IFRS to track climate disclosure progress, and more.

July 14, 2023

The top five climate risk and disclosure stories this week.

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IFRS Foundation to track climate disclosure progress

The Financial Stability Board (FSB), a global panel of central banks and supervisors, has asked the IFRS Foundation to take over monitoring the progress of companies’ climate-related reporting practices from the Task Force on Climate-related Financial Disclosures (TCFD). 

This follows the June release of the inaugural climate- and sustainability-related reporting rules from the International Sustainability Standards Board (ISSB), which fully incorporated the TCFD’s recommendations. The ISSB was formed by the IFRS Foundation in 2021.

“The TCFD has been a trailblazer in raising the practice and quality of climate-related disclosures, providing much-needed information to investors about climate-related risks and opportunities,” said Emmanuel Faber, the ISSB’s Chair. “The ISSB has built from and consolidated the market-leading investor-focused sustainability-reporting initiatives to deliver the ISSB Standards, with the TCFD recommendations at the heart of this. As such, the ISSB welcomes the FSB’s request to transfer the TCFD’s monitoring responsibilities to the ISSB from 2024 and the opportunity to build on TCFD’s legacy.”

The TCFD has produced annual status reports on the progress of companies adopting the TCFD’s recommendations since 2020. Following the 2023 status report, the IFRS Foundation will assume the responsibility of tracking the production of high-quality climate disclosures. As of July, over 4,000 organizations in 101 jurisdictions have publicly supported the TCFD’s recommendations.

Global regulatory board tackles transition plans

The Financial Stability Board (FSB) is putting together a panel on transition plans to better understand their relevance for financial stability.

In its annual progress report on addressing climate-related financial risks, published Thursday, the FSB noted the “growing interest” in corporate and financial institution transition plans as a way to bring about decarbonization and provide information to financial regulators on potential climate risks. The new Transition Plans Working Group will start off by developing a “conceptual understanding” of the importance of these plans.

The report also highlights the need for additional work to tackle climate-related risks in the financial sector, particularly in the areas of climate data availability and quality, vulnerabilities analysis, and regulatory and supervisory practices. In addition, the report says more progress must be made on developing metrics that measure climate-related risks in a forward-looking manner and integrating climate scenario analysis in the monitoring of financial vulnerabilities.

“Moving to regular monitoring of climate-related vulnerabilities in a timely yet flexible manner and embedding climate scenarios and other forward-looking approaches into vulnerability assessments, are ambitious but important goals,” the report states. “Further work is needed to embed forward-looking metrics in vulnerability assessments. As part of that, work could include further examination of how climate scenarios could be used to draw financial stability insights, including identifying best practices and ideal metrics that could offer informative and timely climate vulnerability assessments.”

Investors expect alignment with ISSB standards

Investors in Europe and North America expect markets to align with the International Sustainability Standards Board’s recent disclosure rules to at least some degree, according to a survey by UK bank HSBC.

Over half of European respondents say their markets will adopt most of the standards, while a quarter of North American respondents said the same. However, an additional 37% of North American respondents said they expect their markets to somewhat align with the standards. The sentiment was lower in Asia, Latin America, and the Middle East and North Africa.

The survey was conducted between May 31 and June 24, 2023, and included 310 financial professionals from around the globe, representing 292 institutions with approximately USD$8.9trn in assets under management.

Among the survey’s other findings, HSBC discovered that although a backlash against environmental, social, and governance (ESG) sentiment is on the rise in the US, it is not noticeable in other regions. The survey also reports that in order to avoid unwelcome scrutiny, some funds in the US have stopped using ESG labels and are instead describing their approach as ‘thematic investing’.

World Bank marshals CEOs to bolster climate finance

The World Bank on Monday unveiled the founding members of its Private Sector Investment Lab, a group of 15 CEOs and Chairs tasked with developing solutions to overcome barriers to private sector investment in emerging markets. The initiative aims to foster public-private collaboration to address global challenges like climate change.

The Lab’s core membership includes leaders from prominent companies, such as AXA, BlackRock, HSBC, Macquarie, Mitsubishi UFJ Financial Group, and Ping An Group. It is co-chaired by Mark Carney, the UN Special Envoy on Climate Action and Finance, and Shriti Vadera, Chair of Prudential plc. Both will report directly to World Bank Group President Ajay Banga.

 “In order to address global challenges like climate change and poverty, we need new ways for the public and private sectors to work together to catalyze investment at speed and scale – particularly in developing countries,” said Carney. “Through the Private Sector Investment Lab, the World Bank and private finance will partner closely to develop, test, implement and ultimately scale financing structures and approaches that can most effectively mobilize private capital.”

French lawmakers push for ‘Say on Climate’ votes

Parliamentarians in France are working to pass a law that would require listed companies to give investors a say on their climate transition plans.

The Caisse des Dépôts et consignations (CDC), a public sector financial institution, and the French Sustainable Investment Forum drafted the proposal, which is scheduled for discussion at a plenary session of the National Assembly next week.

Under the proposal, listed firms would have to present their climate strategies for a shareholder vote at least every three years, while publishing updated plans annually. These plans would include details on Scope 1, 2, and 3 greenhouse gas emissions reduction targets. The legislative initiative follows a petition from France’s financial markets regulator, which asked  listed companies to provide ‘Say on Climate’ votes.

Although the legislative proposal was initially rejected by a parliamentary committee last week, it has since gained support from five additional parties.