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Aug 21, 2018

Global securities body told to set the bar on climate disclosure

Investors with global portfolio suffer ‘regulatory divergence’

Investors and finance experts have put pressure on the International Organization of Securities Commissions (IOSCO) – the international body bringing together securities regulators – to prompt a global shift on climate risk reporting.

A new report reveals that investors with a global portfolio suffer due to ‘regulatory divergence’ between countries in terms of climate risk disclosure and corporate governance practice. In particular, if implementation of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) is too slow in some jurisdictions and markets, investors will struggle to accurately assess risks and allocate capital accordingly.

The authors suggest IOSCO, which has stayed silent on the TCFD recommendations, must address this concern. The EU’s High-Level Expert Group on Sustainable Finance has also highlighted this shortcoming by the regulatory association.

IOSCO is a global standard-setter for the securities sector. Its mandates are to protect investors, ensure markets are fair, efficient and transparent, and reduce systemic risk. As such, the report identifies that the body is in the strongest position globally to harmonize climate risk reporting and promote widespread implementation of the TCFD recommendations by regulators.

The report also identifies that such action falls within IOSCO’s mandate – so its failure to take any action is a significant shortfall.

Meryam Omi, head of sustainability and responsible investment strategy at Legal & General Investment Management, says in a statement: ‘As the window of action on climate change is closing fast, listing rules and guidelines play an important role in accelerating current progress. Raising the standards of climate disclosure, led by IOSCO, is an essential step in helping investors build a low-carbon and sustainable future.’

ClientEarth lawyer David Cooke adds: ‘Inconsistent climate risk reporting is a problem for global investors. Many large asset managers have expressed concerns about inconsistent climate risk disclosure leading to capital misallocation and the build-up of systemic risks.

‘As such, they have a strong basis to demand action on this subject from IOSCO – and it is in their interests to do so. Getting IOSCO to wield its influence has the potential to shape global progress on management and disclosure of climate risk.’

Andrea Marandino, sustainable finance & corporate risk manager at conservation organization WWF, notes: ‘It’s clear we need a level playing field in climate risk disclosure as the patchwork of approaches threatens both capital and action to tackle climate change. Investors are well placed to engage their national securities regulators or IOSCO directly. This is a key step to enabling widespread implementation of the TCFD recommendations.

‘Full disclosure will not only help companies prepare for climate change impacts, but also allow investors to manage risks better and allocate capital accordingly.’

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