The number of organizations signed up to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) has increased fourfold since 2017, with banks signing up at the highest rate.
The Bank of England-backed climate initiative has secured more than 1,000 issuers’ and investors’ signatures as climate change poses an increasing financial risk, according to a statement issued by TCFD.
In an effort to increase transparency on climate-related risks and opportunities, the task force set up by the Financial Stability Board in 2015 and chaired by Bloomberg founder Michael Bloomberg is bringing together shareholders and companies to support the voluntary reporting framework.
The 1,027 supporters worldwide represent a market capitalization of nearly $12 tn, with 473 financial firms managing combined assets of $138.8 tn. Financial groups have signed up to support the task force at the highest rate: 93 banks worldwide had joined by January 2020. Bank of New York Mellon, Italian UniCredit and San Francisco-based Wells Fargo came on board in 2019.
Key areas to report on
The climate initiative’s recommendations concentrate on four key areas to report on: governance, strategy, risk management and metrics and targets.
The framework encourages companies to disclose on methods that address climate-related risks and opportunities at management and board level. According to the TCFD website, a climate-related financial report should also look at company strategies developed to hit global climate goals.
Moreover, the financial disclosure covers processes used by organizations to identify, assess and manage climate-related risk along with metrics and targets designed to address these risks.
‘The TCFD recommendations target every company in the world, every industry and every jurisdiction, so our framework is very flexible,’ says Mara Childress, a member of the TCFD secretariat and director of global public policy at Bloomberg. ‘It is meant to allow companies to talk about what is most relevant to them, which we hope is the most important information for investors.’
Despite companies making great strides in voluntary reporting, Childress underscores a standardized metric that could ease reporting hurdles for issuers and avoid a cacophony of differing standards.
‘We have already worked on bringing standards together,’ she says. ‘There is an initiative called the Corporate Reporting Dialogue, where other reporting frameworks come together on how to reduce the reporting burden. I think the [Greenhouse Gas Protocol] is closest to being a standard metric [globally].’
Under-represented sectors
Firms from transport, commercial and professional services, oil, gas and consumable fuels sectors – seen as the greatest polluters – still represent a low number among all supporters. Only five companies from the services sector and eight transport firms have joined the imitative so far, according to TCFD.
Twenty-one metals and mining firms – including Switzerland-based Glencore and Anglo-Australian miner Rio Tinto – and 28 companies from chemicals sectors such as Japan’s Mitsubishi Chemical Holdings have joined, lagging far behind the number of banks willing to disclose.
All Asia-based chemical companies that support climate-related financial disclosure are Japanese. Chinese chemicals conglomerates have still not declared their support for the climate task force.
The total number of supporters headquartered in 55 countries span public and private sectors including companies, national governments such as Belgium, Canada, Chile, France, Japan, Sweden and the UK, government ministries, central banks, regulators, stock exchanges and credit rating agencies.
Expensive reluctance
‘Climate change could present a significant risk for a lot of companies. If investors are able to price that risk into their financial decision-making that would lead to a pretty significant reallocation of capital over time,’ says Childress.
Grappling with climate risk appears to be less costly than turning a blind eye to the value at risk from climate change. A report from the Economist Intelligence Unit calculates that up to $4.2 tn in managed assets are at risk in the event of a 2ºC global temperature increase and a significant amount of capital and investments would be expected to be reallocated by the end of the century.
Childress gives the example of a Danish energy company that reinvented itself by avoiding a potential cost of inaction: ‘Morgan Stanley recently published an article about Ørsted, a power company that changed its entire business model by selling off its oil and gas assets and becoming a leading renewable energy company.’
