric of environmental requirements, but not addressed as a stand-alone concern. It concluded that Canadian climate disclosure is “progressing relatively slowly”.
In March, the Canadian Securities Administrators announced that they would begin scrutinising how well public companies are engaged in climate financial-risk disclosure, and compare this to other countries’ policies and practices.
Last December, a review released by the Chartered Professional Accountants of Canada found that while a majority of firms are making climate-related disclosures, there is no consistency. Thus investors experience difficulty being able to compare climate risk across different firms and sectors.
Commentators believe the new voluntary framework, if implemented in Canada, should go some way towards addressing this.
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