Financial regulators might not be the first thing that springs to mind when thinking about climate change. But a slew of recent publications suggests that the regulators see themselves as playing an important role in managing the transition to a low-carbon economy.
In early 2020, the Financial Conduct Authority intends to consult on bringing in new rules to require certain listed issuers to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) or to explain why they haven't reported.
In his recent speech at the UN Climate Action Summit, Bank of England Governor Mark Carney confirmed that climate disclosure is a key tool for putting climate risk at the centre of financial decision-making. He noted that international collaboration has increased dramatically in recent years (80% of the top 1,000+ global companies now disclose climate-related financial risks), but that standardisation is needed to produce high-quality and easily-comparable information.
In its most recent annual review, the Financial Reporting Council has reminded listed company boards that it expects them to report both on physical risks arising from the impact of climate change and on risks arising from the transition to a low-carbon economy. Its Financial Reporting Lab is also encouraging issuers to bridge gaps in climate-related disclosures by reporting against the TCFD recommendations.
Businesses need to ready themselves for more intense disclosure over the coming years. Climate risk has ceased to be a niche corporate social responsibility matter and is now well on the way to being considered a mainstream financial risk.
UK listed companies will have to disclose their risks from climate change from next year under rules to be floated by the markets watchdog, in a significant ramping up of official policy.