The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations to integrate climate information into mainstream financial reporting have been welcomed by CDP, which began securing climate disclosure from companies in 2002, and the Climate Disclosure Standards Board (CDSB), the NGO advancing non-financial reporting in mainstream filings.
Paul Simpson, CEO of CDP said:
“We welcome the TCFD recommendations as they have the potential to further ‘normalise’ climate information in companies mainstream financial filings. Nearly 6000 companies disclosed through CDP this year representing some 60% of global market capitalisation. However, many companies have yet to align business strategies with the requirements of the Paris agreement and the TCFD recommendation on scenario analysis will enable better information for investors to assess this risk. We thank the Task Force for their leadership and look forward to working together on our shared goal of driving forward disclosure. The next step will be for the G20 governments to consider whether such disclosure should become mandatory over time.”
The Task Force recommendations seek to further clarify reporting requirements for companies on financial risk from climate change effects for the benefit of lenders, insurers and investors. In particular, CDP and CDSB welcome the Task Force decision to:
- Recommend reporters integrate climate-related information in their mainstream financial reports. This will bring climate change further into the boardroom as every board must consider and sign off on their mainstream filings. It will ensure climate risk information is disclosed with the same rigour as financial information and allow investors to hold these boards to account for their management of climate risk.
- Recommend all companies describe the potential impact of different scenarios, including a 2 °C pathway and disclose the potential impacts, bringing the “future” of climate risk into the present.
- Encourage both financial and non-financial organisations to adopt the recommendations. We recognise the crucial role they have in ensuring a transition to a low-carbon economy, as their leadership will drive the development of more sustainable economic systems.
The FSB Task Force is setting a new corporate governance norm
Richard Samans, Chairman, CDSB, said: “The FSB Task Force is setting a new corporate governance norm. It is saying that in the 21st century a well governed company must regularly test its business strategy against climate change-related risks and report on management’s strategy in this respect in the mainstream report. This added rigour and accountability to shareholders will compel the attention of CFOs, CEOs and Boards of Directors as never before.
That is ultimately what has been needed to price in climate risk in corporate capital expenditures and investor asset allocations. For the past 10 years, the coalition of business and environmental organisations in the Climate Disclosure Standards Board (CDSB) has been working towards creating best practice in reporting, and we look forward to helping to make the Task Force’s recommendations common practice.”
CDP and CDSB will be participating in the public consultation over the next 60 days, and will release a detailed public response to the draft recommendations. Both organisations are committed to adopting the Task Force recommendations across all sectors once they have been formally presented to the G20 in July, and are encouraging external stakeholders to engage throughout the consultation period. CDP and CDSB will continue to ask the relevant climate questions on a global platform helping companies prepare for TCFD adoption. We will also analyse the disclosures across sectors to provide enhanced insights to enable better understanding of climate performance and prepare capital markets for a more sustainable future.