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News, quotes & reaction to FSB TCFD climate disclosure Recommendations

by Joel Kenrick

The Recommendations of the FSB Task Force on Climate-related Financial Disclosures have now been published today.

This Chronicle email contains snap reactions, with 1. News stories on the task force: a round-up of news stories already published today, including joint opinion article by Mark Carney and Michael Bloomberg in today’s Guardian. 2. Quotes and reactions from stakeholders, academics and NGOs. The FSB TCFD website also has quotes from Task Force members which are not included here. Finally in case not received directly is the 3. FSB TCFD Email launching the recommendations, including video, press release, full report, annex on implementing the recommendations, technical supplement on use of scenario analysis, public consultation.

1. News stories on the task force: (all 14 Dec unless stated)

Bloomberg & Carney: all taskforce members have announced support for the recommendations, the pair reveal in an opinion article in the Guardian (How to make a profit from defeating climate change, Mark Carney and Michael Bloomberg, The Guardian). The pair write: 'The challenge is that investors currently don’t have the information they need to respond to these developments. This must change if financial markets are going to do what they do best: allocate capital to manage risks and seize new opportunities. Without the necessary information, market adjustments to climate change will be incomplete, late and potentially destabilising.’ … 'We believe that financial disclosure is essential to a market-based solution to climate change. A properly functioning market will price in the risks associated with climate change and reward firms that mitigate them. As its impact becomes more commonplace and public policy responses more active, climate change has become a material risk that isn’t properly disclosed.’ … 'We are pleased that all taskforce members, companies with market capitalisation of $1.5tn and financial institutions responsible for assets of $20tn, have announced their support for the disclosure recommendations. We encourage others to participate in the consultation, to become early adopters thereafter, and to encourage the companies in which they invest to also make the disclosures.

In the accompanying Guardian news article, Larry Elliot writes that 'Mark Carney says a new set of guidelines drawn up over the past year should be implemented so that investors can allocate capital to those companies with the best ideas to hit the target of keeping the rise in global temperature to less than 2C.’ (Mark Carney: firms must come clean on exposure to climate change risks)

Recommendations should become common practice, but regulators urged to do more: The Financial Times writes that 'The task force wants companies’ financial reports to include a discussion of the impact of both specific climate change scenarios and the carbon-reducing policies which are designed to combat them. Although the FSB cannot force companies to adopt the recommendations, it hopes that they will become common practice across a wide range of sectors.’ (Carney-backed report urges companies to disclose climate change impacts, Oliver Ralph, Financial Times). The piece also highlights that companies are already legally required to disclose material risks, including climate change risks. 'It is already evident that financial regulators are not providing adequate oversight of climate-related risk disclosures and enforcement’, ClientEarth’s Alice Garton told the FT.

CEO Pay should be linked with climate change risks: according to Bloomberg article which focuses on impact on CEO pay and the recommendation that 'energy companies should consider telling investors how executive compensation is linked to climate change risks. Remuneration policies should consider how tighter pollution laws, extreme weather events and efforts to reign in fossil fuels could impact creditors and shareholders, according to the Task Force on Climate-Related Financial Disclosures, the group set up by Bank of England Governor Mark Carney in his role as head of the Financial Stability Board. "How companies are remunerating their boards has been a very understated feature of the debate until now,” said Mark Lewis, a managing director at Barclays Plc and member of the task force, in a phone interview." (Carney Panel Urges CEO Compensation Link With Climate Risk, Jessica Shankleman, Bloomberg)

Climate disclosure should be part of routine financial statements: The Wall Street Journal says that 'Companies should publish an assessment of the losses they could suffer through climate change as part of their routine financial statements’ and quotes Mr. Bloomberg writing “What gets measured better gets managed better.” 'The panel’s recommendations, which include broad suggestions applicable to all companies’ financial statements and specific proposals aimed at banks, insurers and the financial sector, will be presented to leaders of the Group of 20 leading economies in July.' (Companies Should Report Possible Climate Costs, Say Global Executives, Jason Douglas, Wall Street Journal)

