“A new corporate governance norm”? Reactions to the FSB TCFD climate disclosure recommendations

15/12/2016

This is a digest of stakeholders reactions to the publication by the Financial Stability Board’s TaskForce on Climate-Related Financial Disclosures on 14 December.  It is reproduced from the Kenrick Chronicle, which you can subscribe to here – please put “Chronicle Subscription” in the subject line.  A full list of stories gathered by the Chronicle is here.


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 Cameron Hepburn, Co-Director, Oxford Martin Net Zero Carbon Investment Initiative:

“Net emissions of long-lived greenhouse gases must be reduced by 100% to stabilise temperatures at 2˚C. This requires a complete rewiring of the economy. There will be big winners, but also big losers. If we’re going to have an orderly transition to a net-zero carbon economy, investment practices need to start changing today, due to the carbon embedded in the present-day capital stock and its long lifetime. Financial markets need information about corporate strategies in a net zero emissions world. Without this information, it will be increasingly difficult to value companies accurately. The TCFD report is a useful step in the right direction, but there is a long way to go. This process should be seen as the start of a ramp-up of carbon and climate disclosure ambition, and not as an end point in itself.”

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.”

Benoît Lallemand, Head of Strategic Development and Operations, Finance Watch:

“The disclosure recommendations in this report could trigger a much needed ‘race to the top’ among companies that control the allocation and use of resources – a key to avoiding runaway global warming. We urge companies to refer to a robust and credible 2°C scenario, rather than to the currently insufficient (3°C) NDCs. Such disclosures would be a powerful complement to the Citizens’ Dashboard of Finance – that we are developing with our strategic partner the Green Economy Coalition and which seeks to measure the impact of the financial sector on society, and we urge policymakers to take the recommendations seriously.”

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.”

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