PRI perspective: investors must drive implementation of the FSB Task Force final report
The FSB Task Force on Climate-related Financial Disclosures (TCFD) marks a turning point on how companies, banks, insurers, investors and regulators understand and respond to climate risk and opportunity. Its recently-released final report marks a vital step forwards on climate change – crucially providing investors and companies with a common financial language for it.
Over 360 investors with US$19 trillion are asking the G20 to support the task force’s recommendations, including: Aegon NV, Alliaz Global Investors, AP4 (Fourth Swedish National Pension Fund), Australian Council of Superannuation Investors, Mirova, MN, New York State Comptroller, OPTrust and Zurich Insurance Group.
In addition, more than 100 firms have provided statements of support to encourage take-up of the recommendations.
For PRI signatories, the TCFD brings a sharp focus to the financial impacts of climate-related risks and opportunities, providing:
- A typology of transition and physical risks such as extreme weather events, and opportunities such as resource efficiency, as well as R&D and innovation in products and services. This offers asset owners and managers a lens for assessing the material financial impacts of climate change in their investment processes.
- Guidelines for climate related financial disclosures by companies. This will mean that equities and fixed income portfolio managers, buy-side and sell-side financial analysts can see investment decision-useful information more easily and act on it as they judge appropriate.
- Flexibility for organisations with different strategies, sizes and geographic markets, with practical guidance for high-impact sectors and on forward-looking disclosures. This combination of flexibility and practical utility makes broad-based implementation more achievable, meaning more companies in investment portfolios can disclose on climate change in a consistent manner to their investors.
- Guidance for asset owners and managers on their own disclosures. This supports further evolution in good practice investor disclosure to beneficiaries, clients and other stakeholders on climate change. It builds on existing good practice investor reporting that has been established, such as through the PRI Reporting Framework and the PRI's Montreal Carbon Pledge.
- Investors should encourage TCFD implementation at a country-level
The PRI has recently published a series of country climate disclosure reviews with global law firm Baker McKenzie, covering Brazil, Canada, the EU, Japan and the UK. The reviews found that in all markets covered, the TCFD report would assist materially in implementing existing regulation and guidance for investors and companies, and in guiding the development of further and more comprehensive regulation on climate change-related analysis and disclosure. They include our recommendations for local implementation of the TCFD report by policymakers, regulators, stock exchanges, companies and investors.
- Investors should encourage companies to adopt the TCFD recommendations and manage transition-related risks and opportunities
Carbon Tracker and the PRI, in partnership with PKA, PGGM, AP7, FRR and Legal & General Investment Management, for example, have recently produced innovative new research showing company-by-company risks associated with unneeded capex for 69 global oil & gas companies. This finds that more than $1.8 trillion worth of oil and gas projects penciled in for between now and 2025 could become redundant. Investors can use such research to encourage companies in better climate disclosure and transition planning. The PRI will be highlighting this research in regional events.
- We will encourage investors to join a project to drive TCFD implementation that will be launched at PRI in Person in Berlin
The project will include a collaborative investor engagement to encourage company adoption of the TCFD recommendations and alignment of the PRI Reporting Framework to support investor disclosure on climate change.
There's no denying that achieving better climate disclosure across markets is a massive mountain to climb, but this is necessary for investors to understand and manage the financial impacts of climate change. With the ongoing work of the Task Force, the PRI and our partners, the summit will be attainable to companies and investors.