Corporate and financial institutions are not, on the whole, prepared for the transition to a low carbon economy, and this has led – and will continue to lead – to the misallocation of assets, the risk of asset stranding, and market volatility and dislocation, said Cardano, the pensions investment and advisory firm.
In response to the Financial Conduct Authority’s (FCA) consultation CP21/17: Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers, which closed 10 September, Will Martindale, group head of sustainability at Cardano, said: “Despite recent momentum to address the climate crisis, the financial risks and opportunities posed by climate change are not fully understood and not fully priced by financial markets.”
He believes climate change represents a material financial risk for all investments. “We also recognise the urgency of the climate crisis,” he added.
In November 2020, the government published a roadmap towards mandatory climate-related disclosures across the UK economy by 2025, aligned with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD).
Cardano has welcomed the FCA’s proposals to introduce disclosure requirements to asset managers – and the companies in which they invest in – but it has proposed in its consultation response that the largest asset managers should publish their TCFD report by mid-2022, as is the case for the largest UK pension funds.
“The purpose of TCFD reporting is to address information gaps in investment decision-making. We believe this can best be achieved through the harmonisation and standardisation of reporting requirements, including the timing of reporting requirements, across the intermediation chain, and in particular, from asset manager to asset owner,” Martindale said.
“It does not seem right to us that pension funds are required to publish their TCFD reports ahead of asset managers,” he added.
Additionally, the consultancy would welcome further clarity on metrics. “While climate metrics are evolving, and we want to continue to encourage innovation, we think the industry would benefit from a degree of standardisation. This allows asset owners to make comparisons across funds,” Martindale said.