Financial Heavyweights Call For Emissions Disclosure, But Is It Enough?

The private sector must play its part in the race to keep a global temperature rise below 2 degrees.
03/09/2017 03:31 am ET Updated Mar 09, 2017

The world has changed a lot since CDP began securing climate disclosure from companies fifteen years ago. In 2002, asking a company for data on its carbon emissions was a relatively novel concept but fast-forward to 2017 and things could not be more different. The recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), led by Mark Carney and Michael Bloomberg, have added to this momentum.

Last week CDP issued its response to the TCFD and you can watch me explain our thoughts in detail below.

Huge progress and a global consensus

The overriding response from CDP to these recommendations is one of positivity. We are delighted to see worldwide consensus emerge around the work we have been doing to make environmental disclosure part of global business norms. The private sector must play its part in the race to keep a global temperature rise below 2 degrees and the TCFD recommendations catalyze progress towards this by putting climate disclosure firmly in the field of global financial stability.

In particular the TCFD’s key recommendation that all companies should disclose climate-related financial information in their mainstream financial filings makes carbon emissions management a clear issue for the Board of Directors. The recommendation to require disclosure of climate change governance also enhances the need for those at the top to be well versed on climate risk.

Including climate disclosure in the highest level of reporting has the potential to be game-changing and CDP is fully supportive of the TCFD’s recommendations. CDP is firmly focused on the next steps for the recommendations and have committed to adopt them in their entirety in our disclosure platform for 2018 meaning that over 5,800 companies will begin experimenting with early adoption next year.

Including climate disclosure in the highest level of reporting has the potential to be game-changing and CDP is fully supportive of the TCFD’s recommendations.

Five points for action

Where does environmental disclosure go from here? Building on the work of the TCFD and CDP there are some clear next steps to progress climate disclosure to where capital markets need it to be. Our mission at CDP is to drive global environmental disclosure and ensure progress is tracked against a (well below) 2-degree pathway. Last year for example, more than 5,800 companies (representing close to 60% of global market capitalization) provided us with their climate data voluntarily. Using this experience, CDP has identified five core areas where more action is required to maximize the success of Carney and Bloomberg’s Task Force.

1. Mandatory disclosure: CDP’s work is hard evidence that many companies will report climate data on a voluntary basis or with market led incentives such as a request from investors or companies. However, if we are to move to a low carbon economy at the pace required, we believe that an element of regulation is required. CDP will work with governments and regulators to encourage them to make the Task Force recommendations on climate change mandatory, and in time all necessary environmental disclosures.

2. Scenario analysis:  TCFD’s recommendation around scenario analysis is something quite new for companies, and we want to mobilize CDP’s experience and technical expertise in this area to help companies adopt the recommendation. Companies need to show that they understand the climate related risks they are exposed to and report on solid plans to address and manage them. For example, high emitting sectors such as oil and gas and utilities should be producing clear transition plans to show how they will work towards a 2°C world.

3. Science based targets: Climate science and climate-risk data have strengthened considerably and continue to improve. At CDP we are working with over 200 major multinationals committed to setting science based emission targets in line with a 2 degree pathway and over 1,200 companies adopting internal carbon pricing, a size and scale that was almost unthinkable back when we launched back in 2002. TCFD must recognize that climate-related disclosure needs to be an evolving process based on the latest science, technology and investor needs.

4. Comparability along the supply chain: Investor and other stakeholders can only make full use of climate data if it is high quality, consistent and comparable. This demands a very clear, streamlined reporting framework where companies are able to collect data from their suppliers in order to be able to disclose climate management and water security in their supply chains.

Last year for example, more than 5,800 companies (representing close to 60% of global market capitalization) provided us with their climate data voluntarily.

5. Geographic adoption: Last year nearly 80% of European companies disclosed their emissions data to CDP, compared with only 54% of those in Latin America. It is important we focus on ironing out these discrepancies and work towards adoption of TCFD recommendations in every region.

A low carbon world beckons - and TCFD is vital

Runaway climate change poses a huge threat to business and the global economy, with the potential to destroy assets, disrupt supply chains and downgrade investment portfolios. Companies and investors have never been more aware of this and, looking beyond TCFD, we now need to focus on how to ensure adoption of the recommendations thereby creating a new business norm.

Armed with high quality, reliable and comparable environmental data from every major company on the planet, investors and other decision makers will be able to make better-informed decisions. This will ultimately lead to a more sustainable global economy that is able to manage a transition to a low carbon economy and is buffered, both physically and financially, from the worst impacts of climate change.

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