Task Force on Climate-related Financial Disclosures

1 Task Force on Climate-related Financial Disclosures 2020 Status ReportOctober 202011 September 22, 2020Mr. Randal K. QuarlesChairFinancial Stability BoardBank for International SettlementsCentralbahnplatz 2CH-4002 Basel SwitzerlandDear Chair Quarles,It is my pleasure to present the third annual status report of the Task Force on Climate-related Financial Disclosures (TCFD). It outlines steady and encouraging progress since our last report. As you know, the Task Force s recommendations are intended to help build consideration of the effects of climate change into routine business and Financial decisions, and their adoption can help companies demonstrate responsibility and foresight. Better disclosure will lead to more informed and more efficient allocation of capital, and help facilitate the transition to a more sustainable, lower-carbon for the TCFD framework has exceeded initial expectations, in both the private and public sectors.

2 Nearly 1,500 organizations have expressed their support, a group that includes every major type of Financial market participant. Disclosure in line with the TCFD recommendations has increased every year since their release in 2017 . Climate change considerations are becoming increasingly common in the private sector and investors, lenders, and insurance underwriters are developing better capabilities for assessing Climate-related risk in their decision-making. However, greater disclosure and transparency are urgently in the public sector is also accelerating. Among others, Canada, Chile, the European Union, Hong Kong, Japan, New Zealand, the UK, Singapore, and South Africa have announced new policies, partnerships, or other formal support for Climate-related Financial disclosure in line with the TCFD recommendations . Going forward, it will be important to bring more standardization to reporting requirements across different countries and jurisdictions, in order to minimize the burden for reporting companies and maximize the value of disclosure for impacts of climate change continue to worsen, with clear and significant effects on the global economy and on people s lives.

3 At the same time, global efforts to recover from the economic damage of the coronavirus pandemic have provided a unique opportunity to set a foundation for a more sustainable and resilient future. So the work of the Task Force is more important and more urgent than ever before. We re grateful for your continued support and dedication to this ,Michael R. BloombergThe Task Force on Climate-related Financial DisclosuresExecutive Summarypractices and undertake work needed to enhance the effectiveness of such to the growth in the number of organizations supporting the TCFD, investor demand for companies to report information in line with the TCFD recommendations has also grown dramatically. For example, as part of Climate Action 100+, more than 500 investors with over $47 trillion in assets under management are engaging the world s largest corporate greenhouse gas emitters to strengthen their Climate-related Disclosures by implementing the TCFD In addition, many large asset managers and asset owners have asked or encouraged investee companies broadly to report in line with the TCFD recommendations and reflected this in their investment practices or 110 regulators and governmental entities from around the world support the TCFD, including the governments of Belgium, Canada, Chile, France, Japan, New Zealand, Sweden, and the United Kingdom.

4 In addition, central banks and supervisors from across the globe through the Network for Greening the Financial System have encouraged companies issuing public debt or equity to disclose in line 1 In this report, the Task Force uses the term companies to refer to entities with public debt or equity as well as asset managers and asset owners, including public- and private-sector pension plans, endowments, and Financial Stability Board, FSB to establish Task Force on Climate-related Financial Disclosures , December 4, Financial Stability Board, Task Force on Climate-related Financial Disclosures : 2019 Status Report, June 5, 2019. 4 See Section Implementation Initiatives for more See Climate Action 100+.6 For example, see BlackRock s Investment Stewardship Engagement Priorities for 2020 and CPP Investments Policy on Sustainable ES1 The Task Force s RemitIn April 2015, the Group of 20 (G20) Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to convene public- and private-sector participants to review how the Financial sector can take account of Climate-related issues.

5 As part of its review, the FSB identified the need for better information to support informed investment, lending, and insurance underwriting decisions and improve understanding of Climate-related risks. To help identify the information needed to assess and price Climate-related risks, the FSB established an industry-led task Force the TCFD. The FSB asked the TCFD to develop voluntary Climate-related Financial Disclosures that would be useful to investors and others in understanding material June 2017 , the Financial Stability Board s Task Force on Climate-related Financial Disclosures (Task Force or TCFD) released its final recommendations ( 2017 report), which provide a framework for companies and other organizations to develop more effective Climate-related Financial Disclosures through their existing reporting processes (see Figure ES1).1, 2 In its 2017 report, the Task Force emphasized the importance of transparency in pricing risk including risk related to climate change to support informed, efficient capital-allocation the release of its 2017 report and at the request of the Financial Stability Board (FSB), the Task Force has issued two status reports with this being its third describing the alignment of companies reporting with the TCFD In the months between this status report and the 2019 status report, the Task Force has seen significant momentum around adoption of and support for its recommendations .

