FSB task force says asset owners should drive adoption of climate-related financial disclosures

Asset owners should embrace their role as the “policing body” of climate-related financial disclosures, says the high-level panel convened by Bank of England Governor Mark Carney which has released its long-awaited draft recommendations today.

The panel, the Task Force on Climate-Related Financial Disclosure that is chaired by data mogul and former New York Mayor Michael Bloomberg under the auspices of the Financial Stability Board, wants asset owners at the top of the investment chain to drive the adoption of the recommendations.

“The Task Force recognizes that several asset owners expressed concern about being identified as the potential “policing body” charged with ensuring adoption of the Task
Force’s recommendations by asset managers and underlying organizations,” it said of the draft, voluntary, recommendations.

“The Task
Force appreciates that expectations must be reasonable and that asset owners have many competing priorities, but encourages them to help drive adoption of the recommendations.

“Because asset owners and asset managers sit at the top of the investment chain, they have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures.”

To promote “more informed” investing, lending, and insurance underwriting decisions, the Task Force recommends all financial and non-financial organizations with public debt and/or equity adopt its recommendations.

The recommendations are planned to be “adoptable by companies of all types, across sectors and jurisdictions”. One of the Task Force’s key recommendations relates to scenario analysis: the disclosure of potential impacts of climate-related risks and opportunities on an organization’s businesses, strategies, and financial planning under different potential future states.

There are seven-page supplemental guidance documents for both asset owners and asset managers.
The Task Force believes that asset managers and asset owners, “including public- and private-sector pension plans, insurance companies, endowments, and foundations”, should implement its recommendations.The Task Force believes climate-related financial information should be provided to asset managers’ clients and asset owners’ beneficiaries so that they may better understand the performance of their assets, consider the risks of their investments, and make more informed investment choices.

“Consistent with existing global stewardship frameworks,” the Recommendations state, “asset owners should engage with the organizations in which they invest to encourage adoption of these recommendations.

“They should also ask their asset managers to adopt these recommendations. Asset owners’ expectations in relation to climate-related risk reporting from organizations and asset managers are likely to evolve as data quality improves, understanding of climate-related risk increases, and risk measurement methodologies are further developed.”

Asset owners and fund managers should “use their existing means of financial reporting “to their clients and beneficiaries “where relevant and where feasible”.
Calling it “a private sector solution to a market issue”, Carney said the panel had focused on the “practical, material disclosures investors want and which all capital-raising companies can compile”.

A feature of the recommendations is a set of seven principles for disclosure which are said to be “largely consistent with other mainstream, internationally accepted frameworks for financial reporting”. For an initial analysis of what the Recommendations mean for asset owners, please see separate story.

The seven principles:

1: Disclosures should present relevant information
2: Disclosures should be specific and complete
3: Disclosures should be clear, balanced, and understandable
4: Disclosures should be consistent over time
5: Disclosures should be comparable among organizations within a sector, industry, or portfolio
6: Disclosures should be reliable, verifiable, and objective
7: Disclosures should be provided on a timely basis