The analysis by The Task Force on Climate-related Financial Disclosures (TCFD) claims that companies are not providing their clients with sufficient financial information to make informed choices on climate risks
Wood Mackenzie believes battery electrification solutions, hydrogen for power, and methane reduction initiatives will all take a “step closer to commerciality” in 2021 (Credit: (Flickr/Nick Humphries)
Asset managers are not providing enough information on climate associated risks, a report has found.
The analysis by the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB), claims that companies are not providing their clients with sufficient financial information to make informed choices on investments that may be detrimental to the environment.
But the regulatory task force’s 2020 Status Report said that after reviewing the 1,700 companies’ reports, it found that that disclosure of climate-related financial information aligned with TCFD’s recommendations has “steadily increased” since they were published in 2017.
Michael Bloomberg, chair of the task force and Founder of Bloomberg LP, said the work that governments and businesses are doing to address the devastation caused by the coronavirus is an “opportunity to build a stronger, more resilient, and more sustainable economy” – and he believes “transparency and disclosure have an important role to play”.
He added: “The more companies know about their risks and opportunities related to climate change, and the more information investors have, the better we’ll be able to allocate resources and make progress.
“So, it’s encouraging to see leaders in the public and private sector implementing the task force recommendations, as outlined in this report.”
Industries most exposed to climate risk have led with the highest climate disclosure levels
The analysis said the largest increases in adopting its recommendations relate to companies disclosing how they identify, assess, and manage climate-related risk, while industries considered “most exposed” to material climate risk have led with the highest levels of TCFD disclosure.
To date, more than 1,500 organisations have expressed their support for the recommendations, which represents an increase of over 85% since the 2019 status report.
But, despite the “significant momentum”, the task force’s latest analysishighlights the “continuing need for progress” in improving levels of TCFD-aligned disclosures given the “urgent demand for consistency and comparability in reporting”.
In particular, it notes that the disclosure of the potential financial impact of climate change on companies’ businesses and strategies “remains low”.
Other findings in the TCFD’s report
The task force’s review of company disclosures found that on average across the TCFD recommendations, 42% of companies with a market capitalisation of more than $10bn disclosed at least “some information” in line with each recommendation in 2019.
Furthermore, disclosure levels for these companies exceeded 50% for certain information under the task force’s recommendations related to strategy and climate-related metrics.
The report said early 60% of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both.
It found that energy companies and materials and buildings companies are “leading on disclosure”, with an average level of TCFD-aligned disclosures of 40% for energy companies and 30% for materials and buildings companies in fiscal year 2019.
The task force said that expert users of disclosure identified the impact of climate change on a company’s business and strategy as the “most useful” information for financial decision-making.
It claims that asset manager and asset owner reporting to their clients and beneficiaries is “likely insufficient”.
Investors are “increasingly demanding” climate-related disclosures from companies
Mary Schapiro, head of the TCFD secretariat and vice chair for global public policy at Bloomberg LP, said investors are “increasingly demanding” climate-related disclosures from the companies they invest in, and this demand is “driving global momentum around the TCFD recommendations across financial and non-financial sectors”.
“We have provided a foundation that is improving the quality and consistency of this type of disclosure and may help encourage a standardised approach across sectors and regulatory jurisdictions,” she added.
“We look to companies and investors to utilise the tools we have provided to accelerate the pace of progress.”