‘The time has come for mandatory disclosure’: Mary Schapiro on the historic G7 announcement on TCFD reporting

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This article was updated to provide more up-to-date figures on TCFD supporters

It was hard to miss the historic agreement of G7 nations this weekend to mandate climate reporting in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). 

The topic will now move to the wider G20 group of nations, with hopes of an international agreement possibly being achieved for COP26 in November. But the high-level focus on the climate emergency and related reporting wasn’t the case six years ago when the TCFD was announced at COP21, says Mary Schapiro who has led the TCFD secretariat since its inception. 

In an interview with RI, the former SEC Chair, says: “When all this began in 2015 it wasn’t appreciated broadly that climate risk is financial risk and when Mike Bloomberg [TCFD chairman] took this on there was a real question about whether we would be able to make a difference. Could we move the needle in engaging the capital markets and the corporate world in the fight against climate change or would we just produce a very nice paperweight of a report that would sit on people’s desks for a while and never be implemented?”

This week’s G7 endorsement of TCFD is the ultimate vindication: not only did the group of wealthy nations mandate TCFD reporting in their final communique, but they also announced plans to discuss with G7 central banks how they can make their own disclosures based on the TCFD recommendations.

“I think the G7 endorsement is a tremendous validation for the value of the TCFD framework in terms of its provision of decision-useful information,” says Schapiro. “It tells us a lot about how useful the information is that will be generated. Some central banks are already doing TCFD-style reporting, but I thought it was a great thing to have in the communique that reinforcement by the G7 of the value of the information.”

The G7 also endorsed the International Financial Reporting Standards (IFRS) Foundation’s work on creating global sustainability standards, built on frameworks such as the TCFD and others. “We knew that over time the TCFD framework would need to be built out with specific reporting standards,” says Schapiro. “So I think the efforts that the IFRS have gone to are hugely important. They need to go quickly but thoughtfully forward to help build out the TCFD framework with specific reporting standards. I think it was great that the G7 acknowledged those efforts and welcomed the work that they are doing to set standards.”

Reflecting on the journey to develop the TCFD over the past six years, Schapiro remembers how it struggled to get 100 CEOs to endorse the recommendations when they launched. 

But this changed as the issue of climate change became more pointed and shareholders started demanding more climate-related information.  

There are now 2,085 companies that support the TCFD’s recommendations, including corporates with a combined market cap of $22.4trn and financial institutions responsible for $178.7trn of assets under management collectively. 

Businesses, says Schapiro, realised they needed a mechanism like TCFD to disclose that information. And policymakers, such as central banks and regulators also started to support TCFD. 

“Most recently four jurisdictions have announced making TCFD reporting mandatory in their countries,” says Schapiro. “The UK, which has been a real leader here, and Switzerland, Hong Kong and New Zealand.”

She also points to Japan hardwiring TCFD-aligned disclosure reporting into its corporate governance code, Australia adding TCFD-related elements in its insurance sector regulation and Canada making participation in their Covid-19 pandemic recovery programme dependent on TCFD reporting. 

Meanwhile, the recently launched Taskforce on Nature-related Financial Disclosures (TNFD), modelled on the TCFD, was also endorsed by the G7. “To the extent that efforts around additional disclosure beyond what the TCFD does with climate change can look and feel similar to the TCFD I think will make it an easier road to travel for companies who will […] potentially have disclosure requirements around nature-based solutions or biodiversity,” Schapiro says. 

Financial market support for the TCFD has been strong. “Mike's and Mark Carney's vision really was that the capital markets could be very powerful tools here if they are informed about climate risk and do their job of allocating capital appropriately.”  Carney kickstarted the work of the TCFD when he was the chair of the Financial Stability Board. 

But some investors have voiced criticism. At RI Japan 2021, Craig Mackenzie, Head of Strategic Asset Allocation at asset management giant Aberdeen Standard Investments criticised the framework for being too qualitative therefore not useful for quantitative risk modelling. 

Schapiro disagrees, saying the TCFD is both quantitative and qualitative. “The qualitative piece is important because it provides context for the quantitative part. 

“Qualitative is also an easier way for companies to start the journey of disclosure because they can talk about governance and risk management in qualitative terms while they develop the capacity to be more quantitative in their analysis.”

She adds that the framework provides lots of illustrative metrics and targets, and recommends disclosure of Scope 1 and 2 emissions, and where appropriate Scope 3. There is also a live TCFD consultation that is all quantitative-focused, seeking views on proposed guidance on climate metrics, targets and transition plans, as well as portfolio warming tools.

“I think quite a lot more quantitative potential guidance will come out of this consultation,” says Schapiro. 

The TCFD’s approach of being private-sector led and voluntary has been met with scepticism from some quarters who argue self-regulation is not an effective way to pursue sustainability. 

But Schapiro thinks the approach has in fact helped its success. 

“First of all, we were able to bring into our 32 member Task Force, people to the table who had deep experience in confronting these issues from a variety of perspectives, from financial institutions, banks and insurers, from asset owners, asset managers, the real economy, credit rating agencies, accounting firms. And so being able to bring that breadth of experience together I think was really helpful.

“I think it was less threatening maybe to people initially because it was a voluntary initiative and today, remains a voluntary initiative, but one that has become made official in a number of jurisdictions and increasingly going forward, 

“I believe the ability to bring that kind of expertise broadly into the process as a private sector initiative was very helpful,” she says. “But it's been six years and the climate crisis has not abated by any means. There's much more work to do. The time has come for mandatory disclosure.”