PRI calls on investors to improve their climate reporting and encourage companies to do the same
LONDON, 14 December 2016 – Large asset owners and asset managers have a critical role to play when it comes to asking the companies in which they invest for more disclosure on climate-related information, according to today’s recommendations by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD).
The Task Force recognised that the reduction in greenhouse gas emissions—and a move away from fossil fuel energy—coupled with rapidly declining costs and increased deployment of clean and energy-efficient technologies could have significant, financial implications for organisations that are dependent on extracting, producing, and using coal, oil, and natural gas. This translates into potential risks for investors in the form of incorrectly priced or valued assets, leading to a misallocation of capital.
“The report's recommendations, if adopted by companies, will enable investors, insurers, banks and policy makers to better assess risk and opportunity in order to manage an orderly transition to a low carbon economy. This approach will assist investors by minimising the disruptions that could occur from an unmanaged transition," said Martin Skancke, chair of the PRI Board and a member of the Task Force. “The recommendations are designed to be implemented by all organisations, which means that investors—asset owners and investment managers—in addition to encouraging more disclosure from companies, will also need to commit to report their own climate policies. So we should expect more reporting on climate risk by investors themselves. The PRI will work with investors on ways in which we can support these activities.”
The Task Force structured its recommendations around four thematic areas that represent core elements of how organisations are structured: Corporate governance (the level of board/management oversight on the issue of climate change); Strategy (which climate risks will financially impact the business, including costs and revenues); Risk management (are climate risk material to the business); and Metrics and targets, (how are metrics aligned to the strategic impacts identified and to the business’ risk management processes).
In addition to looking at risks around climate change, the recommendations also recognise that efforts to mitigate and adapt to climate change is also creating opportunities for organisations, for example, through resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, and building resilience along the supply chain.
Following the release of the document, there will be a 60-day consultation process. After that, the final report with any amendments will be presented to the G20 finance ministers at their next meeting in June, and it will be left up to individual countries to decide how to implement the recommendations.
In addition to working with its signatory base to gather feedback on today’s document, the PRI, once the investor responses to the consultation are available, will, as part of its 2017/2018 reporting cycle, align climate reporting with the Task Force guidelines. The PRI will also undertake a collaboration with its members to ensure that both investors and companies are working to incorporate the recommendations.