The Financial Stability Board established the Task Force on Climate-related Financial Disclosures in December 2015 with a clear aim — “to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders and insurance underwriters in understanding material risks”.
With no standardised framework set out to measure climate-related financial disclosures, it becomes difficult to draw comparisons between companies and to get a look at the bigger picture. Having defined metrics and information allows for a review of the potential financial implications of climate change.
The report from the Task Force provides recommendations for a framework around four clear sections: Governance, Strategy, Risk management and Metrics and Targets and provides recommended disclosures for each section.
- How do the Board provide an oversight of all risks and opportunities that are climate-related?
- How do the management team look to assess and manage such risks and opportunities?
- Over the short, medium and long-term what climate-related risks have been identified?
- How will these risks impact the company and future plans?
- What is the potential impact of different scenarios, including the 2℃ limit, on the business and future plans?
- How do the company identify and assess climate-related risks?
- How will these risks be managed?
- How is this process integrated into the company's overall risk management?
Metrics and Targets
- What metrics do the company use to assess climate-related risks and opportunities in line with existing strategy and risk management processes?
- What are the company’s Scope 1, 2 and, where appropriate, 3, greenhouse gas emissions and their related risks?
- What targets are set by the company to manage these risks and opportunities and performance?
A key tool recommended by the task force is the use of ‘Scenario Analysis’. This is where organisations will use different climate-related scenarios, including the 2℃ limit, to assess the impact against their business. It allows companies to explore potential outcomes and how they may play out over the longer term.
The conclusions drawn from the report allow for immediate and flexible adoption. The Force expects the reporting of climate-related risks and opportunities will develop over time as stakeholders contribute to the consistency and the quality of disclosed information. The report is now in a phase of public consultation with the final report due for publication in June 2017. You can read the full report here.