The disclosure framework unveiled today by the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD) envisages multiple roles for asset owners, which, in addition to being users of the recommended reporting, are also being asked to apply the recommendations and to help drive their adoption.
In keeping with previous comments about the task force developing recommendations for “right across the investment chain”, the TCFD noted as important that its proposals apply to financial sector organisations, including banks, insurance companies, asset managers and asset owners.
“Large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organisations in which they invest to provide better climate-related financial disclosures,” the task force report reads.
Asset owners should help drive adoption of the recommendations despite some having concerns about being seen as the potential “policing body” for making sure asset managers and “underlying organisations” take up the recommendations, according to the task force.
It said it “appreciates that expectations must be reasonable and that asset owners have many competing priorities but encourages them to help drive adoption of the recommendations”.
Widespread, near-term adoption of the recommendations is critical, said the task force.
The group’s recommendations, both the overarching ones and sector-specific proposals, also apply to asset managers and asset owners – like private and public sector pension schemes – in the sense that they are also being asked to make disclosures, and not just use them and drive their adoption by others.
For example, the supplemental guidance for asset owners recommends that they describe how climate-related risks and opportunities are factored into “relevant” investment strategies, and “how they consider the positioning of their total portfolio with respect to the transition to a lower-carbon energy supply, production and use”.
All organisations are being asked to disclose the metrics and targets they use, including – “where relevant” – their internal carbon prices.
The supplemental guidance for asset owners specifies that they should provide greenhouse gas (GHG) emissions, “where data are available, associated with each fund or investment strategy normalised for every million of the reporting currency invested”.
The task force acknowledged concerns expressed by asset owners and asset managers about challenges and limitations of GHG emissions reporting but encouraged them to proceed nonetheless with reporting metrics, and recommended their using the GHG Protocol, a widely used reporting framework.
Asset owners and asset managers are being encouraged to disclose climate-related information to their beneficiaries and clients, respectively, “so that they may better understand the performance of their assets, consider the risks of their investments and make more informed investment choices”, according to the task force.
Asset owners should use existing channels of financial reporting to their beneficiaries and others “where relevant and feasible”, it said.
Overall, the task force believes disclosures by the financial sector could “foster an early assessment of climate-related risks and opportunities, improve pricing of climate-related risks, and lead to more informed capital allocation decisions”.
They could also feed into regulatory and financial stability work.
The task force report said data provided under its recommended reporting framework could “provide a source of data that can be analysed at a systemic level, to facilitate authorities’ assessments of the materiality of any risks posed by climate change to the financial sector, and the channels through which this is most likely to be transmitted”.