Lord Stern warns climate task force against ‘rubber stamping’ existing disclosures

Leading climate economist issues paper on Task Force on Climate-Related Financial Disclosures

Lord Stern, the leading climate economist, has warned the high-level climate disclosure task force headed by Michael Bloomberg against merely ‘rubber stamping’ existing corporate disclosure – arguing there is already no shortage of data.

Rather, in a paper aimed at informing “decision-makers in the public, private and third sectors”, Stern and co-author Dimitri Zenghelis call for greater focus on forward-looking statements from companies.

Stern is Chair of the ESRC Centre for Climate Change Economics and Policy and the Grantham Research Institute on Climate Change at the London School of Economics while Zenghelis is Co-Head of Policy at the Grantham institute.

The remarks come in their submission to the Task Force on Climate-Related Financial Disclosures’ Phase 1 report.

“We feel that it would be a wasted opportunity if the Task Force were to merely ‘rubber stamp’ existing disclosure, such as that collected by the Carbon Disclosure Project (CDP),” they write.

“There is no shortage of available financial data. The danger is that too much data that is not salient is collected. The metrics needed to quantify a forward assessment are less straightforward than, say, data on emissions, but a simple yet credible forward-looking statement of strategy may be more valuable in informing investors than reams of backward-looking data.”

The pair says business models reliant on the assumption that governments were not serious at the COP21 climate talks in Paris “are looking increasingly vulnerable”.

The paper, written in consultation with the investor-backed CDP, calls on the Task Force to identify a “taxonomy” of key risks, arguing that terms such as “climate-related risks” “climate related issues” are too vague.Another recommendation is for the Task Force to seek information on ‘unknown unknowns’ – that’s to say risks without a known distribution: so-called ‘Knightian’ uncertainty, an economics term denoting risk that is not possible to calculate.

Stern late last week wrote to the Financial Times to comment on an FT editorial entitled ‘The long twilight of the big oil companies’.

He noted how a majority of ExxonMobil’s shareholders failed to back a resolution at the company’s AGM asking it to publish an analysis of how its portfolio stress tests against a 2C world.

He said that while 38.2% did back the resolution that was filed by the Church Commissioners and New York State Comptroller, it shows that the company and the majority of its owners “are unwilling to acknowledge the scale of the risks to which they are being exposed.” It was “simply reckless” for Exxon to not even to consider how losing this enormous gamble will impact on it.

Elsewhere, FTSE Russell, the index and data provider, has announced the launch of its LCE data model, which measures the green revenues of 13,400 public companies, representing 98.5% of total global market capitalization. The firm assigns each company in the model a low carbon industrial indicator (LOWCII) factor, representing the ratio of its green revenues to its total revenues.

It has developed a Green Revenues Index Series based on the new LCE data model, which is designed to provide investors with indexes capturing managed exposure to companies engaged in the transition on a country, regional or global basis. The initial ten indexes will cover the key FTSE and Russell universes, including the Russell 1000 and 2000; the FTSE All World, developed and emerging indexes; the FTSE All Share in the UK; and the FTSE China Index Series. The indexes will also provide the basis for a series of exchange-traded products.