Investors trigger first major campaign to push 62 leading banks to back TCFD climate reporting recommendations

Letter signed by shareholders with $2trn in assets aims to corral support for clear environmental disclosure.

More than 100 of the world’s biggest institutional investors representing nearly $2tn in assets have launched one of the first major campaigns to push the world’s largest banks to back the recent recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD) launched by Mark Carney, Governor of the Bank of England and Chairman of the G20’s Financial Stability Board (FSB), which also supported it.
They have written to the 62 of the world’s largest banks demanding more robust climate-related disclosure, citing research that up to 20% of banks’ investment portfolios could be at risk because of market dislocation as a result of climate-related asset stranding.
Banks targeted include Australia and New Zealand Banking Group, Bank of America, Deutsche Bank, HSBC Holdings, JP Morgan Chase, Mitsubishi UFJ Financial Group, Inc. and TD Bank.
The investor group, which is being co-ordinated by ShareAction, the UK non-profit, and Boston Common, the US asset manager, says the banks should align their public disclosures with the recommendations of the TCFD, including outlining their climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and public policy engagements and collaboration with other actors on climate change.
The banks have also been invited to outline how they are managing climate risk subsequent to the 2015 Paris COP21 Agreement. The investor group says responses will not be made public but will inform a related report due to come out in early 2018.
The investor letter cites the “pivotal role” it says banks need to play in helping finance the $95tn investment needed by 2030 to limit global warming below the 2°C threshold and warns of the regulatory and transitional risks such as stranded assets they expose themselves to if they do not adequately respond to the challenge climate change poses to the finance sector.The TCFD’s final report, released on June 29, concluded that the market needed to see material climate-related information in four key areas: governance, strategy, risk management, and metrics and targets; all linked to the question of how a company copes with its carbon risks and approaches climate-related opportunities.
The voluntary guidelines aim to encourage consistent, comparable, reliable, clear and efficient financial risk disclosures covering all industry sectors, including financial services.
Both investors and corporates should report. The aim is that investors can evaluate the disclosed information against various environmental, regulatory and economic scenarios.
The goal is to drive the integration of climate data into mainstream financial reporting and the strategy discussions of company boardrooms. TCFD aims to be self-reinforcing. For investors, it provides the needed information to reassess the value of current investments based on potential future risk factors. For companies, it is market feedback on their own trajectory and preparedness for a low-carbon future in order to adjust their business accordingly.
Launching the TCFD, whose work was led by Michael Bloomberg, founder of the global media and information group and former Mayor of New York, Carney identified three macro climate risks that could threaten financial stability: physical (disruption of the market by climate- and weather-related events), liability (disruption by holding emitters accountable through claims), and transition (disruption by value reassessment through physical risks and changes in policy, technology).
In a landmark speech at Lloyds of London in September 2015, he said the speed at which asset re-pricing could occur as a result of any or a mix of these risks was uncertain and potentially dangerous for financial stability. As he noted: “There have already been a few high profile examples of jump-to-distress pricing because of shifts in environmental policy or performance.”
Aviva, Royal London Asset Management, Aegon Asset Management, NN Investment Partners, Candriam Investors Group, Zevin Asset Management and the UK’s Environment Agency Pension Fund are among the list of asset owners and managers who signed the letter.