FSB Launches Highly-Anticipated TCFD Phase II Report

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Carbon Tracker has released the following response to the Task Force
on Climate-related Financial Disclosures (TCFD) report, published by the Financial Stability Board.

The full report can be found here: https://www.fsb-tcfd.org/wp-content/uploads/2016/12/TCFD-Recommendations-Report-A4-14-Dec-2016.pdf

Making a market in climate-related financial risk

• Mark Carney, the Bank of England’s Governor and Chair of the Financial Stability Board (FSB), warned of the “tragedy of the horizon”, where the future impacts from climate change are felt beyond the traditional horizons of most financial actors.
• The FSB’s Task Force on climate-related financial disclosures (TCFD) has examined how greater transparency of climate-related risks would bring that horizon forward and, in Mr. Carney’s words “make the market” in climate-related financial risk.

Welcoming its publication, Mark Campanale, Founder & Executive Director of Carbon Tracker said: “The Task Force’s recommendations are the strongest signal yet that climate-related risk is financial risk. Bringing together years of essential work, the principles underlying the Task Force’s recommendations provide the foundation for climate-related financial disclosures that should be incorporated into financial reporting.”

Aligning business models with 2°C

• Even before last year’s watershed Paris Agreement, climate risk was high on the agenda of the world’s largest institutional investors and asset managers. Record-high shareholder support (over board opposition) for resolutions asking oil and gas companies to stress test their business models against a 2°C-consistent climate outcome demonstrates that this is squarely a financial concern.

Mark Campanale said: “Many of the great companies of our past have fallen victim to technological transitions that they could not see coming. The Task Force’s recommendations highlight the importance of companies’ boards engaging with the realities of climate-related risks and opportunities, in order that our fossil fuel companies do not tread the same path to extinction as Olivetti, Kodak and Blockbuster.”

Robert Schuwerk, Senior Counsel, at Carbon Tracker said: “Carbon Tracker’s work has highlighted the trillions of investors’ dollars at risk if fossil fuel companies continue to plan for business-as-usual while the rest of the world heads in the opposite direction. The Task Force’s recommendations provide the basis for simple, forward-looking disclosure of the degree to which companies business models are aligned to the targets agreed in Paris, a source of significant investor interest.”

Addressing the most critical sectors

• The report contains forward-looking recommendations for publicly traded companies and asset managers. It provides a template for best practices and a road map for better disclosure mandates to be taken forward by financial policymakers and market regulators.
• Most importantly, the TCFD has established a framework for fossil fuel companies to conduct and disclose scenario analysis to evaluate the impact of a pathway limiting warming to well below two degrees and provide some mechanism for evaluating sensitivity to commodity prices.

Robert Schuwerk said: “Carbon Tracker’s work has pointed to significant ‘group-think’ among fossil fuel companies, who typically foresee a future at odds with our globally-agreed climate targets and the development of low-carbon technologies. Utilising tools such as forward-looking scenarios and sensitivity analysis, the Task Force’s recommendations critically connect climate-related risks and financial reporting.”

Mark Campanale said: “Once taken up, the Task Force’s recommendations will significantly increase the transparency of companies’ assumptions around climate risk. But investors need to understand how the climate targets will impact companies, not whether the board believes those targets will be met. If they understand the potential impact they can then price the risk. The Task Force recommendations provide a useful step in generating such disclosure.”