Key financial trade groups laid out a vision Feb. 18 for shifting the U.S. to a low-carbon economy, saying that the industry can play a leading role in limiting the risks that climate change poses to the system.
Regulators also appear poised to prod them in that direction. Several policymakers floated the possibility of new regulatory tools and required disclosures around climate-related risks at a climate conference hosted by the Institute of International Finance the same day.
BMO is a strong supporter of the Task Force on Climate-related Financial Disclosures (TCFD) and has been working to implement the TCFD’s recommendations and develop programs, approaches and disclosures that align with the TCFD framework. By joining PCAF and committing to measure and disclose the GHG emissions associated with its portfolio of loans and investments using PCAF methodologies, BMO is advancing its approach to climate-related risk and opportunity, playing its part to advance the ambition for a net zero world.
On 1 January a new listing rule came into effect (per final text of new LR 9.8.6R(8) as published by the FCA on 21 December 2020) requiring commercial companies with a UK premium listing to include a statement in their annual financial report setting out whether they have made disclosures therein that are consistent with the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD). Failure to do so must be accompanied by both an explanation and an action plan for providing such disclosures in future.
The FSB created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to develop a set of voluntary disclosure recommendations for use by companies in providing decision-useful information to investors, lenders and insurance underwriters about the climate-related financial risks that companies face.
The FSB therefore welcomes the recommended approach by the Trustees of the IFRS Foundation to initially focus on standards for climate-related financial disclosures, as set out in the September 2020 IFRS Consultation Paper on Sustainability Reporting. The initial focus on climate-related information would be appropriate given the growing interest of investors in the topic for financial risk management and the importance of global consistency in the actions that are already beginning to be taken by national and regional authorities to develop requirements and guidance in this area.
On 8 December 2020, the Monetary Authority of Singapore (MAS) issued Guidelines on Environmental Risk Management (the Guidelines) tailored to financial institutions (FIs) in three sectors: asset management, banking and insurance. The Guidelines are intended to drive the transition to an environmentally sustainable economy by enhancing the integration of environmental risk considerations in FIs’ financing and investment decisions and promoting new opportunities for green financing.
In early November, superannuation fund Rest and 25-year-old member Mark McVeigh agreed to settle McVeigh’s case against Rest related to handling of climate change risk. McVeigh’s claims included that the trustee of Rest had breached its duty to exercise the care, skill, and diligence required of a professional superannuation fund trustee in failing to identify and manage climate related risks to the fund’s investments. He also claimed that the failure to identify and manage climate related risks was a breach of the trustee’s duty to protect the best financial interests of beneficiaries. This litigation and settled outcome is significant, not only to Australian superannuation fund trustees, but to fiduciary investors with long term investment horizons globally.
Tackling climate change is not a new initiative in the UK. Indeed, the UK was one of the first countries worldwide to endorse the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD)1 – aimed at ensuring climate-related risks and opportunities are priced into financial decision-making, and its 2019 Green Finance Strategy outlined an expectation that all UK listed issuers and large asset owners would be making disclosures in accordance with the TCFD’s recommendations by 2022.
The Hong Kong Securities and Futures Commission (SFC) is moving towards implementing mandatory climate risk regulations for asset managers as part of the bigger process of integrating environmental, social, and governance (ESG) standards into the industry.
The chief executive officers of Canada’s eight largest pension plans are calling for the adoption of Sustainability Accounting Standards Board (SASB) standards and the Task Force on Climate-related Financial Disclosures (TCFD) framework. In a joint statement, the CEOs want “companies and investors to provide consistent and complete environmental, social, and governance (ESG) information to strengthen investment decision-making and better assess and manage their collective ESG risk exposures.”