The Financial Reporting Council responded to the G20 Financial Stability Board Task Force on Climate-related Financial Disclosures last week stating that the Task Force’s list of suggested disclosures may “risk companies adopting a checklist mentality and boilerplate approach” and that “blind compliance may lead to irrelevant or immaterial disclosures that obscure important information investors need about the principal risks a company faces.”
Instead, it is advocating a voluntary, “principles-based approach, with less emphasis on detailed lists of suggested disclosures”.
According to Client Earth, this will not be effective enough in overseeing the reporting of climate risk and ensuring high quality reporting to foster investment – the very purpose of the FRC’s oversight role. “The FRC’s reluctance to step in and take on its responsibilities leaves an enforcement gap – which will impact negatively on investors,” it says.
This stance is at odds with other financial regulators, both in the UK and elsewhere.
Across Europe, there are a number of drivers encouraging regulators to take on the role of overseeing climate risk reporting.
Last month Client Earth wrote to the European Securities and Markets Authority (ESMA), which supervises the EU’s national regulators, about its position on “supervisory convergence” (ensuring that all regulators act in the same manner on a particular issue).
The ESMA acknowledged that climate risk is something that needs to be considered by financial regulators and confirmed its commitment to the work of the FSB taskforce.
EU member states are also introducing the EU’s non-financial reporting (NFR) directive – an additional lever that underlines reporting on companies’ sustainability, environmental and ethical positioning. This directive obligates reporting on a variety of information, with implications for climate risk.
The European Commission is expected to publish guidelines on the NFR directive once the G20 task force recommendations have been finalised.
Debate on what should be included in climate-related disclosures, how best to encourage companies to fully participate and how this process should be governed continues. Last week we asked experts within the Climate-KIC community what they thought should be included in climate-related financial disclosures.