A G20 task force released a new Climate-Related Financial Disclosure Framework. The framework will work to prepare companies across multiple sectors of industry for the increased need for transparency in their financial disclosures to investors, lenders, insurance underwriters and other stakeholders concerned about the risks associated with climate change.
In order to help stakeholders and others in identifying the risks and opportunities associated with climate change, the Financial Stability Board established an industry-led 32 member task force: the Task Force on Climate-related Financial Disclosures (TCFD).
The TCFD was asked to come up with voluntary, consistent climate-related financial disclosures that would help investors and other stakeholders in understanding material risks. They focused on four key elements: corporate governance, strategy, risk management, and climate-related metrics and targets, in coming up with their final recommendations.
On June 29, 2017, the Final Report was issued, and to date, over 100 companies, including Bank of America, BHP Billiton, Dow Chemical Company, and Royal Dutch Shell, are supporting the recommendations, reports the Energy Collective.
Why is a fully transparent financial disclosure important?
Obviously, in the first place, the new TCFD framework will make it easier to get clear and consistent information on a company before investing. The Financial Stability Board was created in response to the 2008 global financial meltdown, and the big concern for businesses today is the real possibility that a climate-related disruption could occur that could have unwanted financial effects on stakeholders.
David Cole, group chief executive of Swiss Re said in his statement of support: “We are just at the beginning of the transition towards a low carbon economy. As a reinsurer that has been researching the effects of climate change for almost 30 years, as a large asset owner and as a long-term investor, we have the chance to step up to the next level and help shape tomorrow’s solutions. There are clear benefits of having more transparency about climate-related risks and opportunities.”
Another reason the TCFD Framework is needed is because there are actually hundreds of climate-related disclosures already out there and they create more of a minefield for investors than anything resembling a financial statement. And additionally, many companies look at climate change as a long-term issue and not something to be concerned over in today’s climate.
However, most businesses and other economic sectors will be affected by climate change risks and the economic costs of transitioning to a low-carbon society, because whatever your beliefs, it is coming. The thing is, this coming new economy presents a number of risks and opportunities, so it is better to grab this bull by the horns instead of letting it run us down.
