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ERM contributes to game changing new recommendations on disclosure of financial impacts from climate change

03 January 2017

ERM was engaged to provide expert support to the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures, which released its recommendations report on the assessment and disclosure of climate-related risks in mainstream financial filings on 14 December.

This release kick-starts a 60-day consultation period. If adopted, the recommendations would introduce significant changes to the way in which many of the world’s largest companies manage and disclose climate-related risks.

The Taskforce was established in 2015 by the Financial Stability Board (FSB) - an international body that monitors and makes recommendations about the global financial system on behalf of the G20 Finance Ministers and Central Bank Governors. Comprising 32 senior representatives from across the global business and financial community, the Taskforce was asked to develop a set of recommendations for the assessment and disclosure of climate-related risks in mainstream financial filings. This responds to calls by the FSB for better information on these risks to support investment, lending, and insurance underwriting decisions.

Taskforce recommendations
The Taskforce recommendations call for organizations to:

  • Enhance their disclosure of governance around climate-related risks and opportunities;
  • Identify implications for company strategy, both now and in the future under different potential future states (scenarios), including a 2° Celsius scenario; 
  • Disclose the processes used to identify, assess and manage risk; and 
  • Report the metrics and targets which they use to measure and manage climate-related risk and opportunity.

A key aspect of the recommendations is for disclosures to be forward-looking, considering the financial and wider commercial implications of different but credible policy, technology and physical climate change scenarios. ERM was engaged by the Taskforce to help it develop its recommendations for forward-looking disclosures. Specifically, ERM contributed practical approaches that organizations can use when considering the implications of a range of different potential future scenarios.

In introducing the recommendations of the Taskforce, Mark Carney, Chairman of the FSB, acknowledged that “static disclosures will not be sufficient to reveal a company’s climate-related financial risks and opportunities. For investors to price financial risks and opportunities correctly, they need to weigh firms’ strategies against plausible public policy developments, technological advances and evolving physical risks and opportunities.” Carney commended the Taskforce’s recommendations for scenario-based disclosures as a “ground breaking innovation”.

ERM's role
ERM Partner leading our support to the Taskforce, Charles Allison, commented: “The Taskforce’s report will introduce significant changes to the way in which many of the world’s largest companies manage and disclose climate-related risks; as Mark Carney acknowledges, the recommendations for forward-looking scenario-based disclosures break new ground.

ERM has successfully supported several of our major clients - across a range of sectors for which both policy and technology related ‘transition’ risks, and climate-related ‘physical’ risks could have material financial implications - to conduct scenario-based assessments. We were pleased to be able to draw upon this experience to support the Taskforce.”

ERM’s work is featured within the Taskforce’s main recommendations on scenario analysis, as well as forming the basis for a Technical Supplement, ‘The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities’. ERM’s contributions come from Charles Allison, Lee Solsbery, Adam Pierce and James Stacey. Both are publically available at www.fsb-tcfd.org/publications/ and open for consultation until 14 February 2017.

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