Lack of climate disclosure leaves investors in the dark

Climate-proofing strategies won’t be possible without a step-change in the way businesses communicate, says a task force mandated by the Financial Stability Board.

The paucity of climate-related information released by companies is hindering investors’ efforts to restructure their portfolios in the face of global warming, according to a group of blue-chip advisors and limited partners.

Only about 45 percent of companies in the FTSE All World Index report their carbon emissions, according to the Task Force on Climate-related Finance Disclosures (TCFD). In the US, the Sustainability Accounting Standards Board said climate risk affects 93 percent of all US equities, but only 12 percent report about climate risk in their SEC filings.

TCFD was created last December by the Financial Stability Board, an international organisation that monitors the global financial system, at the request of G20 governments. The group’s members, who spoke at an event in New York on Monday, are seeking to pin down what information investors, creditors and underwriters need from businesses to decrease climate-related financial risk.

Mark Lewis, a managing director and head of European utilities equity research at Barclays, said companies should release a future emissions profile. Investors also need to understand a business’ risk management practices, said PGGM’s chief of investment management Eloy Lindeijer.

Michael Wilkins, Standard & Poor’s global head of climate risk research, added that companies should perform carbon stress testing, looking at what future profitability will look like under different carbon prices.

A broader problem was the lack of a widely accepted framework to gauge climate-related metrics, TFCD said, noting that such a blind spot was making it harder for investors to make informed decisions.

“We as investors are starting on a long journey in terms of restructuring our portfolios,” Lindeijer said. He added that PGGM, a Dutch pension fund service provider, has started divesting its $300 billion portfolio from assets at risk of being affected by climate change.

Wilkins explained that a lack of consistency, coherency and comparability of current disclosures mean investors do not have a sufficient level of information to make informed decisions about climate risks.

The first TCFD report, released in March, set the scope and objectives for what is needed in a widely accepted disclosure framework. The second report will offer specific recommendations and guidelines for voluntary disclosures, according to the task force. It is expected to be released at the end of this year.