On Forbes, Dina Medland says that 'The Task Force acknowledges that climate-related financial disclosure is bound to be evolutionary. But "the success of these recommendations depends on near-term, widespread adoption by organizations in the financial and non-financial sectors" it says. (Climate Related Financial Disclosures for Business: An Imperative for 2017, Dina Medland, Forbes)

IPE: Multiple role for Asset owners as users, reporters and to drive adoption, according to Investments & Pensions Europe."Large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organisations in which they invest to provide better climate-related financial disclosures,” the task report reads. Asset owners should help drive adoption of the recommendations despite some having concerns about being seen as the potential “policing body” for making sure asset managers and “underlying organisations” take up the recommendations, according to the task force.’ According to IPE ‘widespread, near-term adoption of the recommendations is critical, said the task force.' (FSB climate disclosures task force ascribes key role to asset owners, Susanna Rust, IPE). 'Asset owners should embrace their role as the “policing body” of climate-related financial disclosures, says the high-level panel’ according to Responsible Investor. "The Task Force appreciates that expectations must be reasonable and that asset owners have many competing priorities, but encourages them to help drive adoption of the recommendations.” (FSB task force says asset owners should drive adoption of climate-related financial disclosures, Daniel Brooksbank, Responsible Investor ($)).

Investors in the vanguard: In initial analysis of the report Daniel Brooksbank says: "It may well be that December 14 2016 will mark the day that environmental, social and governance (ESG) truly got integrated: It might not be D-Day but it is certainly ‘TCFD-Day’. The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (TCFD) has today firmly put investors in the vanguard of climate change disclosure. It clearly states that asset managers and asset owners “including public- and private-sector pension plans, insurance companies, endowments, and foundations”, should implement its recommendations. Never again will asset owners or fund managers be able to claim it’s not their problem.” (Analysis: FSB climate task force recommendations - the day ESG really got integrated?, Daniel Brooksbank, Responsible Investor ($)).

Aviva: Rules need “real bite” by being made compulsory, according an Aviva chief Mark Wilson interview in the Evening Standard: 'What gets measured, gets managed and what gets disclosed and published gets managed even better. We should give the disclosure real bite by making these recommendations mandatory, not voluntary. Only then will climate risk become integral to corporate governance.” (City leaders: Make climate change disclosure obligatory, Russell Lynch, Evening Standard).

Reuters also cover call for the rules to be made mandatory, and highlight that 'According to Barclays, the fossil fuel industry could lose $34 trillion in revenues by 2040 as a global deal to limit temperature rise to well below 2 degrees Celsius reduces demand for oil, coal and gas, turning reserves into stranded assets.' (G20 task force wants companies to come clean on climate risk, Nina Chestney, Reuters)

CPPIB: Improved company disclosure will help investors improve decisions and disclosure: according to an opinion article by Stephanie Leaist from Canada Pension Plan Investment Board in the Global and Mail. She writes: 'There are many unknowns surrounding climate change, and that can cause discomfort. As investors, our job is to draw from current information sources to look into the future. Not knowing all the answers shouldn’t stop us from making plans based on the information at hand. The more detailed and relevant the information, the better investors can look forward, assess risks and opportunities and allocate capital accordingly.' (Climate disclosure framework creates a better environment for investors, Stephanie Leaist, Global and Mail). They also has a news story on the recommendations (Companies must make clear risks posed by climate change: Carney panel, Globe and Mail)

Eni: climate change deserves further efforts in industry commitment and disclosure: Climate Home highlight that large oil and gas companies 'will be among those required to explain how their long term plans could be impacted if governments adopt tougher low carbon policies, or when global warming starts to impact supply chains.’ … 'The report comes with the support of companies valued at US$1.5 trillion and with assets of $20trn in management – among them Aviva, Blackrock, Barclays, Deloitte, Dow, HSBC and TATA. “The increasing attention on climate change deserves further efforts in either industry commitment and disclosure,” said Claudio Descalzi, CEO of Italian oil giant Eni, another company to participate in the study. (G20 panel tells energy giants to come clean on climate risks, Ed King, Climate Home)

