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Organizations Backed by $12 Trillion Demand More Climate Risk Disclosure

Greg Heilers headshotWords by Greg Heilers
Investment & Markets
Climate Risk Disclosure

Climate change risks are no longer the elephant in the boardroom. More than 1,000 organizations have signed on to support the Task Force on Climate-related Financial Disclosures (TCFD), which works to enhance the transparency of corporations’ climate change-related financial risks.

These supporters’ collective market cap now reaches nearly $12 trillion, according to the TCFD. Mary Schapiro, head of the TCFD Secretariat, called this an “important milestone" for the group and the business world, demonstrating that global organizations now accept climate risks as financial risks.

The group's chair — billionaire businessman and U.S. presidential candidate Michael Bloomberg — says he, too, embraces that sentiment. “Increasing transparency makes markets more efficient, and economies more stable and resilient,” he wrote on the group's website.

Improving disclosures so investors are aware of climate change risks

TCFD’s stated aim is to “encourage firms to align their disclosures with investors’ needs” with regards to measuring climate change risks. As such, the organization says it is working to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.” These environmental, social and governance (ESG) disclosures include physical, legal and economic risks linked to climate change.

In July, Bank of England Governor Mark Carney, who launched the TCFD with Bloomberg in 2015, predicted that firms which did not take climate change into consideration would “go bankrupt without question.” In September, he addressed the United Nations, urging for greater transparency on climate risk. And he lamented slow movement within the global business community in an October BBC interview, insisting: “Now $12 trillion worth of balance sheets of banks and asset managers are wanting this disclosure [of investments in fossil fuels]. But it’s not moving fast enough.”

At the same time, Carney believes capitalism “is part of the solution," as he stated during an interview with British television last summer. He sees TCFD’s role as “helping to bring climate risks and resilience into the heart of financial decision-making.” TCFD, in Carney’s estimate, will help the world “improve the quality and quantity of disclosure and build a market in the transition to net zero.”

The benefits of transparent climate risk disclosure

According to the TCFD, climate-related disclosures benefit companies in multiple ways:

  • With investors and lenders more confident in a company’s climate risk management, capital will flow more easily.
  • Meeting disclosure requirements will be easier, as materials will already have been reported in financial filings.
  • Greater organizational awareness of climate-related risks and opportunities translates into better strategic planning.
  • Companies will stay ahead of growing demand from investors to disclose climate-related information.

Information provided to stakeholders such as investors, lenders, and insurance underwriters would help them “understand companies’ risks and opportunities from climate change.” Another benefit is helping global markets adapt to the new realities of a world with a changed climate.

Disclosures in action: Japan

In Japan, one advocate of more transparency on the climate change front is Hiro Mizuno, the executive managing director and chief investment officer of the $1.6 trillion Government Pension Investment Fund (GPIF). Mizuno says the mainstreaming of ESG-oriented investment will make it crucial for companies to disclose any climate change-related risks, as well as business opportunities. That’s why he sees TCFD’s disclosure framework as a win-win for both investors and corporates who need long-term capital injection.

GPIF published its first TCFD-aligned report in September 2019. Mizuno is urging GPIF’s asset managers to follow its lead “by sharing their analysis of climate-related risk and opportunities of the portfolios they manage for us,” he said. 

Global support for climate risk disclosure surging

The TCFD now includes a network of over 1,000 supporters spread across 55 countries. While the market cap of its supporters now reaches nearly $12 trillion, their influence is far greater.

The organizations represent both the public and private sectors, and are as diverse as stock exchanges, national governments, corporations, central banks and regulators.

The 473 and counting financial firms that support TCFD manage $138.8 trillion in assets. In addition, companies that say they support this effort come from multiple industries, such as energy, metals, oil and gas and insurance.

Those supporters and interested parties are leveraging TCFD’s Knowledge Hub, case studies, and more to understand how they can adapt to the world’s growing demand for climate change-related risk reporting.

Image credit: Holger Link/Unsplash

Greg Heilers headshotGreg Heilers

Greg Heilers writes on green business and sustainability for private clients and top publications. After graduating from university, he had the privilege to learn from opportunities in France, Palestine, Scotland, Guatemala and the USA. Today, he lives in the San Francisco Bay Area, and enjoys any chance he gets to garden or hike.

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