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G20 Task Force Report Creates Buzz Around Climate-Related Financial Disclosures

One year after its formation, the Task Force on Climate-Related Financial Disclosures (TFCD), a global task force created by the G20’s Financial Stability Board (FSB) to prevent market shocks stemming from climate change, has published its report, Recommendations of the Task Force on Climate-Related Financial Disclosures.

Among its recommendations, the TFCD is asking companies to disclose how they manage risks to their business from climate change and greenhouse gas emission cuts, a practice that will help organizations identify and disclose information needed by investors, lenders and insurance underwriters to appropriately assess and price climate-related risks and opportunities.

The Task Force’s recommendations are the result of the first global, industry-led effort to create recommendations for climate-related financial disclosures, and focus on four thematic areas that generally reflect how organizations operate: governance; strategy; risk management; and metrics and targets.

“The Recommendations of the Task Force on Climate-Related Financial Disclosures report represents an important effort by the private sector to improve transparency around climate-related financial risks and opportunities,” said Michael R. Bloomberg, chairman of the Task Force. “Climate change is not only an environmental problem, but a business one, as well. We need business leaders to join us to help spread these recommendations across their industries in order to help make markets more efficient and economies more stable, resilient and sustainable.”

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In addition to asking companies how they identify, assess and manage climate risks and opportunities, as well as how risks impact their business, strategy and financial planning in the long term, the report calls for companies to describe how cutting greenhouse gas emissions will impact their bottom line.

The report identifies increased company transparency as imperative, especially for the energy, transportation, materials and buildings, agriculture, forest food products, banks, insurance sectors, who are at greatest risk in terms of climate-related financial impacts.

Importantly, the Task Force’s recommendations also apply to financial-sector organizations, including asset managers and asset owners. These two groups sit at the top of the investment chain and, therefore, have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures.

The measures recommended by the TFCD are currently voluntary, but some members argue that they should become mandatory.

“Only then will climate risk become integral to corporate governance and how we all do business,” Mark Wilson, chief executive of insurance firm Aviva Plc, said in a statement.

Climate-related financial reporting is, however, still at an early stage, and the TFCD’s recommendations are a step in the right direction to improve investors’ and others’ ability to appropriately assess and price climate-related risk opportunities.

The Task Force recognizes the challenges associated with measuring the impact of climate change on an organization or an asset, but believes by moving climate-related issues into mainstream financial filings, practices and techniques will evolve more rapidly. Improved practices and techniques, including data analytics, should further improve the quality of climate-related financial disclosures and, ultimately, support more appropriate pricing of risks and allocation of capital in the global economy.

The full report can be viewed on FSB TFCD website.

The Task Force has also launched a 60-day public consultation period. Feedback on the recommendations can be submitted here.


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