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FSB taskforce to recommend climate disclosure ‘right across’ investment chain

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) is poised to announce recommendations for “quite comprehensive” disclosures next week, according to an adviser to the group.

The TCFD will be launching the consultation on its recommendations – for voluntary reporting of climate-related information by companies and investors – next Wednesday, 14 December.

Addressing delegates at IPE’s annual conference in Berlin on Friday, Russell Picot, special adviser to the taskforce, stressed that the taskforce’s aim was “not to create the 401st detailed greenhouse gas emissions framework”.

“We’re not trying to arbitrate between those 400 frameworks,” he said. “What we’re trying to achieve is to significantly improve the narrative and quantitative climate-risk disclosures that need to be made right across the investment chain.”

The disclosures should be made in “mainstream” financial reports and subject to the associated quality assurance.

Giving a flavour of some of the feedback the taskforce collected during the first phase of its work, Picot said investors had expressed “a lot of interest” in scenario analysis – “this concept of getting companies to describe their thinking about what the 2-degree pathway might mean for their business model”.

He also said the taskforce discussed “at length” what short and long-term means, in a nod to the topic of the preceding keynote speech by Sarah Williamson of FCLT Global.

Picot said the taskforce would be making recommendations for disclosure structured around four main thematic areas – governance, strategy, risk management, and metrics and targets.

They will be supported by recommendations about specific disclosures that organisations can include in financial filings. 

The taskforce will be recommending the publication of a 2-degree scenario and “appropriate” greenhouse gas emissions; he said the disclosures the taskforce would be recommending were “really quite comprehensive”.

There will also be supplementary sector-specific guidance for organisations in the financial sector – asset owners, asset managers, banks and insurance companies – and certain companies in the non-financial sector.  

Picot and his panellists discussed the merits or otherwise of disclosures being voluntary, with Picot saying he thought it was sensible to “allow the marketplace to experiment first” before hard-coding requirements.   

Olivier Rousseau, chief executive at France’s Fonds de reserves pour les retraites (FRR), defended compulsory disclosure on the basis of the positive way in which Article 173 of the French environmental and energy transition law had bedded itself in.

This requires institutional investors to report on their exposure and approach to carbon risk but without prescribing how this is done and leaving it to investors to decide.

Rousseau said the law had been well received across the world and that it was “a good start”, but he urged the government – France’s, as well as other countries’ – to do more.

“Don’t stop there – put a price on carbon, guys,” he said.

Thomas Kusterer, CFO of energy supply company Energie Baden-Württemberg (EnBW) in Germany, said a voluntary approach made sense in the short term but that, ultimately, disclosures such as that being proposed by the FSB taskforce needed to be made mandatory.

Kusterer is a member of the TCFD, as a representative of a “data preparer”.

He had earlier on the panel said that company reporting on carbon risk and other climate change-related environmental impact risks needed to improve.

Kusterer said the transition risk associated with climate change was “impacting business models as we speak”.

He said more companies needed to focus on transition risk, as well as other impacts of climate change, such as that on agricultural companies.

“We are not disclosing these kinds of risks appropriately for investors to make a really informed decision and to ensure the right capital allocation can be made by investors,” he said.

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