PRI perspective: investors must drive implementation of the FSB Task Force final report

Its recently-released final report marks a vital step forwards on climate change – crucially providing investors and companies with a common financial language for it.

Over 360 investors with US$19 trillion are asking the G20 to support the task force’s recommendations, including: Aegon NV, Alliaz Global Investors, AP4 (Fourth Swedish National Pension Fund), Australian Council of Superannuation Investors, Mirova, MN, New York State Comptroller, OPTrust and Zurich Insurance Group.

In addition, more than 100 firms have provided statements of support to encourage take-up of the recommendations.

For PRI signatories, the TCFD brings a sharp focus to the financial impacts of climate-related risks and opportunities, providing:

• A typology of transition and physical risks such as extreme weather events, and opportunities such as resource efficiency, as well as R&D and innovation in products and services. This offers asset owners and managers a lens for assessing the material financial impacts of climate change in their investment processes.
• Guidelines for climate related financial disclosures by companies. This will mean that equities and fixed income portfolio managers, buy-side and sell-side financial analysts can see investment decision-useful information more easily and act on it as they judge appropriate.
• Flexibility for organisations with different strategies, sizes and geographic markets, with practical guidance for high-impact sectors and on forward-looking disclosures. This combination of flexibility and practical utility makes broad-based implementation more achievable, meaning more companies in investment portfolios can disclose on climate change in a consistent manner to their investors.
• Guidance for asset owners and managers on their own disclosures. This supports further evolution in good practice investor disclosure to beneficiaries, clients and other stakeholders on climate change. It builds on existing good practice investor reporting that has been established, such as through the PRI Reporting Framework and the PRI’s Montreal Carbon Pledge.

Next steps

Investors should encourage TCFD implementation at a country-level

The PRI has recently published a series of country climate disclosure reviews with global law firm Baker McKenzie, covering Brazil, Canada, the EU, Japan and the UK. The reviews found that in all markets covered, the TCFD report would assist materially in implementing existing regulation and guidance for investors and companies, and in guiding the development of further and more comprehensive regulation on climate change-related analysis and disclosure. They include our recommendations for local implementation of the TCFD report by policymakers, regulators, stock exchanges, companies and investors.

Read the reviews

Investors should encourage companies to adopt the TCFD recommendations and manage transition-related risks and opportunities

Carbon Tracker and the PRI, in partnership with PKA, PGGM, AP7, FRR and Legal & General Investment Management, for example, have recently produced innovative new research showing company-by-company risks associated with unneeded capex for 69 global oil & gas companies. This finds that more than $1.8 trillion worth of oil and gas projects penciled in for between now and 2025 could become redundant. Investors can use such research to encourage companies in better climate disclosure and transition planning. The PRI will be highlighting this research in regional events.

We will encourage investors to join a project to drive TCFD implementation that will be launched at PRI in Person in Berlin

The project will include a collaborative investor engagement to encourage company adoption of the TCFD recommendations and alignment of the PRI Reporting Framework to support investor disclosure on climate change.

There’s no denying that achieving better climate disclosure across markets is a massive mountain to climb, but this is necessary for investors to understand and manage the financial impacts of climate change. With the ongoing work of the Task Force, the PRI and our partners, the summit will be attainable to companies and investors.

PRI and signatory views on the TCFD include

“The material risks around climate change remain the number one concern for our signatories, which is why we have made this issue a priority in our newly released Blueprint for responsible investment for the next decade. We welcome the report recommendations as they will help establish a valuable framework for investors to understand how the companies in their portfolios are transitioning to a two degrees world. In the past, investors have not had access to this data so the report is a real game-changer for them in terms of being able to more efficiently manage the risks in their portfolios. The PRI will be actively engaging its members on the suggested guidelines, which we also expect them to follow, and, beginning next year, we will be aligning our reporting & assessment framework to the recommendations.”

Fiona Reynolds, Managing Director, Principles for Responsible Investment

“To have better disclosure from both big and small companies is very much in demand from both companies, investors, and governments. Better information is necessary in order to be able to make wise and sustainable long term decisions on how to transform into a low carbon economy. AP4’s aim to continue to decarbonizing its portfolio is dependent on good information from companies about their emissions and exposure to climate change. Reliable information on emissions and climate change is in other words crucial for the possibilities to deliver sustainable competitive long term return.”

Arne Loow, Head of Corporate Governance, AP4, founding member of the Portfolio Decarbonization Coalition

“This problem cannot be solved by nations and governments alone; it requires a global effort involving both the private sector and financial market actors.”

Thomas Buberl, Chief Executive Officer of AXA

“We applaud TCFD report. Better information about “the effects that climate change can have on companies’ day-to-day operation and long-term strategies is key. It should help investors to understand what companies and project contribute to reduce climate risks at a local and systemic level and drive their investment decisions.”

Herve Guez, Global Head of Research & Deputy CIO, Mirova

“The physical impacts of climate change, as well as the policy responses to it and technological opportunities arising from it are key considerations for long-term investors. As such, we need to understand how companies are prepared and aligned with a 2-degree world to best understand the related risks and opportunities for our investments. However, to date we have struggled because of patchy, unverified data, the absence of scenario analysis and a lack of material, investment relevant disclosure from business. As such, we welcome the TCFD’s approach of encouraging material climate change disclosures that are presented in the context of a company’s strategy and financials. This analysis will mean we can better factor this key issue into our investment analysis and stewardship of our clients’ assets.”

Victoria Barron, Responsible Investment Analyst, Newton Investment Management

“We believe that the recommended framework should become the disclosure standard for climate change related risk. The work being done by the TCFD increases awareness of climate change as a financial risk and proposes a reasonable framework for disclosure so that we can better understand and assess that risk.”

Hugh O’Reilly, President &CEO, OPTrust

“The framework developed by TCFD will assist investors by providing consistent information to properly assess climate change risks. These recommendations will provide a single, uniform disclosure framework for companies to disclose how they are going to address the risks climate change presents to their bottom line.”

Thomas P. DiNapoli, trustee of the New York State Common Retirement Fund.

See statements of support convened by the TCFD including PRI signatories.