Regulators, government agencies and businesses are recognizing that climate change poses a risk to financial stability for global markets and are focusing their efforts on improving climate-related financial risk reporting.
Jurisdictions around the world are recognizing the Task Force on Climate-related Financial Disclosures (TCFD) recommendations as the key framework for reporting climate-related financial risk. At a Bloomberg-hosted event, “The TCFD Pathway to Raising Climate Ambition,” in partnership with Climate Finance Week Ireland 2020, experts not only highlighted the role the TCFD framework is playing in moving global markets toward a net-zero carbon economy, but also demonstrated the strong consensus around the need to accelerate and improve companies’ climate-related reporting.1
Paschal Donohoe, Ireland’s Minister for Finance and President of the Eurogroup said the government "welcomes the adoption of the TCFD by those corporates who are already engaged with the Task Force and is actively encouraging greater take up as more Irish firms look to accelerate and scale their own climate transition plans."
The number of organizations expressing support for the TCFD has reached over 1,900 organizations globally with a total market capitalization of $19.8 trillion and financial institutions responsible for assets of $175 trillion.
Companies that have begun to implement the TCFD framework have seen improved climate-related financial reporting within their organizations and say that TCFD has helped them run their businesses better. “It’s improved their risk management capabilities or identification of risks and their plans to manage and mitigate them,” Bloomberg's Mary Schapiro said. “It’s helped them identify opportunities that might not have been on their radar absent of doing this TCFD work.” One of the core obstacles for companies achieving progress is the lack of clear, reliable and consolidated climate-related and environmental data. This is why the public and private sectors need to work together to build on the foundation the TCFD established in 2017 when it first released its recommendations to guard against fragmentation in climate reporting standards.
1 Panelists included: Mark Carney, U.N. Special Envoy for Climate Action and Finance; Mary Schapiro, Head of the TCFD Secretariat and Vice Chair for Global Public Policy at Bloomberg L.P.; and Colin Hunt, CEO of AIB Group.
Colin Hunt, CEO of Ireland’s largest bank, AIB Group, said the bank became a founding member of the TCFD because it saw an opportunity to advance the sustainability agenda and better support its customers on their decarbonization journeys.
Hunt stressed that the TCFD has become core to the bank’s strategy and mission, empowers AIB to work with like-minded businesses and economies and increases its financial transparency. “We’ve found it very useful because it’s allowed us to assess our loan book. It’s allowed us to undertake a risk-mapping exercise across that loan book, and to start to identify potential future climate-related risks and opportunities for the business,” Hunt said. “Ultimately, it’s about fully embedding climate risk into everything we do as a business and as a bank.”
TCFD and the new climate action frontier
UN Special Envoy Mark Carney said more companies need to emulate AIB to ensure that every financial decision they make takes climate change into account. He added that doing so is crucial since the TCFD is completely voluntary for companies.
“Part of what we’re doing for COP26 is determining the pathways to make it mandatory, to make it more comprehensive,” Carney said. This effort involves collaborating with international standard-setters such as the IFRS to create global standards for sustainability reporting, while trying to create a pathway for financial regulators to establish disclosure requirements in line with the TCFD framework.
Hunt stressed that regulators have a significant role to play in helping the financial industry make progress.
“There's a role here for regulators very clearly in our own industry in relation to how they ascribe weights to risks and how they embed climate risk in terms of the stability of institutions,” he said.
“There’s obviously a role for investors in terms of demanding more and more from companies, particularly in relation to the ESG agenda. But what I would say to people is this is about more than simply being a good or responsible corporate citizen. This is about more than enhancing your social license to operate — taking climate action is good for business.”
As companies begin on the path to recovery in the post-COVID-19 economic era, becoming more sustainable will be key to making their business and the global markets more financially stable. Schapiro said this responsibility applies not only to large companies or economies but also emerging markets and smaller enterprises. The TCFD framework was developed with scalable principles in mind, so companies and markets of all sizes can begin the disclosure process and build their capacity over time.
Carney emphasized that, “society wants a transition toward net-zero. The questions being asked of all of us in our institutions and companies is ‘what role are you playing?’”
With all these entities doing their part, climate risk management and sustainable investing will eventually become more mainstream. The current headwinds signal that companies, governments, banks and regulators can no longer afford inaction on climate.
“There’s no alternative. Look at the data; look at the science. They’re all on our side,” Hunt said. “The one thing that isn’t on our side is time. We’re running out of time. This is the challenge of our generation. We need to inject real urgency and real determination into the climate agenda right now, and it can only be done by real, vibrant collaboration across society, and indeed, across business.”
