FSB chair Mark Carney claims new guidelines will help investors assess companies’ climate risk
More than 100 firms worth $2tr in annual revenues applaud new disclosure guidelines to tackle climate risk in business and finance
Over 100 CEOs from some of the world’s most successful companies have today publicly promised to publish details of how their business strategies will cope with the low-carbon transition, in the first sign of a major shift in market sentiment following the publication of new disclosure guidelines from the international Financial Stability Board (FSB).
The companies, which together boast $2tr in annual revenues and more than $11tr in assets under management, announced their backing for the final recommendations released today by the FSB Task Force on Climate-related Financial Disclosures (TCFD).
The voluntary guidelines are intended to serve as a new benchmark for firms reporting financial risks relating to climate change.
They require participating companies to provide information on how their business strategies will be impacted by climate risks across four key areas: governance, strategy, risk management and metrics and targets.
The approach is designed to help investors compare how well companies are preparing not just for the physical impacts of climate change, but also the financial shocks that are likely to occur as demand for renewable energy and electric vehicles increases and traditional assets such as fossil fuel reserves see their value eroded by the low-carbon transition.
The companies promising to support the guidelines include major names from the financial and business sectors, such as Unilever, Virgin, HSBC, Barclays, Pepsi, AXA, Deloitte, and Kering.
While broadly in line with the draft proposals set out in December, the final guidelines have been adjusted to provide greater clarity on the information companies should disclose and reflect opinions gathered during the consultation process.
Among the changes is the recommendation non-financial companies with annual revenue over $1bn should consider conducting more robust scenario analysis to test the resilience of their business strategies, and the requirement for firms to describe the resilience of their business strategy with consideration to a 2C warming scenario.
The TCFD is fronted by Michael Bloomberg and includes executives and experts from a range of financial industries across the world. It was formed by FSB chair and Bank of England governor Mark Carney after the G20 requested a review of how the financial sector can better take account of climate-related issues and so-called ‘carbon bubble’ risks.
Bloomberg said the new guidelines will help ensure climate risk discussions inform business decisions.
“Climate change presents global markets with risks and opportunities that cannot be ignored, which is why a framework around climate-related disclosures is so important,” he said in a statement. “The Task Force brings that framework to the table, helping investors evaluate the potential risks and rewards of a transition to a lower carbon economy. We’re pleased to see so many businesses and investors around the world support the recommendations of the TCFD and hope others will be encouraged to join our initiative.”
The final report and its recommendations will be presented to world leaders at the G20 Summit in Hamburg next week by Governor Carney, who described the guidelines as “essential” for helping markets understand companies’ climate-related risks.
“Widespread adoption will provide investors, banks and insurers with that information, helping minimise the risk that market adjustments to climate change will be incomplete, late and potentially destabilising,” he added in a statement.
The Summit is expected to result in a major stand off between US President Donald Trump and Germany’s Angela Merkel, after the German government signalled it would put climate change, free trade, and the international response to mass migration at the top of the agenda.
Trump recently angered many other governments with his decision to pull the US out of the Paris Agreement on climate change.