Task Force on Climate-related Financial Disclosures recommends organizations provide such disclosures in public annual filings

The Task Force on Climate-related Financial Disclosures (TFCD) has recommended that organizations provide such disclosures in their mainstream (public) annual financial filings, among other recommendations.

TFCD released on June 29 its final report, saying that the task force “believes climate-related issues are or could be material for many organizations, and its recommendations should be useful to organizations in complying more effectively with existing disclosure obligations. In addition, disclosure in mainstream financial filings should foster shareholder engagement and broader use of climate-related financial disclosures, thus promoting a more informed understanding of climate-related risks and opportunities by investors and others.”

The report suggested organizations make financial disclosures in accordance with their national disclosure requirements. If certain elements of the recommendations are incompatible with national disclosure requirements for financial filings, the task force “encourages organizations to disclose those elements in other official company reports that are issued at least annually, widely distributed and available to investors and others, and subject to internal governance processes that are the same or substantially similar to those used for financial reporting.”

In structuring its recommendations, the task force focused on four thematic areas that represent core elements on how organizations operate: governance, strategy, risk management and metrics and targets. Among the recommended disclosures:

• Describe the board’s oversight and management’s role in assessing and managing climate-related risks and opportunities;
• Describe climate-related risk and opportunities the organization has identified over the short-, medium-, and long-term;
• Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario (which lays out an energy system deployment pathway and an emissions trajectory consistent with limiting the global average temperature increase to 2°C above the pre-industrial average); and
• Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.

According to the report, the expected transition to a lower-carbon economy is also estimated to require about US$1 trillion of investments a year for the “foreseeable future, generating new investment opportunities. At the same time, the risk-return profile of organizations exposed to climate-related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”

A number of organizations have offered statements of support for the recommendations, including Caisse de dépôt et placement du Québec (CDPQ) and the Ontario Teachers’ Pension Plan (OTPP), among others. “The implications of climate change have a direct impact on the sustainability of the investments we are making today to help pay the pensions of future generations of teachers,” said Ron Mock, president and CEO of OTPP, in a statement. “The FSB Task Force recommendations are a meaningful step forward in providing the transparency, comparable and consistent information that we require as we navigate the transition to a low carbon economy.” The FSB, or Financial Stability Board, set up the task force 18 months ago. The 32-member task force is global and chaired by Michael Bloomberg, the founder of Bloomberg LP.

When the TFCD released its draft recommendations in December 2016, Swiss Re said that it will adopt the disclosure recommendations. “Swiss Re believes the guidelines will ensure more transparency on climate-related risks and help users and providers of climate-related financial disclosures, including lenders, insurers and investors, to more effectively measure and evaluate the financial implications of climate change,” the wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer said at the time.

The report are FAQs are available for download at https://www.fsb-tcfd.org/publications/final-recommendations-report/.