G7 Backs – but Looks Beyond – Mandatory Climate Disclosures

TCFD, IASB frameworks endorsed; communique also calls for progress on impact, nature-based and beneficial ownership reporting.

The Group of Seven (G7) Finance Ministers and Central Bank Governors have indicated their support for the introduction of mandatory climate-related financial disclosures after a recent two-day summit, but they also recognised the need to develop more far-reaching reporting frameworks.

As well as emphasising the importance of financial decisions taking climate considerations into account, a communique issued following a meeting of G7 finance ministers in London highlighted the growing need for international coordination on impact reporting.

The statement also welcomed the establishment of the Taskforce on Nature-related Financial Disclosures (TNFD) and declared support for beneficial ownership registries to tackle illicit finance related to environmental crime.

G7 finance ministers and central bankers said they supported “moving toward” mandatory disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. Noting the need for a “baseline global reporting standard for sustainability” on which jurisdiction-specific rules can be built, they also called for the IFRS Foundation’s plans to establish an International Sustainability Standards Board to be finalised “ahead of COP26”.

The UK recently held a consultation on its TCFD-aligned reporting rules, which are due to come into force in April 2022, while the European Commission’s Corporate Sustainability Reporting Directive also incorporates the framework.

The US Securities and Exchange Commission is currently conducting a consultation on the introduction of mandatory climate-related reporting framework, although there is still lack of consensus on the need for new reporting requirements among commissioners. Last week, the governor of the People’s Bank of China said China would introduce mandatory climate-related disclosures, without specifying a timeframe.

But the communique also suggested that the sustainability reporting frameworks may also need to go beyond the recommendations of the TCFD and the IFRS Foundation’s planned standards – which are orientated toward monitoring the impact of ESG risks on enterprise value – in order to tackle climate change and biodiversity loss.

In a nod toward double materiality, G7 finance minsters and central bankers noted “the growing demand for more information on the impact that firms have on the climate and the environment”.

Recognising existing efforts to develop, refine and harmonise impact reporting frameworks, the communique said, “we will work closely together and with our international partners to determine the best approach to ensure global consistency”.

Existing frameworks for impact measurement and reporting include the Operating Principles for Impact Management, the Global Impact Investing Network’s Impact Measurement and Management framework, and the Impact Measurement Project’s five dimensions of impact.

Earlier this year, Eric Usher, the Head of UN Environment Programme Finance Initiative, said that reporting frameworks such as the TCFD should look beyond systemic risk to the finance sector in order to achieve real-world change.

“Financial institutions will have on their radar screens the two materialities at hand; the classic materiality on how ESG will impact portfolios as well as the newer materiality of how portfolios will impact our planet and our society,” he said.

The TNFD was officially launched on Friday with the announcement of co-chairs Elizabeth Maruma Mrema and David Craig. The Taskforce is expected to leverage the experience and approach of the TCFD in developing a reporting framework for nature-related risks by 2023, and is one of a number of related initiatives in the area.

The communique committed G7 members to implementing and strengthening registries of company beneficial ownership to provide “timely, direct and efficient access” for law enforcement and other competent authorities to required information, in support of efforts to combat environmental crimes, which have “a serious impact on the planet’s biodiversity” as well as enabling corruption and organised crime. It also called on all countries to fully implement and strengthen standards set by the Financial Action Task Force.

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