FSB Task Force finalises framework for climate-related risk disclosures

More than 100 global business leaders have now given their backing to a set of recommendations on the disclosure of climate-related risks. Developed by the Financial Stability Board’s (FSB) Task Force, the voluntary framework intends to set consistent standards for companies to disclose climate-related risks to investors, lenders and insurance underwriters. The final recommendations agreed by the Task Force, based on two public consultations, will be presented at the G20 Summit later this month. The Task Force said it had received widespread support for its recommendations and will now focus attention on implementation during the next year. “The support from business leaders around the world and across industries shows the importance of disclosing climate-related risks and opportunities, and the benefits of market forces to drive efficient allocation of capital and support a smooth transition to a low carbon economy,” the Task Force said. It added that the framework is ambitious, but serves as a practical foundation for understanding the impact of climate risks on companies’ financial stability. “The Task Force recognises the challenges associated with measuring the impact of climate change, but believes that by moving climate-related issues into mainstream annual financial filings, practices and techniques will evolve more rapidly,” it said. The Task Force has proposed four cross-sector recommendations on climate-related financial disclosures: governance, strategy, risk management and metrics and targets. The Task Force said financial sector companies – including banks, insurers, asset managers and asset owners – should publish climate-related financial disclosures in their financial returns as part of their obligations to disclose any material risks. The recommendations also urge companies to test the resilience of their strategy against different climate-related scenarios. “An organisation’s disclosure of how its strategies might change to address potential climate-related risks and opportunities is a key step to better understand the potential implications of climate change on the organisation,” the Task Force said. It said the new recommendations have been driven by the need to address misunderstanding of climate-related risks faced by businesses and other organisations. “Many organisations incorrectly perceive the implications of climate change to be long term and, therefore, not necessarily relevant to decisions made today. The potential impacts of climate change on organisations, however, are not only physical and do not manifest only in the long term,” the Task Force said. It added that coal and oil companies, as well as organisations dependent on the use of fossil fuels, are the most obviously and immediately affected companies by global efforts to reduce greenhouse emissions. However, the Task Force said climate-related risks and the transition to a lower carbon economy will affect most sectors and industries, ranging from opportunities for companies focused on climate change mitigation to risks for organisations exposed to the impact of climate change. “The expected transition to a lower carbon economy is estimated to require around $1trn of investments a year for the foreseeable future, generating new investment opportunities. At the same time, the risk-return profile of organisations exposed to climate-related risks may change significantly as such organisations may be more affected by physical impacts of climate change, climate policy and new technologies,” the Task Force said.

FSB Task Force finalises framework for climate-related risk disclosures

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