Move will add accountability to shareholders and company financial filings
CDP, which began securing climate disclosure data from companies in 2002, and the Climate Disclosure Standards Board (CDSB), the NGO advancing non-financial reporting in mainstream filings, have welcomed the Financial Stability Board’s Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations to integrate climate information into mainstream financial reporting, Corporate Secretary sister publication IR Magazine reports.
‘We welcome the TCFD recommendations as they have the potential to further ‘normalize’ climate information in companies’ mainstream financial filings,’ says Paul Simpson, CEO of CDP. ‘Nearly 6,000 companies disclosed [climate information] through CDP this year, representing 60 percent of global market capitalization. ‘But 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. The next step will be for the G20 governments to consider whether such disclosure should become mandatory over time.’
The task force recommendations seek to clarify reporting requirements for companies on financial risk from climate change effects for the benefit of lenders, insurers and investors. In particular, CDP and CDSB welcome the task force decision to:
- Recommend that reporters integrate climate-related information in their mainstream financial reports. This will bring climate change further into the boardroom as every board must consider and sign off on its mainstream filings
- Recommend that all companies describe the potential impact of different scenarios, including a 2°C pathway, bringing the ‘future’ of climate risk into the present
- Encourage both financial and non-financial organizations to adopt the recommendations and the crucial role they have in ensuring a transition to a low-carbon economy, as their leadership will drive the development of more sustainable economic systems.
‘The task force is setting a new corporate governance norm,’ says Richard Samans, chairman of CDSB. ‘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. ‘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.’
CDP and CDSB will be participating in a public consultation over the next 60 days, and will release a detailed public response to the draft recommendations.