AODP: guidelines may prove to be as influential as the Paris Agreement climate deal: according to Business Green. Julian Poulter, chief executive of the Asset Owners Disclosure Project, said the guidelines mark an "important milestone" and may prove to be as influential as the Paris Agreement climate deal. "These guidelines send a clear message to companies and investors that climate change can threaten their business model and the market needs to know what they are doing about it," he said. "The FSB was set up by the G20 to help tackle threats to the global financial system in the wake of the sub-prime mortgage crisis. It is now taking essential action to head off the emerging threat to world financial stability from a 'sub-clime' crisis and it must not stop here.” (Carney-backed task force set to deliver far-reaching corporate guidance to tackle 'climate trifecta' of risks and Carney leads calls for private sector climate disclosure, Jocelyn Timperley, Business Green ($) 

Use existing scenarios, including a 2 degree scenario, or develop own: 'Companies should use a range of existing, publicly-available climate-related scenario analysis or develop their own in order to assess the risks posed to their business by climate change, according to the Financial Stability Board (FSB) Task Force on Climate-Related Financial Disclosures (TCFD)’ write Environmental Finance. '"[The report] reiterates the importance of companies adopting science based targets in order for these disclosures to identify and mitigate meaningful financial risks," said Douglas Farquhar, principal consultant at verification company DNV GL. Various publicly available scenarios were summarised by the report including, in terms of what they assumed about carbon emissions, solar deployment, energy efficiency, energy mix, carbon price and weather impacts.’ The report quotes Helen Wildsmith, who leads climate stewardship work at CCLA, '"We may need to have an entity in that role, such as the IEA or the IPCC," she said, likening such a model to the way that central banks set stress tests for the banking sector. But she added that it was important that companies also devise their own scenarios, "to help them drive their own planning and thinking”.' (Organisations should use existing climate scenario analysis or develop their own, says TCFD, Joe Walsh, Environmental Finance ($))

2. Quotes and Responses from Stakeholders:

Alice Garton, Senior Corporate Lawyer, ClientEarth (full press release online):

“A company’s legal duty to disclose material risks is clear and this duty applies equally to climate risk. These recommendations set the standard for compliance with these existing laws. It shouldn’t be an ‘either/or’ choice but there’s a very real danger that some companies and regulators will treat it as such. It is already evident that financial regulators are not providing adequate oversight of climate-related risk disclosures and enforcement."

Ben Caldecott, Director of the Sustainable Finance Programme at the University of Oxford:

“These recommendations will help to ratchet up transparency on how climate change impacts company value today and in the future. Crucially, the recommendations will help make company directors engage with these issues properly. Investors will also face greater scrutiny of the climate-related risks in their investment portfolios, putting further pressure on the companies they invest in.”

Mark Campanale, Founder & Executive Director of Carbon Tracker (full press release online):

“The Task Force’s recommendations are the strongest signal yet that climate-related risk is financial risk. Bringing together years of essential work, the principles underlying the Task Force’s recommendations provide the foundation for climate-related financial disclosures that should be incorporated into financial reporting. Many of the great companies of our past have fallen victim to technological transitions that they could not see coming. The Task Force’s recommendations highlight the importance of companies’ boards engaging with the realities of climate-related risks and opportunities, in order that our fossil fuel companies do not tread the same path to extinction as Olivetti, Kodak and Blockbuster. Once taken up, the Task Force’s recommendations will significantly increase the transparency of companies’ assumptions around climate risk. But investors need to understand how the climate targets will impact companies, not whether the board believes those targets will be met. If they understand the potential impact they can then price the risk. The Task Force recommendations provide a useful step in generating such disclosure."

Robert Schuwerk, Senior Counsel, at Carbon Tracker:

“Carbon Tracker’s work has highlighted the trillions of investors’ dollars at risk if fossil fuel companies continue to plan for business-as-usual while the rest of the world heads in the opposite direction. The Task Force’s recommendations provide the basis for simple, forward-looking disclosure of the degree to which companies business models are aligned to the targets agreed in Paris, a source of significant investor interest. Carbon Tracker’s work has pointed to significant ‘group-think’ among fossil fuel companies, who typically foresee a future at odds with our globally-agreed climate targets and the development of low-carbon technologies. Utilising tools such as forward-looking scenarios and sensitivity analysis, the Task Force’s recommendations critically connect climate-related risks and financial reporting."

