CDSB's Technical Manager, Nadine Robinson, explores the state of mandatory climate-related reporting in G20 countries following the release of the final TCFD recommendations report
As the final report of the G20’s Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) has now been released, I feel that a weight has been lifted from many shoulders. Since the creation of the initiative in December 2015, expectation has built around the content of the report and how the policy and industry worlds would react to it.
Will this initiative become the catalyst for enhanced climate change disclosures by companies across the G20? I certainly hope so.
The TCFD recommendations essentially attempt to integrate climate and financial risks, to change the way companies deal with climate-related issues, and to make the disclosure process more transparent for investors and other stakeholders.
One of the main features of the report is the recommendation for all organisations to understand how a changing climate will affect their business by undertaking scenario analysis. The TCFD suggests starting with at least a 2 degree Celsius (or less) scenario and following with a business-as-usual scenario or one in line with their country-specific nationally determined contribution (NDC).
These recommendations can be applied by all sectors and target both financial and non-financial companies – all yielding key information to be provided by companies to the financial markets.
With the report launched, it is only natural that attention will now focus on two levels: What needs to be done by companies to implement the recommendations; and What is needed across the G20 to make the outcomes sought by the TCFD a reality?
Corporate Climate Disclosure Schemes in G20 after COP21
As a lawyer and environmentalist, I recognise the importance of legal frameworks to effectively manage climate change and natural resource assets and related risks. While the Task Force does draw attention to this issue, new research by CDSB shows that across the G20, 74% of countries already have some form of mandatory scheme related to climate reporting in place. More specifically, 14 out of 19 countries within the G20 group do - with the exception of Argentina, India, Indonesia, Russia and Saudi Arabia.
Our research updates the joint report we released two years ago with the OECD - “Climate change disclosure in G20 countries: stocktaking of corporate reporting schemes” – to incorporate what has changed in the field of mandatory schemes since the Paris Agreement. One of the key things we highlight in our new paper is that “finance ministries have become involved in addressing climate change not just from the point of view of funding new technologies and the transition to a low-carbon economy, but also to address any vulnerabilities in the financial system associated with climate change”.
We are also starting to see an evolution in the nature of climate change reporting schemes required by law. For example, under the French Law on Energy Transition for Green Growth (see in particular Article 173), we have seen the inclusion of risks from the transition to the low-carbon economy. Similarly, in this example, we see requirements extend beyond companies to investors to report on how their policies and targets align with national energy and ecological targets. Moreover, Article 173 includes a focus on integration, where companies must disclose information in their mainstream reports, which creates a much stronger connection between climate and other corporate information. This supports the old adage that what get measured matters and what matters gets measured.
CDSB has been an active advocate of this more integrated approach, and our Climate Change Reporting Framework emphasises and supports companies in achieving this. In fact, mainstreaming or integration of climate and financial information is a thread which runs through the TCFD, and a trend I hope will be fully mainstreamed in future. Clearly, national legislation helps embed such corporate practice across the G20.
Mandatory climate change disclosure legislation, while incredibly useful, is necessary but not sufficient. We will need to see a suite of other measures, including enforcement, practical guidance and exchange of good practices, to support an effective and efficient implementation of the TCFD recommendations.
Reflecting on the TCFD final report, I also recognise that a paradigm shift will not happen overnight and will take time for uptake – this is something the Task Force have also recognised through a five-year adoption curve - as shown in the presentation they released alongside the final report.
The next five years will represent a fascinating time to see how this plays out in practice. I hope that, looking back to this day in five years, we will see this as a watershed moment in the provision of high quality and decision-useful information on the risks and opportunities that climate change poses to the stability of our economy and society. Looking back, will we also see mandatory climate change reporting as a key vehicle for ensuring this happens? I believe only time will tell.
Read the full research paper here