What do we need to see from a regulatory and standards perspective to support the sustainability transition in capital markets?

Our Technical Director, Nadine Robinson delivers CDSB's intervention at the Sustainable Stock Exchanges Initiative 10 year anniversary.

At the Climate Disclosures Standards Board (CDSB), we aim to provide decision-useful environmental information to markets via the mainstream corporate report. We do so by offering a framework for reporting environmental and climate information with the same level of rigour as financial information. This facilitates the generation of decision-useful information by report preparers for investors to enable them to allocate capital effectively as part of the transition to more resilient capital markets.

As a global framework provider, we see both regulation and standards as key components of the solution to accelerate action and shift capital towards a more climate-resilient, low carbon economy.  

We are here today celebrating the 10th year anniversary of the Sustainable Stock Exchange Initiative (SSEI), a collaborative initiative that CDSB has been part of and strongly supports. This is against the backdrop of the Climate Summit NYC, so I will focus my comments specifically on what we need to see from standards to help accelerate climate action in the capital markets. And as the SSEI has already shown to date, there is a key catalytic role for stock exchanges and financial regulators to play in this regard.

To support this low carbon transition, we need to see clear, consistent and comparable climate and environmental-related financial information. The Task Force on Climate-related Financial Disclosures has set the gold standard for what constitutes good corporate governance for the 21st century. And it is important to note that TCFD has built on the existing standards and frameworks, many of those are in the room today.  

Stock exchanges in different jurisdictions have over the past decade issued ESG reporting guidance, highlighting how different frameworks and standards can be used to support high-quality and decision-useful ESG information.  And in some jurisdictions, disclosure obligations are being placed on a mandatory footing. In the UK, the Green Finance Strategy has stated that there is an expectation that all listed companies and investors will report in line with TCFD by 2022. If mandatory climate disclosure is not there yet, there are strong signals like this that it is on its way.  

Notwithstanding these positive developments, the TCFD released its second status report  showing the current state of practice on climate-related financial disclosures globally. At present, there are only 3.6 of 11 of the TCFD recommended disclosures being made by companies. And only 4% of companies are making 10 of the 11 recommended disclosures. These two statistics are both significant and sobering. Let me explain why. We have a universally global framework for issuers to tell their story about how they are effectively identifying, assessing, and managing climate and environmental risks and opportunities. With partial disclosures as the norm, this means that issuers are not giving the full picture in their disclosures to investors for them to make effective  capital allocations.  

And while there has been an increase in the number of issuers making TCFD disclosures in the mainstream report, we are still seeing disclosures being made in sustainability reports and in separate reports outside the mainstream financial filings. This is a missed opportunity for linking financial and non-financial information and in ensuring the robustness of disclosures. This incomplete information impairs our ability to collectively transition to a sustainable economy.

We have heard throughout Climate Week that we all need to move from commitment to concerted action and we don’t have the luxury of time. I would like us to look back in ten years’ time at the 20th anniversary of the SSEI and see this as the decade of climate action, where stock exchanges, together with financial regulators continued to play a catalytic role. So in the spirt of forward looking information from the TCFD, we call on the SSEI members to look to the future and what they can do to help ensure greater adoption and uptake of the TCFD recommendations by issuers in the mainstream report. This will help create convergence on the TCFD universal standard for climate-related disclosures.

We also call on the SSEI and its members to continue to build on the success of the last ten years and to facilitate further exchange between issuers, exchanges, financial regulators and investors. We also encourage all stock exchanges not already in the over 850 TCFD supporters to join this global coalition of the willing. Next, we would like to see all ESG guidance from stock exchanges revisited from the perspective of helping issuers to implement the full suite of TCFD recommendations. We also recognise the importance of ongoing capacity building and scaling up the expertise of issuers and securities regulators. We are open to working with interested members to help make this happen. Just over 5 years ago at the SSEI annual meeting in Geneva, CDSB hosted a lunch and issued reporting requirements for creating climate resilient stock markets. This is available on our website and if you would like a copy sooner please give your card after. 

Finally, I would like to draw your attention to our new free climate-related financial disclosure e-learning course developed by CDSB on the TCFD Knowledge Hub. You can find our TCFD Implementation Guide on the Hub. This provides guidance to report preparers on how to make effective disclosures using the CDSB framework and SASB standards. This answers the questions of how to implement the TCFD and what does good practice look like.  And earlier at Climate Week, we launched the TCFD Good Practice Handbook. This is part of our contribution to support the transition to sustainable capital markets.  

Globally, we need to provide comprehensive, consistent and comparable climate-related financial information to the market to enable the shift to the low carbon economy. This will result in more effective high-quality disclosure to address this systemic risk to the financial system at both the scale and pace required to meet the climate emergency we are all facing. We look forward to collaborating with you to meet this challenge.