Phase I Report

The Phase I Report was welcomed by the FSB on March 31, 2016. The Task Force will deliver final recommendations to the FSB at the end of December 2016.

Phase I Report: Executive Summary

Many users and providers of financial capital increasingly recognize the risks and opportunities inherent in a changing climate, and there has been a corresponding increase in demand for decision-useful information. Nevertheless, users of climate-related financial disclosures commonly identify inconsistencies in disclosure practices, a lack of context for information, and uncomparable reporting as major obstacles to incorporating climate-related risks as a consideration in their investment, credit, and underwriting decisions. Enhanced disclosures on climate-related risks that are used by investors, creditors, and underwriters can improve market pricing and transparency and thereby reduce the potential of large, abrupt corrections in asset values that can destabilize financial markets.

At the request of the G20, the Financial Stability Board (FSB) engaged the private and public sector to review how the financial sector can incorporate climate-related issues in financial reporting. In December 2015, the FSB established the Task Force on Climate-related Financial Disclosures to undertake a coordinated assessment of what constitutes efficient and effective disclosure and design a set of recommendations for voluntary company financial disclosures of climate-related risks that are responsive to the needs of lenders, insurers, investors, and other users of disclosures. The Task Force membership spans private providers of capital, major issuers, accounting firms, and rating agencies, thereby presenting a unique opportunity to form a collaborative partnership between the users and preparers of financial reports.

The Task Force’s Remit

A key objective of the Task Force’s work, as outlined by the FSB, is to promote more effective climate- related disclosures that (1) will support informed investment, credit, and insurance underwriting decisions about reporting companies, and (2) will enable a variety of stakeholders to understand the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risk.

The Task Force has been asked to deliver two reports:

A first report (to be delivered by March 31, 2016) that will set out the scope and high-level objectives for the proposed work, together with a set of fundamental principles of disclosure, to provide an enduring disclosure framework and guide the Task Force’s Phase II recommendations.

A final report (to be delivered by the end of 2016) that will set out specific recommendations and guidelines for voluntary disclosure by identifying leading practices to improve consistency, accessibility, clarity, and usefulness of climate-related financial reporting.

In keeping with the FSB remit, this Phase I Report discusses four key areas:

1. Landscape

First, the Task Force has conducted a high-level review of the existing landscape of climate-related disclosures—including current voluntary and mandatory climate-related disclosure regimes—to identify commonalities, gaps, and areas for improvement. The review highlighted the progress that has been made by governments, stock exchanges, nongovernmental organizations (NGO), and others in the context of disclosure frameworks. At the same time, despite these successes, climate-related disclosure remains fragmented and incomplete, with only a limited number of reporting regimes focusing on the financial risks posed by climate-related impacts. In general, existing laws and regulations already require disclosure of climate-related risk in financial filings if it is deemed material. The Task Force plans to build on existing work to provide a framework that promotes alignment and focuses on financial risks stemming from physical and nonphysical climate-related impacts (including transition and liability risks) to better meet the specific needs of users and preparers. The approach will be market-driven.

2. Objectives and scope

Second, the Phase I Report defines the scope and objectives of our work for Phase II. The Task Force’s recommendations in Phase II will target climate-related financial disclosures pertaining to near-, medium- , and long-term physical and nonphysical impacts faced by both nonfinancial companies and the financial sector, with the goal of furthering market understanding and evaluation of relevant financial risks and opportunities. The Task Force will consider the features and characteristics of information to be disclosed—including quantitative, qualitative, historical, and forward-looking metrics—and how disclosures are used, analyzed, and aggregated. The Task Force will focus primarily on developing recommendations for issuers of public securities, listed companies, and key financial-sector participants. The Task Force will seek to promote and drive voluntary adoption by ensuring that its recommendations reflect a consensus view of leading practices for disclosure; advance principles of good governance, fiduciary duty, and stewardship; and provide a basis for consistent and comparable application by firms in countries throughout the G20.

3. Fundamental principles for effective disclosures

Third, the Task Force has identified seven fundamental principles that are critical for an effective regime for climate-related financial disclosure, summarized as follows:

  • Present relevant information
  • Be specific and complete
  • Be clear, balanced, and understandable
  • Be consistent over time
  • Be comparable among companies within a sector, industry, or portfolio
  • Be reliable, verifiable, and objective
  • Be provided on a timely basis

These principles will underpin the Task Force’s Phase II recommendations for enhancing climate-related disclosures and provide an enduring framework for future work on these issues.

4. Stakeholder outreach and engagement

The Task Force is strongly committed to extensive stakeholder engagement and public consultation, soliciting input from nonprofit organizations, industry, the official sector, and academia and ensuring that our work builds on their efforts.

Terms of Reference for Phase II

The Task Force will focus next on the financial impact of climate change on reporting companies’ businesses, as the starting point for the development of recommendations for voluntary disclosures within mainstream financial reports. In general, climate-related disclosures should be subject to good- governance processes and address as comprehensively as possible the significant impacts of climate change on the company’s business and the company’s strategy for managing related risks. The fundamental principles will underpin the Task Force’s work on these issues in Phase II of the project.

In order to conduct our work, the Task Force will hold four additional plenary meetings in the remainder of the year. In Phase II, we will organize ourselves into four workstreams:

The governance workstream will focus on developing a common and baseline set of recommendations for voluntary disclosures pertaining to the processes that guide how boards and management consider these issues across sectors.

Two other workstreams, on nonfinancial companies and the financial sector, will consider further industry-specific recommendations.

The stakeholder outreach and communications workstream will continue to support the Task Force’s engagement strategy.The workstreams will consist of a balance of users, preparers, and other experts to ensure that findings reflect the challenges faced by preparers, the needs of users, and a variety of functional, regional, and industry perspectives.

Transparency and Consultation

We recognize that effective engagement requires an open and transparent process. The Task Force will continue to proactively connect with a broad array of interested stakeholders.

In tandem with the April 1, 2016, publication of the report, the Task Force posted a structured, online form open for a two-month public consultation on our work in Phase II. Respondents with additional comments were able to submit a comment letter during the consultation period. The public consultation period has been closed as of May 31, 2016.

For more information, please reach out to us via [email protected].

Phase I Report Download