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Policy
| 09/07/17

Climate-risk financial disclosure a research challenge

TCE

An Australian bank is being sued by shareholders for failing to disclose the risks posed by climate change to its financial stability or business, the first time that a financial institution is being tested for its climate-related exposure.

On Aug. 8, lawyers with Environmental Justice Australia, a green advocacy group, filed papers on behalf of two long-standing shareholders, claiming that Commonwealth Bank had failed to properly inform investors about risks from global warming in its 2016 directors’ report. The shareholders are hoping the court will impose an injunction against the bank requiring it to refrain from such gaps in future reports.

But if banks and other financial institutions are required to deliver this kind of information in the future, they may require significant support from the adaptation research community.

The lack of disclosure up to now may not be a matter of corporate legerdemain, as some might think. The task of assessment of climate risk for financial institutions may be no less difficult than performing similar climate impacts assessments for municipalities, farms, and bioregions, and perhaps even more so, given the scale and breadth of their investments.

Commenting in a Nature journal article on the case, Columbia University climate scientist Simon Mason warned that to develop the sort of detailed forecasts on the scale of months to years, and at quite granular spatial scales financial institutions need, they would likely need perhaps five-to 10-years of work. Such climate impact assessments would also require significant investment both financially and in terms of computing power.

The case follows a raft of similar disclosure cases launched against energy firms in the U.S. and U.K. and nervous comments from central bankers.

Last year, accounting and professional services giant PricewaterhouseCoopers warned that unidentified risk from climate policy even “concentrate in banks” lending portfolios and create a systemic risk to financial stability.”

In June, more than 100 companies worth some $11 trillion in assets working through the G20’s Taskforce on Climate-Related Financial Disclosures, drafted a common set of guidelines recommending that organizations report climate risks and opportunities during their annual public financial filings. And in July, TD Canada Trust and the Royal Bank of Canada announced they are to participate in a pilot project of the UN Environment Programme to help develop analytical tools to support such assessments and disclosures.

Such efforts at this point are largely voluntary, but the outcome of the Australian case could change that, and other ways in which they identify risks.

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If banks are forced to disclose climate risk, this could require substantial investment in climate impacts research

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