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Task force recommendations seen improving climate risk disclosure

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The consistency and depth of corporate climate risk reporting is likely to improve under recommendations for climate-related financial disclosures finalized in June, according to a new analysis.  

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures — at the request of the G-20 nations — released a set of recommendations to guide companies in assessing the material risks climate change poses to their operations and develop plans to mitigate these risks.

The recommendations cover four core elements: governance, strategy, risk management and metrics and targets. 

Insurers and reinsurers are seen as benefitting from the voluntary global framework. Swiss Re, a member of the task force, previously said it would adopt the voluntary recommendations.

The recommendations strike a balance between the need for greater transparency for stakeholders and investors and the need for companies to have flexibility in how they report on these issues, according to a brief published Thursday by the Center for Climate and Energy Solutions. Companies are likely to expand and enhance their climate-related disclosures even in the absence of action by U.S. regulators due to investor interest, action by state regulators and European policy, according to the brief.

“In the absence of climate action at the federal level, business-led efforts to promote transparency on climate change are an encouraging example of leadership,” Bob Perciasepe, president of the Arlington, Virginia-based organization, said in a statement. “Companies are responding to demands from shareholders, employees and customers to manage climate risks and take advantage of opportunities that develop as our economy adapts to the changing climate.”

More work will be needed to help companies implement the recommendations, especially regarding tools such as scenario analysis, which could be particularly helpful when reviewing the long-term transition and physical risks related to climate change given the amount of uncertainty involved, according to the brief.

“Challenges ahead include determining the appropriate timeframes and level of detail to include in disclosure, overcoming difficulties with internal coordination and differences in the precision of financial and sustainability data and exploring how to conduct and communicate sophisticated internal analysis about climate risks and opportunities,” Fatima Maria Ahmad, solutions fellow and author, said in the brief. “Companies in the financial sector and in key non-financial groups have experience conducting the types of scenario analysis referenced in the task force’s recommendations and others will ‘learn by doing.’ We expect (and hope) that over time more companies will include this important information in their financial reporting, if it is material, or in other types of annual reports.”