IIGCC BLOG

Three investor networks write to the FSB climate disclosure task force

Last week, the London School of Economics demonstrated that limiting global warming to 2 degrees centigrade would put USD 800 billion less value at risk by 2100 than a 2.5 degrees scenario. The integration of climate risk into frameworks to enhance financial stability is making progress, as countries across the G20 analyse, assess and in some instances legislate to ensure the smooth transition of the financial system to the low-carbon economy that the Paris agreement has made binding. Almost all G20 countries have already begun taking steps to enhance financial regulation with regard to climate risk, most prominently through requiring better disclosure of climate risk by companies.

The FSB industry-led task force on climate-related financial disclosures (TCFD) is the most prominent initiative underway to improve the climate resilience of the financial system. Ahead of the publication of the TCFD’s phase I report - which outlines the scope of work the Task Force will undertake - IIGCC joined forces with two other investor network - INCR (US) and IGCC (Australasia) – to send a joint letter to the Task Force.

In particular, the investor networks recommended:

1. Companies adopt a climate risk management and disclosure approach, which combines quantitative and narrative reporting about exposures and risk mitigation strategies. In particular, we suggest a 5-part framework covering central areas of climate risk, which could form the basis of a disclosure taxonomy for all industries. Investors also argue that whatever framework the Task Force develops, it should ensure that scope I, II and where relevant Scope III emissions will in future be reported.

2. Narrative reporting should have long timescale reflective of investment horizons for relevant sectors and the long-range nature of climate change. This should be forward-looking and risk-based

3. 2 degrees stress-testing will be necessary in those sectors where climate change is expected to have a material impact on operations or assets.

IIGCC and its partner networks believe the TCFD’s work is crucial for improving the ability of the financial system to analyse, process and integrate climate risk information into investment decisions.

Together with its partners IIGCC will therefore also feed into the public consultation that the Task Force is running until the end of April. Likewise, IIGCC will make the letter written to TCFD available to EU decision makers since the EU is currently revising its non-financial reporting directive and actively looking for inputs to that process.