6 This report describes the progress made to date and highlights the challenges of more consistent and robust implementation. It is important to view these challenges in the context of the substantial progress made in mainstreaming the Task Force s recommendations in the Financial markets through investor demand for TCFD Disclosures , policy and regulatory actions, and good business the past 15 months, the number of organizations expressing support for the TCFD has grown more than 85%, reaching over 1,500 organizations globally, including over 1,340 companies with a market capitalization of $ trillion and Financial institutions responsible for assets of $150 trillion. Many of these companies have begun to implement the TCFD recommendations or continue to refine and improve their Climate-related Financial Disclosures . Through the efforts of the World Business Council for Sustainable Development, the Institute for International Finance, the United Nations Environment Programme Finance Initiative, and other organizations, peer companies implementing the TCFD recommendations have come together to discuss effective Climate-related Financial disclosure 2 The Task Force on Climate-related Financial Disclosureswith the TCFD T he Task Force is also seeing governments embed the recommendations in policy and guidance and move toward requiring TCFD Disclosures through legislation and regulation.

7 New Zealand s Ministry for the Environment announced that the government plans to make Climate-related Financial Disclosures mandatory for certain publicly listed companies and large Financial institutions and that reporting would be against a standard developed in line with the TCFD The European Commission incorporated the TCFD recommendations into its Guidelines on Reporting Climate-related Information to support companies in disclosing Climate-related information under the European Union s reporting The United Kingdom s Financial Conduct Authority released a proposal for certain listed companies to state in their annual Financial reports whether they made Disclosures consistent with the TCFD , 11As 120 countries and the European Union work toward achieving net-zero greenhouse gas emissions by 2050, many of these jurisdictions may legislate disclosure of Climate-related Financial information to support market transparency among other The Task Force believes its recommendations can provide policy makers and regulators in these jurisdictions as well as other jurisdictions with the foundation for requiring Climate-related Financial disclosure, which could help avoid regulatory fragmentation.

8 As noted by the International Financial Reporting Standards (IFRS) Foundation Trustees in their recent consultation paper on global sustainability standards, there is urgent demand for consistency and comparability in sustainability reporting, especially for Climate-related information:7 Relatedly, in July 2020, the FSB published a stocktake of whether and how Financial authorities incorporate Climate-related risks into their Financial stability monitoring and found some authorities explicitly refer to the TCFD recommendations in setting supervisory expectations for banks and insurance companies disclosure of Climate-related New Zealand s Ministry for the Environment, Mandatory Climate-related Financial Disclosures , September European Commission, Guidelines on Reporting Climate-related Information, June United Kingdom s Financial Conduct Authority, Proposals to Enhance Climate-related Disclosures by Listed Issuers and Clarification of Existing Disclosure Obligations, Consultation Paper, March 2020.

9 11 Other governmental authorities encouraging or calling for TCFD-aligned Disclosures include the Australian Securities and Investment Commission, the Bank of England, the European Central Bank, the Hong Kong Monetary Authority, the Japanese Ministry of Economy, Trade and Industry, the Monetary Authority of Singapore, and the National Treasury of South Africa. 12 COP25 Chile UN Climate Change Conference, Climate Ambition Alliance: Nations Renew their Push to Upscale Action by 2020 and Achieve Net Zero CO2 Emissions by 2050, December 11, IFRS Foundation, Consultation Paper on Sustainability Reporting, September 30, 2020, pp. 4 and the Task Force highlighted in its 2017 report, in most G20 jurisdictions, companies with public debt or equity have a legal obligation to disclose material information in their Financial filings including material Climate-related Financial information. The Task Force further noted it believes Climate-related issues are or could be material for many companies, and its recommendations should be useful to companies in complying with such existing disclosure obligations.

10 The Task Force believes this is especially true for companies in complying with or meeting new or revised legal or regulatory requirements specifically focused on the disclosure of Climate-related Financial Financial DISCLOSURESS imilar to previous status reports, this report provides an overview of current disclosure practices in terms of their alignment with the Task Force s recommendations . It also highlights specific Climate-related information a group of expert users identified as the most useful for making Financial decisions, addresses the top implementation issues identified by nearly 200 preparers, and includes case studies by Financial sector preparers on implementing the better understand current Climate-related Financial disclosure practices and how they have evolved, the Task Force reviewed using artificial intelligence (AI) technology reports for about 1,700 large companies in multiple Demand for better disclosure of sustainability information is urgent [and] delays to global coherence, most pressingly on Climate-related Disclosures , will increase the threat of fragmentation and consequently cause difficulties in engaging capital markets to smooth the transition to a low-carbon economy.