Analysis: What next for the FSB’s Task Force on Climate-related Financial Disclosure?

What’s on the agenda as the high-level panel holds its plenary this week

It was a union of bold words and big names when Michael Bloomberg and Mark Carney launched the Financial Stability Board’s taskforce on climate-related disclosure in December. Representatives from BlackRock, Axa, SwissRE and JP Morgan Chase were among 22 members announced the following month, with Unilever, Tata Steel and Air Liquide among those representing the corporate world.

Together, the now-34 members are spending 2016 devising a set of voluntary guidelines to encourage companies to disclose climate-related risks.

The initiative has garnered support from all sides of the investment community. Earlier this month, Antonio Simoes, CEO of HSBC described it as “critical in establishing an agreed, common standard that will help banks like ours price the cost of climate risk.”

Now, as the Task Force holds a session in New York today on risks in a low carbon economy and ahead of its latest plenary meeting on July 12-13, the body is more than halfway through its work.

The Task Force is working on its Phase II report, having closed the public consultation on Phase I, in which it laid out its ‘high level’ objectives and definitions of ‘climate risk’, on which the final guidelines will be based.

“We’re currently taking the risk taxonomy that we developed in Phase I and using it as the basis for our work in Phase II,” explained Jane Ambachtsheer, chair of responsible investment at Mercer and a member of the Task Force, speaking at RI Europe.

“We’re asking how it relates to governance – who is responsible for overseeing these kind of risks within companies and investors at different levels – and what types of entities should be reporting. We’re also deciding to what extent we can have high-level governance and strategy recommendations.”

One of the key points to come out of the development of Phase I, Ambachtsheer says, was that it would be beneficial to have disclosures from investors as well as companies.

“We really need disclosure from all of the entities through the investment supply chain. Then, you deal not only with the supply of information, but also with the demand for it.” There are some who have voiced concern over whether the initiative will generate yet another set of voluntary data for investors and analysts to wade through, with little added value. “The problem is that the current data is, in many cases, not fit for purpose,” says Stephanie Maier, Head of Responsible Investment Strategy and Research at Aviva Investors – another member of the Task Force. “And there’s been a huge focus on what we can measure, rather than what we should measure.”

As a result, the Task Force is seeking to provide a more comprehensive perspective on climate risk, focusing on qualitative and quantitative, forward-looking information.“We do have a lot of data out there, but when you’re looking at how a 2°c scenario will impact a company’s cash flows in the future, you really don’t” insists Ambachtsheer.

Unilever is one of the corporations on the Task Force, and Graeme Pitkethly, chief financial officer, says the key to providing meaningful information to investors and ratings agencies is to keep it financial.

“Now, we are talking about how the climate impacts companies, and that is an important development.”

“The clue is in the title. If all we do is ask for disclosure of Scope I and Scope II emissions then we have gone no further than any other reporting framework. We need to make sure this goes beyond carbon emissions. We must address how a 2°c world and its policy environment might affect expected losses and company valuations, and so it has to be financial.”

But, co-chair of the Task Force, Russell Picot – also HSBC’s chief accounting officer, who headed up the FSB’s only other Task Force, set up in 2012 to tackle disclosure in the banking sector – warns that being “too restrictive” on companies would be a mistake.

“There is always a balance between the information you need to make a reasonable decision, and the point at which it becomes too costly for the person disclosing. So we need to look at where the material risks lie – in which sectors and regions – and perhaps decide that less disclosure is needed in those sectors where carbon is less important.”

One thing is clear, though: the Task Force sees its role as tipping the conversation about climate-related disclosure on its head.

“Previous conversations around reporting have been driven by a desire to understand how companies impact the climate,” said Task Force member and PRI Chair Martin Skancke. “Now, we are talking about how the climate impacts companies, and that is an important development.”

The Task Force is due to publish an overview of the feedback it on its Phase I report this week, before embarking on the next stage: around 30 or 40 meetings with focus groups representing different parts of the investment chain. Following that, it will approach broader stakeholders such as NGOs and existing reporting initiatives. The final report is due to be put to the G20 by the end of the year, and released publicly early in 2017.

“If we do our job well, one of the consequences of this piece of work is that we will see in board rooms across the world, a different discussion,” says Picot. “One about how climate risk will affect companies’ business over the short, medium and long term.” Task Force home page.