LONDON, UK, July 19, 2017 (ENS) – Eleven of the world’s largest banks, representing over US$7 trillion, are making a public commitment to promote climate risk transparency in financial markets.
The banks’ commitments follow the publication late last month of the final recommendations by the G20’s Financial Stability Board’s Task Force on Climate-Related Financial Disclosures, TCFD.
The Financial Stability Board, chaired by Bank of England Governor Mark Carney, asked the Task Force to develop voluntary, consistent climate-related financial risk disclosures for use by companies, investors, lenders and insurers.
The Task Force recommendations were presented in Hamburg, Germany at the G20 annual meeting earlier this month.
The final recommendations were authored by Carney and former New York mayor and TCFD chair Michael Bloomberg. The American businessman, author, politician, and philanthropist, has a current net worth estimated at US$50.4 billion, ranking him as the world’s sixth richest person.
“Increasing transparency makes markets more efficient and economies more stable and resilient,” said Bloomberg in the Executive Summary to the Task Force report.
The banks and financial services companies will develop analytical tools to strengthen their assessment and disclosure of climate-related risks and opportunities.
Key features of the recommendations are that they must be: adoptable by all organizations, included in financial filings, designed to solicit decision-useful, forward-looking information on financial impacts, and have a strong focus on risks and opportunities related to transition to a lower-carbon economy.
The 11 first-mover banks that have signed on to these recommendations are:
* – the Australia and New Zealand Banking Group;
* – the British multinational bank and financial services company Barclays;
* – Brazilian banking and financial services company Bradesco;
* – New York-based multinational bank and financial services company Citi;
* – Itaú Unibanco Holding S.A, the largest financial conglomerate in the Southern Hemisphere;
* – National Australia Bank;
* – Royal Bank of Canada;
* – Santander Group, which serves more than 100 million customers in the United Kingdom, Latin America, and Europe;
* – Standard Chartered, a British banking and financial services company operating more than 1,200 branches in 70 countries;
* – TD Bank Group, a Canadian multinational banking and financial services corporation headquartered in Toronto;
* – UBS, a Swiss global financial services company.
The industry Task Force spent 18 months consulting with business and financial leaders to develop its recommendations for helping companies to communicate their climate-related information. Bloomberg says the Task Force encountered broad support for this collaborative process.
“Since the Task Force began its work,” wrote Bloomberg in the report, “we have also seen a significant increase in demand from investors for improved climate-related financial disclosures. This comes amid unprecedented support among companies for
action to tackle climate change.”
The Task Force and banks are collaborating on this effort with the United Nations Environment Finance Initiative (UNEP FI) to promote climate transparency in financial markets.
“The message from financial heavyweights is clear – climate change poses a real and serious threat to our economy,” said Erik Solheim, head of UN Environment, formerly known as the UN Environment Programme (UNEP).
“At the same time, there are enormous business opportunities in taking climate action,” Solheim said. “Transparency on how financial institutions mitigate the risks and seize the opportunities of a two degrees pathway is crucial to move international markets towards actively supporting a low-carbon and climate-resilient future.”
The “two degrees pathway” is a reference to the Paris Agreement on climate, which has near unanimous support among world governments, for its goal of holding any rise in global warming to two degrees Celsius above the pre-industrial average.
UNEP FI, a partnership between UN Environment and the global financial sector created after the 1992 Earth Summit, promotes sustainable finance. Over 200 banks, insurers and investors work with UN Environment to understand today’s environmental challenges, why they matter to finance, and how to participate in addressing them.
In the report accompanying its final recommendations, the Task Force points out that the financial consequences of climate change are not just some far-off future situation that can be addressed in the years to come – they are happening right now.
“One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change,” the Task Force writes. “While it is widely recognized that continued emission of greenhouse gases will cause further warming of the planet and this warming could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making.”
“Accordingly,” writes the Task Force, “many organizations incorrectly perceive the implications of climate change to be long term and, therefore, not necessarily relevant to decisions made today. The potential impacts of climate change on organizations, however, are not only physical and do not manifest only in the long term.”
The Task Force says it will be expensive to transition to a low-carbon world, generating opportunities but also risks.
“For many investors, climate change poses significant financial challenges and opportunities, now and in the future. The expected transition to a lower-carbon economy is estimated to require around $1 trillion of investments a year for the foreseeable future, generating new investment opportunities.”
“At the same time,” the Task Force writes, “the risk-return profile of organizations exposed to climate related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”
Bank executives say that by improving their understanding of climate-related risks and opportunities, financial institutions are better placed to help finance the transition to a more stable and sustainable economy.
Jes Staley, CEO of Barclays PLC, said, “As a contributing member to the work of the FSB Task Force over the past 18 months, Barclays is pleased to be able to continue our involvement by joining this UNEP FI Working Group. Putting the theory into practice – or exploring how best the Recommendations can be implemented – and creating greater transparency for all participants, is an endeavour we look forward to working on with our fellow Working Group participants.”
Ed Skyler, executive vice president for global public affairs at Citi, said, “The scale and sophistication of climate risk and opportunity continue to grow, and the finance sector has an important role in shaping the path forward. Working together to refine our approaches to enhanced disclosure will help accelerate the transition to a low-carbon economy.”
“We welcome and support the recommendations of the Task Force on Climate-related Financial Disclosures,” says Liselotte Arni, head of UBS environmental and social risk management. “They represent a major step forward to help businesses and investors assess the risks and exposures associated with climate change. We look forward to working with other banks on implementing the TFCD’s recommendations.”