Ferma says new EC climate change reporting guidelines stress business case for risk managers

Ferma has welcomed the new guidelines on corporate climate-related information reporting published by the European Commission last week. It said the guidelines further state the “strong business case” for the risk management community in this increasingly important area. The guidance advises roughly 6,000 EU-listed firms, banks and insurance companies covered by the EU Non-Financial Reporting Directive (NFRD) on how they need to report climate-related information. This includes both principal risks to the development, performance and position of a company resulting from climate change, and the principal risks of a negative impact on the climate resulting from its company’s activities. The non-binding guidelines were published alongside three new important reports by the Technical Expert Group on sustainable finance, including key recommendations on the types of economic activities that can make a real contribution to climate change mitigation or adaptation. Ferma has upped its lobbying effort with the European Commission in recent times under the leadership of president Jo Willaert, CEO Typhaine Beaupérin and European affairs adviser Julien Bedouche. It contributed to the guidelines’ consultation. Ms Beaupérin explained that the federation advocated the use of “corporate language” in the guidelines to ensure they are a real help to companies that are the prime audience. “We also stressed that leveraging on the existing functions and processes is a resource-efficient way to support organisations to manage climate-related risks. Identifying, assessing and managing climate-related risks is best done through the established processes of enterprise and corporate risk management. We therefore pleaded for having explicit references to risk management frameworks like ISO, COSO or ERM methodologies,” Ferma’s CEO told Commercial Risk Europe. It seems that the Commission listened to Ferma and other bodies and has delivered a decent set of guidelines. Ms Beaupérin explained that the new guidelines supplement those released in 2017 for the NFRD. She stressed that they are not binding and only address climate change, which is just the environmental component of the ESG world. Ferma’s CEO said the guidelines need to be practical and quickly understood if they are to be applied by businesses and produce “tangible effects” on their corporate reporting. “We are pleased to see that these guidelines contain a lot of references that will be familiar for our risk and insurance community. They speak of severity, frequency, but also ask to name explicitly the risk management frameworks that are being used. This is a clear signal towards implementing a more professional risk management practice in businesses, which we welcome,” added Ms Beaupérin The rise of risk-based reporting standards is delivering a “strong business case” for the risk management profession, said Ms Beaupérin. This is why Ferma addressed this topic at its last European Risk Management Seminar in October. It also organised a webinar in April on the World Business Council for Sustainable Developmentand COSO’s joint report on applying ERM to ESG-related risks. “Organisations need support in this new process of reporting risks linked to non-financial information. Risk reporting is a key element of the risk manager’s role. Because of the cross-functional nature of the risk manager’s mission, he or she is the best-placed person in the organisation to provide assurance that the various types of risks, including those related to the climate, have been identified and managed,” said Ms Beaupérin. “These risks arising from ESG factors are more and more translated into financial or reputational harm. For instance, in the situation of a weather-related supply chain disruptions, the ERM methodology is certainly the most appropriate way to measure them and propose mitigation solutions, including risk transfer. There’s definitely a rising awareness among risk managers about the business impact of ESG elements. Ferma’s European Risk Manager Survey 2018 indicated that 71% of respondents have a regular or occasional collaboration with ESG specialists,” she added. Any risk managers not already involved in such reporting should do so sooner rather than later because this process will not stop Valdis Dombrovskis, EC vice-president responsible for financial stability, financial services and capital markets union, made this clear as the guidelines were released. “The climate emergency leaves us with no choice but transit to a climate-neutral economy model. Today's new guidelines will help companies to disclose the impact of climate change on their business, as well as the impact of their activities on the climate, and therefore enable investors make more informed investment decisions,” he said. The Commission explained that the guidelines are part of its ongoing efforts to ensure that the financial sector – private capital – can play a critical role in transitioning to a climate-neutral economy and fund investments at the scale required. The guidelines also underline how important it is for companies to include climate change considerations in their supply chain risk assessment. One recommendation states: “Describe the company’s engagement with its value chain on climate-related issues, explaining how it engages with upstream and downstream partners to promote climate mitigation and/or adaptation.” Banks and insurance companies obviously have a huge role to play in the battle to tackle climate change through their huge investment portfolios. The EC stressed that it is not singling out banks and insurers for special treatment, but did make clear the important role they can play. “The proposed disclosures in Section 3 are for all companies that fall under the scope of the Non-Financial Reporting Directive, regardless of their sector of activity, including banks and insurance companies. Banks and insurance companies should look at the recommended disclosures under Section 3 from the particular perspective of their business activities, including lending, investing, insurance underwriting and asset management activities,” it said.

Ferma says new EC climate change reporting guidelines stress business case for risk managers

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