G20 group issues first set of guidelines for climate risk reporting

The FSB-drafted guidelines emerge as the legal imperative increases for large companies to disclose the business impact of climate change.

Companies concerned about the impact of climate change on their bottom line now have a set of guidelines for disclosing climate-related threats in their financial reports.

The recommendations were drawn up by a special climate reporting taskforce born of the Financial Stability Board (FSB), an international body set up by the G20 to monitor risks to the financial system, chaired by billionaire media mogul and former New York mayor, Michael Bloomberg.

The framework is designed to give investors, lenders and underwriters greater clarity on how future-proofed a company is in a world that is getting worryingly warmer, and is an attempt to move climate-related issues into the mainstream of financial filings.

Currently, climate-related financial disclosure is voluntary for most corporates, although the reporting framework for climate risks has until now been fragmented, making it difficult for companies to work out what information should be included and how it should be presented. 

Climate change is not only an environmental problem, but a business one as well. 

Michael Bloomberg, CEO, Bloomberg L.P.

The financial risks from climate change, outlined in the report, range from abrupt changes in energy costs and hiked insurance premiums, to property damage from floods and storms and the upfront cost of low-emissions technology.

The report covers strategy, governance, risk management and metrics, and raises questions such as whether a company has assigned climate-related issues to the most senior levels of management, and how central the business risks and opportunities from climate change are to a company’s overall strategy.

The guidelines come at a time when large multinationals are under pressure to disclose the potential impact of climate change on their businesses.

The report, which can be read in full here, acknowledges that some companies might be concerned about the potential commercial and litigation risks associated with disclosing climate-related financial information.

Others are worried that making information public such as climate-related scenario analysis could put their competitive position at risk.

The report suggests that while full disclosure in mainstream financial filings should be the ultimate goal, disclosure in other forms, such as a company website or sustainability report, could be a preferable interim step.

Bloomberg said in a statement that the recommendations represent an important effort by the private sector to improve transparency around climate-related financial risks.

“Climate change is not only an environmental problem, but a business one as well. We need business leaders to join us to help spread these recommendations across their industries in order to help make markets more efficient and economies more stable, resilient, and sustainable,” he said.

The recommendations emerge eight months after a study published in the journal Nature Climate Change predicted that the impacts of climate change would cost the world’s financial assets an average US$2.5 trillion if global temperatures rise by 2.5 degrees celcius above its pre-industrial level by 2100.

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