Changing the climate

The recommendations of the G20 Task Force on Climate-related Financial Disclosures (TCFD) led by Mark Carney and Michael Bloomberg, released in December 2016, underlined the material risks posed to business by climate change. They provide firm evidence that the world is waking up to the importance of climate reporting – and IR teams would be wise to take note.

Last week marked the close of the TCFD’s 60-day public consultation. At the Carbon Disclosure Project (CDP) we welcome the TCFD recommendations, will be adopting them in full, and encourage others to do the same. CDP is founder and driver of the global environmental disclosure system, with more than 6,000 companies (representing more than 60 percent of global market capitalization) reporting their climate data to us last year.

Increasingly, investors are aware of the implications of climate change risk when assessing their portfolios. All holdings stand to be affected by rising temperatures, extreme weather and droughts and the TCFD recommendation that all companies (not just oil and gas, for example) should disclose climate-related financial information together with mainstream financial filings is a potential game-changer.

Vital disclosure

Transparent disclosure of corporate climate data is vital in order for investors to assess businesses on their long-term financial outlook. Companies hoping to lead the way in the transition to a new low-carbon economy should disclose the impact on their business of higher carbon taxes and threats posed by a changing climate to supply chains and water supply. Investors increasingly expect IR teams to share their company’s understanding and management of the impacts of climate change.

Progressive IR managers, however, can and should go beyond the TCFD’s voluntary recommendations. Corporate disclosure on carbon pricing, science-based targets on emissions reduction and year-on-year comparability would allow companies and investors to track and benchmark climate performance, both against peers and over time.

A joint venture

Global business in partnership with governments can encourage a shift in cultural behavior. By developing sustainable supply chains, limiting waste and making use of renewable energy, as well as using its position as a key influencer of consumer behavior, business can help lead the transition toward a low-carbon economy.

In order to change the direction of travel, capital markets require a global climate reporting system that is robust, comparable and consistent. To be most effective, the TCFD recommendations should become mandatory to ensure adoption across business sectors and regions.

The uncertainty around the new US administration’s approach to climate policy presents the potential for new ambassadors to approach the global stage. In particular, the EU is on track to reach its target of 40 percent emissions reduction by 2030 and has successfully decoupled economic growth from emission levels.

Regardless of global politics, climate change poses a material risk to both businesses and investors and financial institutions will want to protect their assets. The world is waking up to the challenge: the London Stock Exchange Group (LSEG) launched its guide to ESG reporting last week – delayed to ensure the Financial Stability Board task force recommendations on climate disclosure could be incorporated.

Given that stock exchanges are essentially facilitators for transactions between issuers and investors, the guidelines aim to improve this relationship by providing better information upon which these transactions are based.

By calling on investor relations and sustainability departments to align, the LSEG is pushing for better-quality, consistent and comparable data to be reported and used effectively. The momentum behind meaningful climate action will not be stopped – and IR professionals are in a key position to drive meaningful corporate disclosure. 

Jane Stevensen is CDP’s engagement director for the TCFD