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TCFD final report; oil majors wasted capex, BoE climate risk review

written by Joel Kenrick

After a paternity leave break, The Chronicle is back today with a quick round up ahead of the TCFD Recommendations launch tomorrow.

  1. Taskforce on Climate-related Financial Disclosures final recommendation to be published tomorrow
  2. Breakthrough in investor support for climate resolutions at US energy companies
  3. Oil majors could waste $2.3 trillion of potential capex - CTI 
  4. Bank of England initiates climate risk review of UK banks
  5. In other news...

1. TASKFORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES OUT TOMORROW

The Final Recommendations from the Taskforce on Climate Related Financial Disclosures (TCFD) commissioned by the Financial Stability Board will be published this Thursday, 29th June at 7am BST (2am ET). The Taskforce was launched in December 2015 and published its draft recommendations in December 2016. The recommendations have been developed by an industry-led group of thirty-two companies and investors in order to develop "develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders" including the "physical, liability and transition risks associated with climate change". They focus on four areas: governance, strategy, risk management, and metrics and targets. Crucially, they recommend the use of scenario analysis to help determine companies resilience to different conditions, including a 2 degree scenario.

Mainstream businesses & investors back increased disclosure: A coalition of 27 CEOs from fifteen countries (including the US, Europe, India, China, and Japan) convened by the World Economic Forum representing $4.9trn in assets and $70bn in revenue signed a joint statement endorsing the TCFD recommendations, and committing to 'actively support their successful implementation', while 363 long-term institutional investors representing more than $19 trillion in assets wrote to G20 leaders urging them to "Implement climate-related financial reporting frameworks, including supporting the Financial Stability Board Task Force on Climate-related Financial Disclosures recommendations" (22 June 2017). The We Mean Business Coalition has also called for governments to outline how the TCFD recommendations can be translated into "national reporting requirements" and for businesses to begin implementation of the recommendations.

2. BREAKTHROUGH IN INVESTOR SUPPORT FOR CLIMATE RESOLUTIONS AT US ENERGY COMPANIES

Institutional investors show increased demand for meaningful, financially-relevant scenario analysis: 2017 saw 'A record number of investors are pressuring fossil-fuel companies to reveal how climate change could hit their bottom lines', Amy Harder reported for Axios after the US company AGM season. As her graph below shows, "resolutions by shareholders of ExxonMobil, Occidental Petroleum and utility PPL Corporation saw the most striking increase in support, passing the 50% threshold for the first time" with State Street, Vanguard and Blackrock all thought to have voted against management and for some of the climate resolutions. Blackrock stated that "Our patience is not infinite", and published bulletins explaining their Exxon and Occidential votes for the climate resolutions affirming their commitment to climate disclosure and the TCFD.

New York State Comptroller Thomas P. DiNapoli, a trustee of the New York Common Retirement Fund which co-sponsored the Exxon resolution, told Washington Post: “This is an unprecedented victory for investors in the fight to ensure a smooth transition to a low carbon economy. Climate change is one of the greatest long-term risks we face in our portfolio and has direct impact on the core business of ExxonMobil." The USA's largest pension fund, the California Public Employees' Retirement System (CalPERS) was active in 17 proxy efforts on climate change directed at energy companies during the proxy season (Reuters), and Anne Simpson, CalPERS investment director for sustainability said the Exxon vote "demonstrates that investors are seeking strong reporting and scenario analysis to better understand the risks and opportunities of climate change."

3. OIL MAJORS COULD WASTE $2.3 TRILLION OF POTENTIAL CAPEX - CTI

Bloomberg report that "Oil companies risk wasting $2.3 trillion of investments should demand peak in the next decade as the world works toward its goal of limiting global warming, according to a report from Carbon Tracker." According to CTI the report "2 degrees of seperation – Transition risk for oil and gas in a low carbon world "is the first to rank 69 of the biggest oil and gas industry companies according to the extent of their exposure to the low-carbon transition.

"Exxon Mobil Corp. is the most exposed oil major with as much as 50 percent of potential spending to 2025 on projects that wouldn’t be needed as the world changes its energy mix to meet climate targets, according to the report published on Wednesday in collaboration with the Principles for Responsible Investment. Royal Dutch Shell Plc, Chevron Corp., Total SA and Eni SpA risk wasting as much as 40 percent of expenditure and BP Plc up to 30 percent." (Bloomberg, 21 June)

"Sweden's largest national pension fund, AP7, one of the authors of the report, said last week it had wound down investments in six companies, including Exxon, which it said had violated the Paris agreement." (Reuters, 21 June)

4. BANK OF ENGLAND INITIATE CLIMATE RISK REVIEW OF UK BANKS

Bank of England initiates climate risk review of UK banks: On the 16th June 2017, the Bank of England announced that it would be "initiating a review of climate-related risks in the UK banking sector", in what the FT called a “ground-breaking” move.

In a statement on the bank's website they say: "Climate change, and society’s responses to it, present financial risks which impact upon the Bank’s objectives. These risks arise through two primary channels: the physical effects of climate change and the impact of changes associated with the transition to a lower-carbon economy. The Bank’s response has two core elements. First, engaging with firms which face current climate-related risks, such as segments of the insurance industry. Second, enhancing the resilience of the UK financial system by supporting an orderly market transition."

Other central banks are regulators to have warned of climate-related risk to financial sector include the Bank of Canada, which said that climate change will have “material and pervasive effects on Canada's economy and financial system”; the European Systemic Risk Board; De Nederlandsche Bank, the Dutch Central Bank; Finansinspektionen, the Swedish Financial Supervisory Authority, the Australian Prudential Regulation Authority (APRA) and Banque de France.

5. IN OTHER NEWS...

US coalition for carbon pricing launched: the Climate Leadership Council, founded by Republican elder statesmen seeking bi-partisan effort on climate change, announced the backing of "Exxon Mobil, other oil companies and a number of other corporate giants" for carbon pricing proposals (New York Times, 20 June). Vox call it "the first step in big oil’s long, negotiated surrender" for an industry that "sees the writing on the wall (Vox, 27 June).

National context for financial risk disclosure mapped: Principles for Responsible Investment (PRI) and the law firm Baker McKenzie have published reports mapping the TCFD framework onto financial reporting regulations in Canada, Japan, UK, and the EU, looking at the synergies between existing reporting frameworks and the TCFD recommendations. A report on the US is forthcoming.

New US coalition of sub and non-state actors emerge to drive forward climate agenda. Michael Bloomberg, in his role as U.N. Secretary-General’s Special Envoy for Cities and Climate Change and founder of Bloomberg Philanthropies, has committed to leading a coalition of cities, states, and businesses which will aim to deliver on the US commitments made in the Paris Agreement, including a financial commitment of $15mn to the UNFCCC.

Sustainability disclosure leads to more efficient stock pricing - Harvard study. According to Responsible Investor ($) academic research recently published by Harvard Business School suggests that the voluntary disclosure of material sustainability information could have an impact on the more efficient pricing of company stocks, relative to the stock prices of the capital markets as a whole (26 June).

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