TCFD-based reporting to become mandatory for PRI signatories to avoid “policy jolt”

Mandatory requirement from 2020 — though it will be voluntary to disclose

Signatories to the Principles for Responsible Investment (PRI) will have to report against the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) – the high-level body initiated by Bank of England Governor Mark Carney – from 2020.

It will be mandatory to report but voluntary to disclose, said the PRI, whose chair Martin Skancke was a member of the TCFD.

The TCFD itself is a voluntary framework and the PRI says the mandatory requirement is to help avoid a “policy jolt”.

In a Q&A document, it explains that “times have changed” since the TCFD was originally conceived in 2015 when global emissions were falling (they are rising again) and that investors face much greater risks of a “disorderly or an abrupt” transition due to the gap between the government action needed to realise the Paris Agreement and current energy policies.

“It is PRI’s view that there will inevitably be a stronger response from governments on climate change,” the document states. So, to “minimise the risks of such a policy jolt”, the PRI is “encouraging signatories to take action on climate change now”.

“Establishing governance structures, internal processes and a strategic [view] of the future, as per the recommendations of the TCFD, of these risks and opportunities is a critical first step.”

The PRI introduced TCFD-aligned indicators to its Reporting Framework last year. Although this was voluntary, more than 480 investors representing $42trn opted to complete the indicators and submit responses.However, from 2020, it is the PRI’s intention to make the climate indicators within various reporting modules mandatory.

It said: “The remaining PRI climate risk indicators will stay voluntary with a view to becoming mandatory as good practice develops.” To help its 2,312 signatories, the body has consolidated guidance notes, investor case studies, webinars and a matrix of climate reference scenarios on a resource page.

“It is important for investors to incorporate mega risks such as climate change into their view of the future”

CEO Fiona Reynolds said: “It is increasingly important for investors to incorporate emerging mega risks such as climate change into their view of the future. TCFD provides the best available framework for systematically including climate-related risks and opportunities into investment strategy.”

Some 500 corporations have endorsed the TCFD along with numerous regulator bodies.

But the uptake of the TCFD has been slower than it should be, according to former Securities and Exchange Committee Chair Mary Schapiro, who has a key role in the initiative.

Speaking at the World Economic Forum in Davos recently, she said: “Half the world’s drowning and half the world’s burning and yet we argue over disclosure.”