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Support for TCFD Climate Disclosure Recommendations Rising

Asset manager and asset owner reporting to clients and beneficiaries may not be sufficient, says new report.

Nearly 60% of the world’s 100 largest public companies now support or report in line with recommendations laid out by the industry-led Task Force on Climate-related Financial Disclosures (TCFD), according to its 2020 status report.

More than 1,500 organisations have expressed support for the TCFD recommendations, including more than 1,340 companies with a market capitalisation of US$12.6 trillion and financial institutions responsible for assets of US$150 trillion. This figure also includes 700 companies declaring support since the publication of the TCFD’s 2019 annual report – an increase of over 85%.

The 2020 report indicates a steady increase in climate-related financial information disclosure, both within the number of companies reporting and the quality of such reporting. But disclosure of potential financial impact of climate change upon business and business strategies remains low.

The report also shows that larger companies are more likely to disclose TCFD-aligned information, with an average of 42% of companies with a market capitalisation of greater than US$10 billion disclosing information, and 15% for companies below US$2.8 billion. Disclosures are primarily made in sustainability reports, the TCFD report noted, with information aligned with its recommendations four times more likely to be disclosed in sustainability reports than in financial filings or annual reports.

Investor demand for companies to report TCFD recommendations has also increased, with more than 500 investors with over US$47 trillion in assets engaging the world’s largest greenhouse gas emitters to strengthen climate-related disclosures as part of Climate Action 100+ asset owner initiative.

In addition, over 110 global regulators and governmental entities support the TCFD, including a majority of member states from the G20. The Task Force also reported an increase in governments embedding its recommendations in policy, guidance and legislation, including an announcement from New Zealand’s Ministry for the Environment that climate-related financial disclosures will be made mandatory for certain publicly listed companies and large financial institutions.

From a sectoral perspective, firms in the energy and materials and building sectors lead on disclosure, according to the report, with an average level of disclosure across the TCFD’s 11 recommendations of 40% and 30%respectively in fiscal year 2019.

The TCFD said asset manager and asset owner reporting to clients and beneficiaries may not be sufficient, asserting “more progress may be needed to ensure clients and beneficiaries have the right information to make financial decisions”. But the report noted TCFD-aligned reporting by asset managers and asset owners to the Principles for Responsible Investing has increased “significantly” between 2019 and 2020, due to the PRI’s introduction of mandatory reporting requirements for specific climate-related indicators in 2020.

“The more companies know about their risks and opportunities related to climate change, and the more information investors have, the better we’ll be able to allocate resources and make progress – so it’s encouraging to see leaders in the public and private sector implementing the Task Force recommendations, as outlined in this report,” said Michael Bloomberg, Chair of the TCFD and founder of Bloomberg LP and Bloomberg Philanthropies.

“The report shows that there has been significant momentum around adoption of and support for the TCFD’s recommendations, while also highlighting and making proposals to address challenges to more consistent and robust implementation,” added Randal Quarles, Chair of the Financial Stability Board (FSB).

The TCFD reaffirmed its intention to continue to monitor and promote adoption of its recommendations, determining next steps through public consultation feedback received within a period running until January 2021. “The Task Force continues to believe the success of its recommendations depends on continued, widespread implementation by companies in the non-financial and financial sectors … and views its guidance as a means of supporting widespread implementation.” it said.

The TCFD also published guidance on climate-related scenario analysis and integrating climate-related risks into existing risk management processes, as well as a public consultation on forward-looking climate metrics for firms in the finance sector.

Established in 2015 by the FSB, the TCFD has developed a set of voluntary, consistent disclosure recommendations for use by companies designed to standardise and improve the quality of climate-related financial information available to investors, lenders and insurance underwriters in relation to financial risk. In July, the FSB’s stocktake on financial stability monitoring of climate risk concluded that barriers in quantifying climate-related risks can be alleviated by effective and consistent disclosures by firms. Since the recommendations were finalised in 2017, the TCFD has issued annual reports on support and adherence.

At ESG Investor, we aim to be the practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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