Financial institutions responsible for assets of around $25trn (€22trn), including major pension investors, have thrown their weight behind the final recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
Released today, the recommendations constitute a voluntary framework for companies – and investors – to report climate-related information in their financial filings.
They follow interim recommendations published for consultation in December, with some changes and clarifications – although they centre on the same four thematic areas of governance, strategy, risk management, and metrics and targets.
“These areas reflect the type of information investors expressed that they need to make better, more informed decisions,” according to the TCFD.
A hallmark of the TCFD’s disclosure framework is the recommendation that organisations provide climate-related financial disclosures in their main annual financial filings, and that companies determine materiality for climate-related issues consistent with how they determine the materiality of other information included in their filings.
One of the changes made since the interim report, however, was to provide flexibility allowing companies to provide additional governance and risk management disclosures outside of financial filings if they wish. These should be independent of an assessment of materiality.
European institutional investors welcomed the recommendations and urged the disclosure framework to be widely used.
Commenting shortly after they were published, Peter Damgaard Jensen, CEO of Danish pension fund manager PKA and chair of the Institutional Investors Group on Climate Change (IIGCC), said: “Greater climate related financial disclosure in line with the TCFD’s four widely adoptable recommendations is crucial to secure more complete, meaningful, reliable, and consistent data across all companies and sectors.
“Given their importance at the top of the investment supply chain, large asset owners and asset managers also recognise they have an important role to play in driving the swift and widespread adoption of this framework.”
Philippe Désfosses, CEO of French pension scheme ERAFP and vice chair of IIGCC, said: “The more companies report effectively on climate related risks and opportunities, the easier it becomes for investors to allocate the substantial amounts of capital required to implement the Paris Agreement and to work on their own climate risk disclosure. There should be no resistance to the widespread adoption of the TCFD’s recommendations given how – in most G20 countries – companies already have legal obligations to disclose material risks in their routine financial filings, including those that related to climate change.”
Investors putting their name to a statement of support for the final TCFD report included several Dutch pension investors, such as the civil service pension scheme ABP and its manager APG, and major North American pension funds such as the California Public Employees’ Retirement System.
Also signed by other financial institutions and non-financial corporates such as AkzoNobel and Veolia, the statement pledged commitment to support the TCFD’s recommendations and described the disclosures as “an important step forward in enabling market forces to drive efficient allocation of capital and support a smooth transition to a low-carbon economy”.
FSB chair and Bank of England governor Mark Carney will present the task force’s final report at the next G20 Summit, in Hamburg in July.
Some have called for the G20 to mandate regulatory disclosure of climate-change-related financial risks.
Philippe Zaouati, CEO of Mirova, the responsible investment subsidiary of Natixis Global Asset Management, told IPE that the European Commission’s High Level Expert Group on sustainable finance will recommend integrating the TCFD’s disclosure recommendations in EU regulation when it presents its interim report in just over a week.
Article 173 – a provision in France’s energy transition law that strengthened mandatory carbon disclosure requirements for companies and introduced carbon reporting for institutional investors – could be a model of how the task force recommendations should be implemented in EU regulation, said Zaouati.
The French law was introduced on a ‘comply or explain’ basis, and implementation is flexible.