FSB’s new climate disclosure task force urged to pool data to cut costs

Think-tank queries climate change as a “systemic risk” to investors

As the Financial Stability Board’s (FSB) new task force on corporate climate change reporting begins its work, an influential think-tank has weighed in, suggesting that the relevant climate data be pooled to cut costs and simplify matters.

It has also queried whether climate change necessarily poses a “systemic risk” to investors.

The think-tank weighing in on the task force’s assignment is the Paris-based ‘Two Degrees Investing Initiative’ (2°ii). Founded in 2012, 2°ii’s mission is to help financial institutions adapt to a low-carbon future and promote investment in renewable energy. 2°ii is backed by a several big financial institutions, including Allianz, Axa and HSBC, as well as Carbon Tracker and BankTrack.

The FSB is the government-level group chaired by Bank of England Governor Mark Carney.

2°ii has released a position paper containing 10 recommendations to the FSB’s task force, which is chaired by media mogul and former New York City Mayor Michael Bloomberg. Bloomberg also serves as Chairman of the Sustainability Accounting Standards Board (SASB), the US corporate reporting initiative.

It’s 2°ii’s view that the relevant climate data from companies should be aggregated to cut costs and simplify matters. “The range of databases forces users (e.g. investors) to purchase data from at least half a dozen providers. Added to that are costs of bringing the different databases together in a usable way,” 2°ii says.

To resolve this, the think-tank suggests the creation of a data aggregation model – that is a “one-stop-shop” – for such data.2°ii even suggests that if such a model were considered a public good, “it should be made available for free or at very limited cost” to investors and other commercial users.

According to 2°ii, another way to resolve the cost of the complexity of climate data is to widen the reporting by companies to include the data. This latter solution is already offered by the likes of SASB, the Global Reporting Initiative (GRI) and the International Integrated Reporting Council (IIRC). However, there is as yet no regulation on companies to disclose climate or other sustainability risks outright.

In its paper, 2°ii also cautions the FSB task force against seeing climate change as a “systemic risk” to investors. It notes: “(Climate) risks only affect parts of financial portfolios and likely offset each other across diversified portfolios.” To support this claim, 2°ii pointed to a chart by the consultancy Mercer. The chart showed that the climate impact on returns of asset classes like bonds, equities and agriculture would range between just below plus 1% and minus 0.5% over a 35-year timeframe.

2°ii says therefore that if the task force chooses to view climate change as a systemic risk, the body should “widen the focus from corporate disclosure to include risk correlation and other financial instruments like derivatives.”

Created in November, the new task force is to issue a report on current climate reporting by companies next month. Its second report, due later this year, will then provide companies with a set of guidelines for improved disclosure. Link