The pandemic has opened up an opportunity for companies to create climate transition strategies and for investors to manage climate-related investments, Mark Carney has said.
The UN special envoy for climate action and finance, and former governor of the Bank of England, said that covid-19 has created “new realities” and “a huge opportunity”.
He spoke at an online conference organised by think tank McGuinness Institute, law firm Simpson Grierson and the non-profit consortium Climate Disclosure Standards Board (CDSB).
“There are 125 countries, including the UK, Canada and New Zealand, who have net zero as a target,” he continued and pointed to the key role that the reporting framework of the Task Force on Climate-related Financial Disclosures (TCFD) plays in the low-carbon reform of companies.
It has been created to allow investors to gather climate-related data from firms and manage risks as companies shift their strategies and business models in the low-carbon transition.
But while the support for the TCFD has risen globally, the voluntary framework has not yet produced comprehensive data.
“That goes to part of the reason why we think it is now time for mandatory disclosure,” Carney explained.
Development of TCFD reporting
In 2015, Financial Stability Board chairman Carney established the Task Force in response to a request from the G20 to better understand the financial risks posed by climate change and appointed Michael Bloomberg as its chair.
Disclosure of climate-related information by companies was found to be critical to allow investors to shift investments to low-carbon economies smoothly and avoid financial stability risks.
While the TCFD reporting framework gains increasingly traction globally, nations have held back in setting strict mandatory regimes.
The EU’s TCFD-based reporting is currently under review, while the UK is currently consulting on a ‘comply or explain’ approach for the framework, Carney explained.
“And we are also working with the global standard setters to drive a comprehensive approach. So, all of these approaches should start to move together,” he said.
TCFD status in New Zealand
Adrian Orr, the governor of the Reserve Bank of New Zealand, called for action on TCFD disclosure given the opportunity that covid-19 provides.
“And we are very happy to support compulsory disclosure. It needs to be effective. It needs to be meaningful,” Orr said.
James Shaw, minister for climate change, minister for statistics and associate minister for finance in New Zealand, added that mandatory climate-related risk disclosure is under consideration in his homeland.
The co-leader of the country’s Green Party explained that a consultation on mandatory reporting showed high support by the respondents to implement it.
Shaw also argued that companies had a duty to align their strategies with a green recovery.
“If you are pouring tens of billions of dollars into the economy, and frankly into private entities, then there at least needs to be some form of quid pro quo,” he said.
The duty, he added, applies in particular towards children and grandchildren, who would have to pay for the transition costs twice if they are not green today: one time when the debt shouldered by the nations results in taxes, and another time when the transition risks hit companies.
Barriers to TCFD
Carney also explained that a key barrier to the application of the TCFD reporting is scenario analysis.
Users of the reporting can apply different scenarios, which include transition pathways that can be smooth and aligned with the Paris Agreement, disruptive, or business as usual and non-aligned.
However, Orr commented that obtaining the climate-related data from the TCFD reporting could help to advance discussions on the macro-economic implications of climate change risks.
It helps us to bring life to those stress test scenarios, and have conversations with financial institutions on how to manage the risks and price them, he said.
“It brings the transparency into the whole action,” Orr continued.