Andrew Voysey, Director of Finance Sector Platforms, CISL’s Centre for Sustainable Finance:

“This is an historic moment; these disclosure recommendations would place the financial implications of climate change squarely within the mandates of Boards of tens of thousands of listed companies worldwide, and fiduciaries responsible for investing capital in them. As Knowledge Partner to the G20, we are already seeing financial regulators focusing on how the financial markets will consume this data.”

Dylan Tanner, Executive Director, InfluenceMap (full media release online):

"It is remarkable how scant risk disclosure is from some of the sectors directly in the firing line of potentially stringent climate motivated policy, such as oil and gas, cement and automotive. When implemented, regulations like California's Zero Emission Vehicles laws could radically alter corporate business models of the auto and oil companies. Its perhaps no coincidence that, according to our detailed analysis, the poor disclosers in these sectors have been lobbying the most against their successful implementation."

Paul Simpson, CEO of CDP (full joint CDP / CDSB press release online):

“We welcome the TCFD recommendations as they have the potential to further 'normalize' climate information in companies mainstream financial filings. Nearly 6000 companies disclosed through CDP this year representing some 60% of global market capitalization. However, many companies have yet to align business strategies with the requirements of the Paris agreement and the TCFD recommendation on scenario analysis will enable better information for investors to assess this risk. We thank the Task Force for their leadership and look forward to working together on our shared goal of driving forward disclosure. The next step will be for the G20 governments to consider whether such disclosure should become mandatory over time."

Richard Samans, Chairman, CDSB (full joint CDP / CDSB press release online):

"The FSB Task Force is setting a new corporate governance norm. It is saying that in the 21st century a well governed company must regularly test its business strategy against climate change-related risks and report on management’s strategy in this respect in the mainstream report rather than solely in a separate sustainability report. This added rigor and accountability to shareholders will compel the attention of CFOs, CEOs and Boards of Directors as never before.

 

“That is ultimately what has been needed to price in climate risk in corporate capital expenditures and investor asset allocations. For the past 10 years, the coalition of business and environmental organizations in the Climate Disclosure Standards Board (CDSB) has been working towards creating best practice in reporting, and we look forward to helping to make the Task Force’s recommendations common practice.”

Professor Myles Allen, Co-Director, Oxford Martin Net Zero Carbon Investment Initiative:

“We welcome the initiative, and its emphasis on forward-looking disclosure, and it is great to see so many major companies and investors taking the climate issue seriously. Simple carbon footprinting of company activities and portfolios can have perverse outcomes, and it is good to see the TCFD recognises the limitations of this approach.

A central priority should be to make sure they don’t lose sight of the wood for the trees. Forward-looking disclosure appears to be being interpreted as testing company strategies against specific climate mitigation scenarios. It is easy for such activities to get lost in the details of exactly what a “well below 2 degree” scenario means, and how justified the assumptions are. This risks losing sight of the big picture: the need for an orderly transition to net zero emissions. We appreciate companies and investors need advice on relatively short timescales — but the climate system works on the opposite basis, so we still need to bridge the gap between commitments for the next few years and the whole route to zero.”

Catherine Howarth, Chief Executive, ShareAction:

“ShareAction urges investors and companies to endorse and adopt these recommendations. Everyone with a stake in the investment system - from pension savers to asset management giants - have a role to play in ensuring capital gets put to work to build a safe and vibrant low carbon economy. This is now an urgent responsibility of the global pensions industry in particular. The TCFD presents an important milestone, but we must keep our sights on the end game.”

Ingrid Holmes, Director of E3G (full media release online):

“The recommendations of the Taskforce are a welcome move in the battle to give investors the information they need to properly identify, price and manage material climate risks. However, only mandatory reporting will provide the comprehensive coverage both investors and financial regulators need to prevent climate disasters becoming financial disasters. The obvious next step must be for governments and regulators to turn these voluntary reporting requirements into mandatory ones.”

