Picking Up Speed - Adoption of the FSB’s TCFD Recommendations…

G&A's Sustainability Highlights (1.21.2021)
Jan 26, 2021 10:00 AM ET
Newsletter

Countries around the world are tuning in and exploring ways to guide companies to report on ever more important climate related disclosures.  Embracing of the Task Force recommendations is a key policy move by governments.

After the 2008 global financial crisis, the major economies that are member-nations of the “G20” formed the Financial Stability Board (FSB) to serve a think tank and forum for the world’s leading developed countries to develop strong regulatory, supervisory, and other financial sector policies.

Member-nations can adopt the policies developed collectively in the FSB setting back in their home nations to address financial sector issues with new legislative and/or adopted/adjusted rules, and issue guidance to key market players. The FSB collaborates with other bodies such as the International Monetary Fund (the IMF). 

FSB operates “by moral suasion and peer pressure” to set internationally-agreed to policies and minimum standards that member nations then can implement at home. In the USA, members include the SEC, Treasury Department and Federal Reserve.

In 2015, as climate change issues moved to center stage and the Paris Agreement was reached, the FSB created the Task Force on Climate-related Financial Disclosures, with Michael Bloomberg as chair.  The “TCFD” then set out to develop guidelines for corporate disclosure on climate change-related issues and topics. 

These were released in 2017, and since then some 1,700 organizations endorsed the recommendations (as signatories); these included companies, governments, investors, NGOs, and others.

Individual countries are taking measures within their borders to encourage corporations to adopt disclosure and reporting recommendations. There are four pillars -– governance, strategy, risk management, and metrics & targets. 

A number of publicly-traded companies have been adopting these recommendations in various ways and publishing standalone reports or including TCFD information and data in their Proxy Statements, 10-ks, and in sustainability reports.  The key challenge many companies face is the recommended scenario testing to gauge resiliency (and ability to succeed!) in the 2C degree environment (and beyond, to 4C and even 6C) over the rest of the 21st Century.

Many eyes are on Europe where corporate sustainability reporting first became a “must do” for business enterprises, setting the pace for other regions -– what is going on now in the region with the most experienced of corporate reporters are based?  Some recent news:

The Federal Council of Switzerland called on the country’s corporations to implement the TCFD recommendations on a voluntary basis to report on climate change issues. 

Consider the leading corporations of that nation -- Nestle, ABB, Novartis, Roche, LarfargeHolcim, Glencore. Switzerland -- noted the council, could strengthen the nation as global leader in sustainable financial services. A bill is pending now to make the recommendations binding.

The Amsterdam-based Global Reporting Initiative (GRI) is backing an EU Commission proposal for the European Financial Reporting Advisory Group (EFRAG) to consider what would be needed to create non-financial reporting standards (the group now advises on financial standards only). The dual track efforts to help to standardize the disparate methods of non-financial reporting that exist today.

The move could help to create a Europe-wide standard. The GRI suggests that its Global Sustainability Standards Board (GSSB) could make important contributions to the European standard-setting initiative.  And, notes GRI, the GSSB could help to address the critical need for one global set of sustainability reporting standards.  The GRI standards today are the most widely-used worldwide for corporate sustainability reporting (the effort began with the first corporate reports being published following the “G1” guidelines in 1999-2000).

The United Kingdom is the first country to make disclosures about the business impacts of climate change using TCFD mandatory by 2025.  The U.K. is now a “former member” of the European Union (upon the recent completion of “Brexit”), but in many ways still considered to be a European region. The move should be viewed in the context of more investors and sovereign nations demanding that corporations curb their GhG emissions and help society move toward the low-carbon economy.

In the U.K., the influential royal, Prince Charles -- formally titled as the Prince of Wales -- has also launched a new charter to promote sustainable practices within the private sector.  He has been a champion of addressing climate challenges for decades.

The “Terra Carta” charter sets out a 10-point action plan designed to reduce the carbon footprint of the business sector by year 2030.  This is part of the Sustainable Markets Initiative launched by the prince at the January 2020 meeting in Davos at the World Economic Forum gathering. 

Prince Charles called on world leaders to support the charter “to bring prosperity into harmony with nature, people and planet”. This could be the basis of global value creation, he explains, with the power of nature combined with the transformative innovation and resources of the private sector.  

We monitor developments in Europe and the U.K. to examine the trends in the region that shape corporate sustainability reporting -- and that could gain momentum to become global standards, or at least help to shape the disclosure and reporting activities of North American, Latin American, Asia-Pacific, and African companies.

It is expected that the policies that will come from the Biden-Harris Administration in the United States will more strenuously align North American public sector (and by influence, the corporate sector and financial markets) with what is going on in Europe and the United Kingdom.  Stay Tuned!

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.