Big question: should the Task Force on Climate-related Financial Disclosures’ recommendations become mandatory?
Carbon Credentials associate director
“A mandatory framework would result in wider adoption”
As of September 2018, more than 500 companies had publicly supported the TCFD. Its voluntary nature has allowed companies to understand the requirements and work to develop meaningful disclosures. In the medium term, though, voluntary recommendations will not be enough to drive widespread adoption.
In June 2018, the Environmental Audit Committee published a report stating that the UK government should make climate risk reporting mandatory by 2022. This would result in widespread information being available to investors – but the key to change will be how the investors use that information. They must recognise the implications of climate change for investments.
The TCFD recommendations that seek to standardise disclosure on climate change risk and opportunities are a good place to start. The fact the recommendations are voluntary gives industries time to develop information, but a mandatory framework would result in wider adoption. Ultimately, the mandatory question would be redundant if investors started allocating capital based on companies’ climate change resilience – companies would not need to be compelled to disclose, as it would be essential to their survival.
E3G sustainable finance programme leader
“All firms must share climate information with the market”
To avoid harmful climate-induced financial instability at global level we must surface missing risk data. This means all firms sharing climate information with the market, and this being an established element of financial accounts and forecasts. It also means firms providing meaningful, complete and trustworthy data, whether or not this is convenient for them. For traditional financial information, these expectations are understood as part of a firm’s license to operate – why would we treat climate-related financial information differently?
Finance has a crucial role to play in reducing climate risk, and regulators should tell financial institutions they are expected to disclose the climate risk associated with their investments. UK regulators are beginning to make it clear corporate risk reporting includes TCFD-style climate risk disclosure, as recommended in 2018 by the UK Green Finance Taskforce and supported by the Environmental Audit Committee.
Too few companies and investors know about the TCFD’s work, and best practice is still developing in some areas, such as the use of risk scenarios. But the former is a call to action for regulators, and the latter should be a driver of innovation, rather than a barrier to action.
Climate Disclosure Standards Board technical director
“Voluntary reporting is insufficient to yield behavioural change”
Voluntary reporting is catalytic in spurring collective action, but is insufficient to yield behavioural change in corporate practice and impact the provision of decision-useful information to the market. Governments can boost climate action by mandating climate-related disclosures, such as those recommended by the TCFD.
The TCFD has galvanised political will brought disclosure of climate-related risks and opportunities into the mainstream. One of its strengths is that it advocates for disclosures on climate-related risks to take place within the mainstream report for which mandatory regulation covering other areas is already well-established.
CDSB’s First Steps review of non-financial reporting within the EU found 30 of 80 major companies mentioned TCFD in their annual reports. The TCFD recognises that full adoption will take at least five years. The IPCC recently noted the need for significant decreases in global net CO₂ emissions within the next 12 years. Can the market keep pace and achieve the desired level of change at scale? We need greater, faster uptake to make a tangible difference. We are at a tipping point, and mandatory disclosure is an important driver for accelerating corporate action on climate change.