Sam Maule, Policy Advisor at E3G (full media release online):

“Ensuring proper reporting of climate risks is essential to the success of the EU’s forthcoming Sustainable Finance review. The report’s recommendations must be embraced by the EU’s new High Level Expert Group on Sustainable Finance.”

Casey Aspin, Preventable Surprises (full comment blog online):

"We applaud the task force’s Phase 2 report, released today, for its efforts to make markets more transparent and more resilient. Particularly important is the emphasis on forward-looking information and 2°C scenarios. We believe that transition planning for a 2°C world can yield more insights than point-in-time metrics. … TCFD recommendations apply to asset owners and asset managers themselves, not just to investee companies—a sage acknowledgement of risk transference throughout markets. Will this attention to portfolio risk alter how institutional investors think about climate risk? We hope so.

Margaret Kuhlow, lead of WWF International Finance Practice:

“We applaud the leadership of the FSB Chair Mark Carney and welcome the recommendations from the Financial Stability Board’s Task Force to assess climate risks and opportunities that companies and investors face. We believe that the use of forward-looking climate scenarios is the only meaningful way to test portfolios and business models against the well below 2°C limit from the Paris Agreement and ensure consistent climate impact information for the market. G20 members should now endorse the recommendations and ensure that climate scenario analysis gets mainstreamed.

Sebastien Godinot, Economist at WWF European Policy Office:

"The European Commission is setting up an EU High Level Expert Group for 2017 on how to make European finance more sustainable. The EU Expert Group should seize the opportunity to lead the way and make “climate stress tests” mandatory for all companies and investors in Europe, as a first step to align business models with the Paris Agreement. Voluntary implementation will never be swift enough for answering the climate challenge timely.”

Stephanie Pfeifer, CEO, Institutional Investors Group on Climate Change (from FSB TCFD site)

"IIGCC – representing 131 investors in 9 European countries with over €14 tn AUM – welcomes the TCFD’s recommendations for standardised forward-looking quantitative and qualitative disclosures. Implementation of the recommendations will help investors to assess whether companies are adapting their business strategies to a 2°C climate change pathway, as well as to changing market and technology dynamics. Through this, investors can better assess, price and manage the risks and opportunities of transition to a sustainable, low carbon, global economy.

Material climate disclosures must become a routine part of annual reporting practice if institutional investors are to make robust decisions that accurately reflect physical risks posed by climate change and transition risks arising from swift adoption of clean and efficient technologies. Nothing less will secure business resilience over the time horizons relevant to the needs of long term institutional investors and their beneficiaries.

Emission reductions required under the Paris Agreement imply a swift and potentially disruptive move away from fossil fuels that will transform all major sectors. TCFD’s recommended disclosures related to governance, strategy, risk management and metrics/targets should also support the evolution of tools and methods for financial institutions to improve their own reporting practices and curb their exposure to climate-related risks."

Nigel Topping, CEO, We Mean Business (from FSB TCFD site)

"In December 2015 the governments of the world sent a clear policy signal to the business community when they committed to the Paris Agreement on Climate Change. Increasingly companies have been getting the same signal from the investor community – and now the recommendations of the FSB Task Force mean that all businesses will be required to explain to investors how they plan to manage risks, invest and innovate on the way to the zero carbon economy of the future."

3. FSB TCFD Email launching the recommendations

Below my signature is the full text of the email from the FSB TCFD. Including link to video, press release, full report, annex on implementing the recommendations, technical supplement on use of scenario analysis, public consultation.

Any questions please don’t hesitate to drop me an email. If you or your organisation is doing analysis of the recommendations, or responses to the consultation over the next 60 days, please do let me know and I’d be happy to include links in future updates. As ever if there are other who would like to be added please forward on, and if you have any feedback about things you like, or would like to see change, then please do let me know.

This is likely my last Kenrick Chronicle email update of 2016, so I wish you and your family a restful and Happy Christmas and New Year break. See you in 2017.

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