The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) should strengthen its recommendations relating to the standardisation and comparability of data, according to the Institutional Investors Group on Climate Change (IIGCC).
However, the group believes the draft report represents real progress toward harmonisation and wider adoption of climate disclosure.
In an overview of its submission to the TCFD’s recent consultation, IIGCC said the task force’s recommendations represent “a vital step forward in global efforts to drive harmonisation of climate-related disclosure”.
It welcomed several aspects of the draft recommendations, but also made suggestions for improvements to the framework the TCFD has proposed.
It said that “the number one requirement” for asset owners and managers to be able to clearly disclose how they address climate risk across their portfolios “is for them to have more complete, meaningful, reliable and consistent data across companies and sectors”, but warned this is not yet the case.
IIGCC suggested the TCFD’s proposed framework would leave it up to each organisation to select the metrics they want to use to assess climate-risks and opportunities.
This could work against consistency in financial filings over time, which could hinder comparability, and may encourage companies to evade robust disclosure until specific reporting metrics are required by financial regulators, according to the group.
The Task Force presented its draft recommendations on climate-related financial disclosures in December, with a 60-day consultation running until 12 February.
The recommendations addressed disclosures by companies as well as investors.
One of the TCFD’s key recommendations was for companies to disclose a climate change scenario analysis. Stephanie Pfeifer, CEO of IIGCC, said “our members back this as an important form of risk assessment”.
IIGCC also called for a standardised ‘best practice’ approach employing a two-degree scenario with commonly determined (and disclosed) assumptions and procedures.
This would help “normalise the use of such analyses and improve the comparability of the outcomes and costs they show,” according to the group.
It also called for several key reinforcements to the task force’s recommendations on corporate disclosure.
One of these is that companies should be tasked to disclose which climate-related risks and/or opportunities they consider financially immaterial regardless of whether these are identified as potentially material by investors, regulators, or other key stakeholders.
The IIGCC also called for additional disclosures under the TCFD’s framework:
- board-level expertise on climate risk;
- whether or not remuneration at board and management level reflects climate-related performance; and
- “the processes used by the board member responsible for climate policy to ensure consistency between public policy positions adopted by the company and any trade associations to which it also belongs”.
With respect to the TCFD’s guidance for reporting by investors, IIGCC called for this to cover more asset classes than just equities.
Pfeifer emphasised the importance of the TCFD’s final recommendations being fully implemented: “Following on from the letter we sent to heads of state last September, IIGCC urges the G20 to show leadership during the German 2017 presidency on implementation of the TCFD’s recommendations, as well as the evolution of climate disclosures going forward.”