Audit, Compliance and Risk Blog

International Business Group Recommends Climate-Related Financial Disclosures

Posted by Jon Elliott on Tue, Aug 15, 2017

Greenhouse gas.jpgAs governments worldwide consider expanding requirements to manage greenhouse gas (GHG) emissions and moderate climate change, private sector groups are mobilizing to craft voluntary reporting and management activities – which might shape or even avoid future governmental mandates. In May, the 32 international business leaders on the Financial Stability Board’s (FSB’s) Task Force on Climate-related Financial Disclosure issued recommendations for climate-related financial disclosures by public companies worldwide. The Task Force reported these recommendations to the Group of 20 (G-20) leaders at last month’s meeting in Hamburg – the G-20 finance ministers and central bankers had asked FSB in 2015 to commission the Task Force.

What Was the Task Force and Who Were Its Members?

The Financial Stability Board is an international body that monitors and makes recommendations about the global financial system. Its governing Plenary consists of national financial regulators and central bankers from around the world. For example, the US members of the present Plenary are Stanley Fischer (Vice Chairman, Board of Governors of the Federal Reserve System), Fabio Natalucci (Acting Deputy Assistant Secretary for International Financial Stability and Regulation, Department of the Treasury), and Jay Clayton (Chairman, Securities and Exchange Commission). Canada’s members are Rob Stewart (Associate Deputy Minister, Department of Finance), Carolyn Wilkins (Senior Deputy Governor, Bank of Canada), and Jeremy Rudin (Superintendent, Office of the Superintendent of Financial Institutions).

FSB established the Task Force in 2015, assigning it to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks. The Task Force was chaired by financier and former New York Mayor Michael R. Bloomberg, and included a total of 32 senior financial and risk management officers from a range of important global banks, investment houses, and commercial firms. The Task Force held a series of public and private meetings, published a draft report for comment, and recently published its final report with recommendations.

What Disclosures Does the Task Force Recommend?

The Task Force provides recommendations on climate-related financial disclosures in four “thematic areas” applicable to a wide range of organizations across sectors and jurisdictions:

  • Governance: The organization’s governance around climate-related risks and opportunities.

The Task Force recommends disclosures about how the organization’s board and management address climate-related risks and opportunities, including identification of processes and the contexts and frequencies in which they are applied:

- The board’s oversight of climate-related risks and opportunities.
- Management’s role in assessing and managing climate-related risks and opportunities.
  • Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

This item prompts disclosure of the organization’s evaluation of these risks and opportunities, and how this evaluation leads to planning and implementation:

- Climate-related risks and opportunities identified by the organization, applying appropriate methodologies over short-, medium- and long-term horizons.

- Impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

- The resilience of the organization’s strategy over a range of possible climate change outcomes, including consideration of different   climate-related scenarios, including one assuming global warming of a 2°C or less.
  • Risk Management: The processes used by the organization to identify, assess and manage climate-related risks.

This category focuses on the potential down-sides to the organization, including:

- The organization’s processes for identifying and assessing climate-related risks (including possible regulatory regimes that would    affect the organization’s activities).

- The organization’s processes for managing climate-related risks.

- How the organization integrates processes for identifying, assessing, and managing climate-related risks into its overall risk      management.
  • Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

This category calls on organizations to quantify their risks and opportunities, their activities, and the outcomes. The report encourages organizations to consider metrics on climate-related risks associated with water, energy, land use, and waste management. This category calls for:

- Metrics the organization uses to assess climate-related risks and opportunities, in line with its strategy and risk management process.
- GHG emissions, categorized and quantified to identify Scope 1, Scope 2, and, if appropriate, Scope 3 emissions, and the related risks (I discussed Scope 1, 2 and 3 emissions here).
- Targets the organization sets and uses to manage climate-related risks and opportunities and performance against targets.

The Task Force report identifies examples of these disclosures appropriate to different business sectors, including financial services (banks, insurance companies, asset managers, etc.), and non-financial sectors (energy, transportation, manufacturing, etc.)

What General Guidance Does the Task Force Provide?

Many organizations are subject to a specific disclosure requirements or commitments, which may specify specific disclosures or categories of disclosures. Otherwise, organizations can design their own disclosures; the report emphasizes that the appropriate goal is disclosure of “material” information that will allow organizations and their stakeholders to make meaningful assessments of climate-related risks and opportunities. The report identifies seven “Principles for Effective Disclosures”:

  1. Disclosures should represent relevant information
  2. Disclosures should be specific and complete
  3. Disclosures should be clear, balanced, and understandable
  4. Disclosures should be consistent over time
  5. Disclosures should be comparable among companies within a sector, industry, or portfolio
  6. Disclosures should be reliable, verifiable
  7. Disclosures should be provided on a timely basis

Self-Assessment Checklist

Has the organization identified activities that cause GHG emissions, and/or may be affected by climate change impacts on the environment, markets, and/or regulatory requirements?

Does the organization compile this information:

- For internal use in managing its activities?
- For internal use in setting goals?
- For external publication and/or reporting to specific third parties (such as customers or shareholders) and/or the general public?

Has the organization issued a formal public commitment to undertake specified activities to reduce GHG emissions?

Does the organization publicly report information relevant to the Task Force recommendations:

- Governance?
- Strategy?
- Risk Management?
- Metrics and Targets?

Where Can I Go For More Information?

- Report webpage 

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. These include:

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About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. He was involved in developing 13 existing products, including Environmental Compliance: A Simplified National Guide and The Complete Guide to Environmental Law.

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com

photo credit: Tony Webster Pollution via photopin (license)

Tags: SEC, Greenhouse Gas, ghg, climate change