Regulators in Canada and elsewhere are considering regulatory changes to accelerate the transition towards net-zero carbon emissions. Part of that consideration is whether to adopt the TCFD four pillar framework of governance, strategy, risk management, and metrics and targets. We can learn from regulators that have already adopted measures, in particular, the recent activities of the United Kingdom (UK) Government. The UK Government is committed to mandatory climaterelated TCFD-aligned disclosures across the UK economy over a five-year period, including: listed commercial companies, UK-registered companies, banks and building societies, insurance companies, asset managers, and Financial Conduct Authority (FCA)-regulated pension schemes.
This briefing note, current to May 2021, highlights the policy rationales for moving to mandatory TCFD-aligned disclosure, sets out the paths the UK Government is taking to make disclosure mandatory across the economy, and raises important considerationsfor regulators in Canada and elsewhere.
This paper seeks to highlight the specific climate-related information, in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, that investors consider to be useful when it comes to their own decision-making process. This in turn should guide preparers in the areas that should be focussed and the existing resources available to support them.
The Net-Zero Banking Alliance commitment is underpinned by the bank-led UNEP FI Guidelines for Climate Target Setting for Banks . These guidelines have been developed by signatories of the commitment, a leadership group under the UNEP FI Principles for Responsible Banking. The guidelines outline four principles for target-setting:
1) Banks shall set and publicly disclose long-term and intermediate targets to support meeting the temperature goals of the Paris Agreement.
2) Banks shall establish an emissions baseline and annually measure and report the emissions profile of their lending portfolios and investment activities.
3) Banks shall use widely accepted science-based decarbonisation scenarios to set both long-term and intermediate targets that are aligned with the temperature goals of the Paris Agreement.
4) Banks shall regularly review targets to ensure consistency with current climate science.
This report is based on a detailed assessment of individual banks’ disclosures by our BCS Consulting. The ambition in undertaking this research is to create further transparency across the industry and objectively establish the progress that is being made towards a low-carbon economy. Furthermore, the report highlights the key areas where more work is still to be done and includes a view on how to approach this
This report is the second update on progress, issued by the Climate Action 100+ initiative. It summarises overall progress of the initiative including an update on measurement and benchmarking, key focus company commitments against the initiative’s goals, growth in signatories, and a sector level update on company performance against a set of indicators aligned to the aims of the initiative.
Japan’s primary prudential regulator, the Bank of Japan, has acknowledged that climate change poses a systemic risk to the Japanese economy and financial system. There is now overwhelming scientific and financial evidence of the material impacts of climate change on businesses. Directors in Japan have three primary duties, a duty of loyalty, a duty to be in compliance with all laws, regulations, and ordinances, and the company articles, and a duty of care. Directors’ duties are set out in the Companies Act of Japan, the articles of incorporation, and the Civil Code. The obligation of directors to consider the implications of climate change risk is grounded in the duties each director owes to the corporation they serve. In their oversight of management of climate risks, directors must meet the objective standard of what a reasonably prudent person would do in comparable circumstances.
Industry Group: Coal, Metals and Mining, Oil and Gas
Research / Insights - 2021
The study looks at 60 of the most carbon-intensive extractive companies and at the extent and quality of disclosures they make in the management report and in the financial statements about the potential impact of climate change on their business. Clearly there are risks to the long-term viability of their activities which would impact their mineral or hydrocarbon reserves and the related infrastructure and leave them with ‘stranded’ assets. Overall the findings are that the reporting is not good enough and that annual reports lack clarity of and depth in climate change related disclosures.
The Climate Risk Landscape: Mapping Climate-related Financial Risk Assessment Methodologies provides a summary of the key developments across third party climate risk assessment providers since May 2019, including new and updated scenarios, methodological tools, key guidelines, as well as an overview of the changing regulatory landscape and potential developments into 2021.
This report covers both physical and transition risks, though the headline results on physical risks have incorporated the results of an analysis of physical risk methodologies and data sources in chapters 2 (Data portals) and 4 (Methodologies) of UNEP FI and Acclimatise’s recently released report, ‘Charting a New Climate’ (2020) developed for UNEP FI’s TCFD Banking Pilot Project Phase II. This overview has adopted a two-step process by engaging with methodology developers to provide information on their tools and methodologies, which have been subsequently verified through objective research.
Pathways to Paris’ is a practical guide for financial practitioners looking to understand and apply climate scenarios. Co-authored with the Center for International Climate Research (CICERO), a world-renowned research institution on climate and climate finance, the report examines the driving assumptions and sectoral coverage of the models used to produce climate scenarios, as well as the benefits and limitations of using these pathways.
This paper also provides a series of recommendations for enhancing the development and application of Integrated Assessment Models (IAMs) by financial institutions based on perspectives of participating banks that used UNEP FI’s transition risk.
This paper covers two primary themes of relevance to financial institutions, with support from Oliver Wyman. First, it examines sector specific risk drivers that could result in a disorderly transition, making the argument that climate transition risk is a significant near-term threat to much of the economy. Second, the report explored how these risk drivers are currently being modeled in climate scenarios produced by major integrated assessment models (IAMs). The paper also includes bank case studies that affirm greater economic risks associated with disorderly transition scenarios compared with orderly transition scenarios.