We recently hosted one of our most topical and timely webinars on the so-called Task Force on Climate-related Financial Disclosures (TCFD), a reporting framework pioneered and led by the Financial Stability Board (FSB) based in Basel, Switzerland. Quite deliberately, we assembled a wide representation of panellists to reflect on the impact of TCFD on their fiduciary obligations and duties, especially for their key stakeholders.
Our panellists were largely in agreement that now more than ever before, systemic climate risk can no longer be ignored by boards and executives. Financial institutions and companies appreciate that the scope of climate risks goes beyond reputational risks looking into the future. The risks have become materially present, drawing increasing concern from investors and key stakeholders such as consumers, which in and of itself presents a plethora of risks to financial market stability as identified by the Financial Stability Board in 2007.
The UN Intergovernmental Panel on Climate Change (IPCC), which is a leading scientific authority on climate change, puts the costs of this risk at $54-trillion by 2040 if carbon dioxide emissions continue at present rates. More specifically, business disruptions, bad loans from company bankruptcies and insurance losses from weather-related events are just a few examples of the direct cost of environmental changes and severe weather episodes caused by runaway climate change impacts.
For investors and those tasked with allocating capital, the risks have dire short-term consequences and are somewhat disruptive. For example, the decline in energy prices has become a catalyst for concerns about worthless “stranded assets” on companies’ books, and also the sudden changes in investors’ preferences or government policies. Something that seemed far off has become real in materially significant ways, with financiers re-appraising portfolios and weighing up the risks associated with these sharp climate transitions. This is no doubt keenly felt by the real estate sector, as one of our panellists noted in the webinar, “global energy consumption emanates from the real estate sector” and as a result, the reporting obligations have become unwieldy and costly.
Granted, this space can be confusing given the long list of evolving acronyms, standards, and reporting frameworks, which can easily turn cumbersome for a hard-pressed CEO. It is clear there is a need for increased education and “dumbing down” for the C-suite to appreciate the urgency and importance of taking reporting frameworks such as TCFD seriously. Ignoring them can prove costly.
This month, the Bank for International Settlements (BIS), the Bank of France, the International Monetary Fund (IMF) and Network for Greening the Financial System joined forces to co-sponsor a unique global virtual conference on “How in practice can the financial sector take immediate action against climate change-related risks?”, dubbed the Green Swan Conference.
The conference gathered the four heads of the co-sponsoring organisations, three Nobel Laureates, 15+ current and former central bank Governors and top executives, more than 25 senior policymakers and official sector experts, over 20 prominent academics and around 25 senior executives and CEOs from the private sector. All these experts were discussing the most feasible and concrete proposals on how the financial sector can take immediate action against climate change-related risks. A viewing of the recorded webcasts is recommended for any executive who wants to get up to speed with key trends around their TCFD disclosure obligations, and associated benefits for their fiduciary responsibilities.
As GCX we follow these global trends very closely, and always align our thinking and consulting approach with such trends to deliver globally relevant yet locally applicable solutions to boards and executives, especially as it relates to our ESG investor reporting consulting practice.
If you need help navigating and making sense of ESG disclosure risks and reporting, please contact us for a consultation.
Thabo Mthembu is the former GCX Business Development Manager. Thabo started his career as a climate change and energy policy researcher with WWF International’s Global Climate and Energy Initiative (GCEI). He also worked for WWF South Africa as a policy researcher on low carbon energy systems with the then Living Planet Unit (LPU), doing policy outreach work on sustainable energy access. Later Thabo worked on an initiative with WWF Sweden and WWF South Africa called ‘Climate Solver’, which is a digital clean technology platform in partnership with Sustainia that identifies and supports innovative entrepreneurs in the clean technology sector in China, India, Sweden and South Africa. Thabo holds a Masters Degree in global studies and Postgraduate Certificates in energy, climate change and renewable energy project finance fundamentals.