IA calls on G7 to introduce mandatory climate-related risk reporting

Jun 02, 2021
Proposal ahead of meeting next week also calls for standardized set of principles

The UK’s Investment Association (IA) is calling on the G7 countries to improve company reporting of climate-related financial risks, ahead of the upcoming G7 summit, which will take place in Cornwall, UK on 11-13 June.

‘With UK investment managers investing £3.7 tn (£5.2 tn) in overseas equities, governments and non-sterling bonds, it is vital that such risks are reported in a clear and consistent manner, so managers can help companies transition to a more sustainable future and take informed investment decisions on behalf of savers,’ says the IA in a statement.

The IA, which represents the UK’s £8.5 tn investment management industry, has written to the UK ambassadors and high commissioners of the countries taking part in this year’s G7 summit, calling on them to take action on climate reporting. It has four key points it wants countries to agree to at the meeting:

  • Support for the IFRS’ Sustainability Standards Board to work at pace to develop sustainability reporting standards and increased co-operation between national regulators to endorse and implement these standards
  • For national regulators to commit to implementing mandatory, economy-wide reporting on international TCFD
  • International common standards to be agreed on green gilts by governments and national regulators
  • Governments to set out at a high level sector-specific pathways to meet the Paris Agreement goals and prioritize providing further detail to reduce the risk of stranded assets.

Chris Cummings, chief executive of the IA, describes the summit as a ‘prime opportunity’ for the world’s largest economies to take a co-ordinated approach to fighting climate change’, adding that the investment management industry has a ‘vital role’ to play.

‘As an industry that invests in companies around the world on behalf of both UK and overseas savers and investors, investment managers have a vital role to play in the shift to a more sustainable global economy,’ he says in the IA statement. ‘Ensuring high-quality and comparable data on the risks companies face from climate change is key to achieving this and meeting the net-zero targets.’

In the letter sent to the representatives of those countries taking part in this year’s summit , Cummings also notes the efforts of the UK in making TCFD-aligned reporting mandatory, as well as the action taken by ‘our EU neighbors’ through the Sustainable Finance Disclosure Regulation and its ‘ambitious program’ on Sustainable Corporate Governance.

‘In isolation, these measures are to be welcomed but we must not forget that both financial markets and climate-related risk are global,’ writes Cummings in the letter. ‘It is vital, therefore, that forums such as the G7 consider how to take action that is co-ordinated and global in outlook.

‘As the providers of capital to companies and real assets all around the world, investment managers have a keen interest in ensuring global efforts to improve sustainability disclosures are co-ordinated and aligned. The quality, availability and comparability of data from investee companies and other assets across different jurisdictions is crucial for investment managers to contribute to a sustainable economic recovery.

‘[But] regulatory and regional fragmentation remains a significant challenge. Backing from the highest levels of government is needed to ensure significant progress is made on the international harmonization of sustainability reporting standards for both issuers and investors.’

The G7 comprises Canada, France, Germany, Italy, Japan, the UK and the US, plus the EU. The UK has also invited Australia, India, South Korea and South Africa as guest countries to this year’s G7.

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