IOSCO endorses ISSB standards, US insurers improve climate risk management, and more.

July 28, 2023

The top five climate risk and disclosure stories this week.

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Securities regulators endorse ISSB standards

Global markets regulators endorsed the International Sustainability Standards Board’s (ISSB) new disclosure requirements on Tuesday, urging jurisdictions to embrace the rules.

The International Organization of Securities Commissions (IOSCO), whose members oversee 95% of the world’s financial markets, said the ISSB standards — known as IFRS S1 and S2 — provide a “global framework” for investors to “accurately assess relevant sustainability risks and opportunities.”

IOSCO said it is calling on its 130 member jurisdictions “to consider ways in which they might adopt, apply or otherwise be informed by the ISSB Standards.” Canada, the UK, Singapore, and Australia, among other countries, are already taking steps to do this. 

“IOSCO has a crucial role in shaping global financial regulation,” said Erkki Liikanen, the chair of the IFRS Foundation, which set up the ISSB. “Securities regulators are central to setting corporate reporting and disclosure requirements in capital markets. IOSCO’s endorsement sends a powerful signal to jurisdictions worldwide, providing them with the confidence they need to implement the ISSB Standards in their regulatory frameworks.”

US insurers improve on climate risk management — report

US insurers are wising up to climate risks, and some are demonstrating sophisticated risk management approaches, a new report shows.

Insurance companies are increasingly under threat from natural disasters linked to climate change, like hurricanes and floods, which cost them billions of dollars in policy payouts. Sustainability non-profit Ceres and the California Department of Insurance reviewed climate-related filings from over 400 insurance companies to paint a picture of how firms are grappling with these hazards.

The report shows many firms are using reinsurance as their primary safeguard against climate risk. Some are also rolling out new products that support risk reduction and clean technology, including discounts for risk-reducing retrofits, insurance products for renewable energy, green endorsements, and others. 

In addition, many insurers are becoming adept at climate disclosure. The report highlights the strong alignment of insurers’ reports with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), particularly in the areas of risk management and strategy. Nearly 20% of the reports mention scenario analysis explicitly, with at least 5% mentioning modeling scenarios in which global temperatures increase remain at 2°C or lower. However, metrics and targets were identified as the weakest area of disclosure, with only 193 reports providing any information and very few encompassing a variety of climate-related metrics.

The analysis was based on two review methods, a machine learning approach pioneered by Manifest Climate, and a rules-based text mining approach performed by the California Department of Insurance using methods developed by researchers at Banco de España. 

Ceres also provided a detailed analysis of 15 big name insurers, including State Farm, Liberty Mutual, and Farmers, based on Manifest Climate’s analysis. While most produced disclosures that meet 10 or 11 of the TCFD’s recommendations, many lacked more granular information that investors require to make robust assessments of the firms’ climate risk exposures. 

Canada’s banks making slow net-zero progress — report

Canadian banks are falling short in their efforts to decarbonize their portfolios and fulfill their sustainable finance pledges, according to a report card issued by net-zero pressure group Investors for Paris Compliance (I4PC). 

The organization, which monitors Canadian firms’ net-zero commitments, said banks lacked urgency in shifting their financing away from fossil fuels. It called for regulatory intervention if banks’ voluntary efforts continue to stall.

The six largest banks in Canada received scores ranging from B- to D on their climate disclosures, with TD Bank scoring slightly higher on target-setting and BMO scoring higher on transition planning. The report also highlighted the challenges in verifying and comparing the banks’ financed emissions reporting due to methodological issues and varying approaches.

While some banks have started to set targets for additional high-emitting sectors and provide more climate engagement insights, I4PC noted that they continue to finance fossil fuel expansion projects — such as the Coastal GasLink and Trans Mountain Pipeline. Furthermore, I4PC claims that the banks’ CAD$2trn in sustainable finance pledges have no connection to their emissions targets, and in some cases, have been used to channel funding to activities that increase emissions.

I4PC’s Executive Director, Matt Price, warned of the growing reputational and liability risks that banks face as climate change accelerates.“When sustainable finance is going to companies expanding pipelines, oil production, coal ports, and airports, that’s straight up greenwashing,” he added.

Climate lawsuits on the rise

Climate-related legal actions have surged globally, with over 2,000 cases now recorded across 65 jurisdictions, according to a recent report by the United Nations Environment Programme (UNEP). 

This marks a significant rise from 884 cases in 2017 and 1,550 cases in 2020. Children and youth, women’s groups, local communities, and Indigenous peoples are playing a pivotal role in initiating these lawsuits and spurring climate change governance reform in numerous countries. UNEP called these lawsuits “a frontier solution” to fighting climate change.

“Climate policies are far behind what is needed to keep global temperatures below the 1.5°C threshold, with extreme weather events and searing heat already baking our planet,” said Inger Andersen, UNEP’s executive director. “People are increasingly turning to courts to combat the climate crisis, holding governments and the private sector accountable and making litigation a key mechanism for securing climate action and promoting climate justice.” 

Major cases set aim at government decisions that contradicted Paris Agreement goals or a country’s net-zero laws. A number also targeted corporations, particularly fossil fuel giants, including Shell, which was ordered by a Dutch court in 2021 to align with the Paris Agreement and cut its emissions by 45% from 2019 levels by 2030.

The UNEP review covered cases on climate change law, policy, and science collected up to December 31, 2022.

Carbon credit benchmark debuts

A global carbon credit standard-setter unveiled an assessment framework for gauging the integrity of projects that purport to counteract climate pollution.

The Integrity Council for the Voluntary Carbon Market (ICVCM) intends for its Core Carbon Principles (CCPs) framework to identify high-quality carbon offset projects and enhance the voluntary carbon market’s ability to support climate goals.

Carbon credit projects can now submit to a CCP assessment using the framework to find out whether they conform to the ICVCM’s threshold standards for quality and integrity. If they pass, they will be allowed to use the CCP label on the carbon credits that they sell. The CCPs require projects to be compatible with a net-zero transition, sequester emissions permanently, and to have additionality — meaning that they reduce or remove emissions that otherwise would have stayed in the atmosphere. The principles also require projects’ emissions reductions or removals to be “robustly quantified”.

“The voluntary carbon market can play a key role in mobilizing private capital to support the 1.5-degree Paris climate target,” said Annette Nazareth, the chair of the Integrity Council. “Our CCPs and assessment criteria set a global threshold for quality which aims to unlock finance at speed and scale for projects to reduce and remove billions of tonnes of emissions that would not otherwise be viable.”

The ICVCM release follows the publication of the Voluntary Carbon Market Integrity Initiative’s (VCMI) Claims Code of Practice, which establishes how a company can go about making credible claims about their use of carbon credits.