FSB published the annual report that examines to-date progress toward implementation of climate-related disclosure recommendations of the industry-led Task Force on Climate-related Financial Disclosures (TCFD). The report finds that disclosure of climate-related financial information aligned with the TCFD recommendations has increased steadily since these recommendations were published by TCFD in June 2017. However, the report highlights the continuing need for progress in improving the levels of TCFD-aligned disclosures, given the urgent demand for consistency and comparability in reporting. The next status report is expected to be published in September 21, 2020.
The report provides an overview of the current disclosure practices in terms of their alignment with the Task Force’s recommendations. The TCFD recommendations provide a framework for companies and other organizations to develop more effective climate related financial disclosures through their existing reporting processes. The report also highlights specific climate-related information a group of expert users identified as the most useful for making financial decisions, addresses the top implementation issues identified by nearly 200 preparers, and includes case studies by financial sector preparers on implementing the recommendations. The following are a few key takeaways of this report:
- Disclosure of climate-related financial information has increased since 2017, but continuing progress is needed. Disclosure of TCFD-aligned information increased by six percentage points, on average, between 2017 and 2019. On average across the TCFD recommendations, 42% of companies with a market capitalization greater than USD 10 billion disclosed at least some information in line with each individual TCFD recommendation in 2019. However, companies’ disclosure of the potential financial impact of climate change on their businesses and strategies remains low. TCFD recognizes the challenges associated with making such disclosures but encourages continued efforts and faster progress.
- Nearly 60% of the world’s 100 largest public companies support TCFD, report in line with the TCFD recommendations, or both. In addition, nearly 700 organizations have become TCFD supporters since the Task Force issued its 2019 status report, an increase of over 85%.
- Energy companies are leading on disclosure, with an average level of TCFD-aligned disclosures of 40% for energy companies. In comparison, the average percentages of disclosures among insurance companies and banks are 27% and 23%, respectively. A higher average percentage of disclosure indicates that an industry generally disclosed at a higher rate across the 11 recommended disclosures.
- 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. Notably, this information has the lowest level of disclosure across the recommendations, with just one in 15 companies making this disclosure.
- Insights of expert users on the most useful information for decision-making may provide a roadmap for preparers. Companies already disclosing their governance and risk management processes for climate-related issues and working toward full TCFD implementation might consider expert users’ relative ranking of specific types of climate related information—from most useful to least useful—as one factor to consider in prioritizing their efforts.
- Asset manager and asset owner reporting to their clients and beneficiaries is likely insufficient. While TCFD-aligned reporting by a sample of asset managers and asset owners increased over the past three years, the Task Force believes reporting by these organizations to their clients and beneficiaries may not be sufficient and that more progress may be needed to ensure clients and beneficiaries have the right information to make financial decisions.
- Progress in the public sector is also accelerating. Among others, Canada, Chile, the European Union, Hong Kong, Japan, New Zealand, the UK, Singapore, and South Africa have announced new policies, partnerships, or other formal support for climate-related financial disclosure in line with the TCFD recommendations.
The report also provides a "roadmap" for preparers through highlighting insights from expert users on which information is most useful for decision making. Going forward, it will be important to bring more standardization to reporting requirements across different countries and jurisdictions, to minimize the burden for reporting companies and maximize the value of disclosure for investors. FSB has asked TCFD to undertake further analysis on the extent to which companies describe the financial impact of climate-related risks and opportunities on their businesses and strategies. TCFD also plans to gain better insight into reporting practices of asset managers and asset owners to their clients and beneficiaries.
Keywords: International, Banking, Insurance, Securities, TCFD, Disclosures, Climate Change Risk, ESG, FSB
Previous ArticleFSB Consults on Forward-Looking Climate Metrics for Financial Sector
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).