Investors focus on carbon asset risks, engagements with securities regulators, and the effects of climate risk on financial stability
April 1, 2016 /3BL Media/ – Ceres president Mindy Lubber praised the members of the Task Force on Climate-related Financial Disclosures (TCFD) on the release of their “Phase 1” report today, which lays out the scope and high level objectives for the task force’s work.
The TCFD, formed by the Financial Stability Board in December 2015 in response to a request from G20 nations, is developing guidance on voluntary, climate-related financial risk disclosures for companies to provide information to investors, lenders, insurers and other stakeholders.
“The TCFD’s plans represent a robust and comprehensive approach to providing investors the information they need,” said Lubber, president of the nonprofit sustainability group Ceres and director of the Investor Network on Climate Risk (INCR), comprised of 120 institutional investors collectively managing over $14 trillion in assets.
“The TCFD report does a particularly good job of presenting fundamental principles of climate disclosure, as well as a work plan that emphasizes engagements with investors, NGOs and other stakeholders affected by climate risk. We will continue to encourage the task force to look closely at the need for stronger reporting by energy companies on how their strategies align with limiting global temperature rise to 2 degrees Celsius or less, and to engage with financial regulators and stock exchanges with the power to improve reporting.”
Jim Coburn, senior manager at Ceres, added, “A major obstacle to ensuring that companies disclose material climate risk information has been the lack of timely responses by national securities regulators. The TCFD’s work will encourage them to issue clear reporting guidance or rules, and prompt the U.S. Securities and Exchange Commission to fully enforce its groundbreaking 2010 climate risk disclosure guidance.”
Last week, Ceres’ Investor Network on Climate Risk joined investor groups in Europe and Australasia – members of the Global Investor Coalition on Climate Change (GIC), representing 300-plus investors managing over $30 trillion in assets – in sending a letter to the task force. The letter calls specifically for sectors facing material climate risks – especially energy companies – to undertake “2 degree stress testing” to evaluate their business plans against low-carbon economic scenarios where global temperature rise is kept below 2-degrees Celsius, as set forth in the recent global climate agreement in Paris. A record number of shareholder resolutions have been filed by investors this year with major U.S. companies, including ExxonMobil and Chevron, asking for such 2-degree scenario testing.
The task force’s work builds on over a decade of work by Ceres and INCR members to improve climate risk disclosure by publicly traded companies, including submitting a major petition to the U.S. Securities and Exchange Commission, which led to formal SEC guidance on climate disclosure in 2010. In April 2015, 62 institutional investors representing nearly $2 trillion in assets called on the SEC to ensure better disclosure by oil and gas companies of critical climate change-related business risks that will “profoundly affect the economics of the industry.”
Ceres is also a founding member of the Climate Disclosure Standards Board (CDSB), an international consortium of businesses and NGOs working to align the global mainstream corporate reporting model to equate natural capital, including climate risks, with financial capital.
Last week’s GIC letter expands on previous recommendations for the TCFD’s scope of work and high level objectives, which the investor groups delivered at the task force’s first meeting in February. The letter emphasizes that the Paris Agreement includes a stretch target of limiting temperature rise to 1.5 degrees, which has tremendous implications for every sector, but particularly those in the energy industry with long-lived assets like electric power plants and oil and gas resources.
The letter also states, “We believe the task force must seek input from and engage with representatives of government securities regulators and central banks to ensure integration and alignment between current financial reporting practices and carbon risk reporting.” This will allow TCFD members to understand the successes and obstacles governments have faced when trying to improve climate risk disclosure, and support government efforts to provide enabling policy frameworks, which reinforce the objectives of the task force.
Lubber added, “Investors need companies to actively and aggressively reduce their climate risks and disclose their plans, strategies and quantitative metrics. This task force can encourage more companies to do this through a rigorous framework for disclosing risks and opportunities in financial filings.”
Ceres is a non-profit organization that is mobilizing many of the world’s largest investors and companies to take stronger action on climate change, water scarcity and other global sustainability challenges. Ceres directs the Investor Network on Climate Risk, a group of 120 institutional investors managing about $13 trillion assets focused on the business risks and opportunities of climate change. Ceres also engages with 100-plus companies, many of them Fortune 500 firms, committed to sustainable business practices and the urgency for strong climate and clean energy policies. For more information, visit www.ceres.org or follow on Twitter @CeresNews.
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KEYWORDS: Finance & Socially Responsible Investment, Business & Trade, Disclosure, financial disclosure, materiality, Task Force on Climate-related Financial Disclosures, CERES, GIC, SEC, investors, carbon risk, Carbon Asset Risk, Climate Risk, climate change, Stock Exchanges
This post was originally published on 3BLmedia.com
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