A rapidly growing number of companies and regulators this year adopted a global standard for reporting climate-related business risks, helping investors and governments better understand the threats and costs from climate impacts and polluting practices.
Yesterday, the Task Force on Climate-related Financial Disclosures (TCFD) said over 2,600 organisations have endorsed its recommendations, a rise of over 70 per cent from last year. Market capitalisation of the organisations totalled US$25 trillion (S$34 trillion), with assets of US$194 trillion across 89 countries.
Japan had the highest number of supporters at 527, the task force said in its annual status report, while Singapore had just under 50, including OCBC, Temasek, CapitaLand and Sembcorp Industries.
Increasingly, banks, regulators, investors and ordinary shareholders want to know what sort of risks companies face from more extreme weather. They also want data on how polluting companies are and what financial risks they face if they do not cut emissions. For example, the growing trend of putting a price on carbon dioxide emissions means higher costs for polluting firms. Greener firms tend to do better and are also more attractive to investors and customers in terms of products and services.
"Disclosure is foundational to the battle against climate change and the capital markets can be powerful forces in this fight," said Ms Mary Schapiro, head of the TCFD secretariat and a former chair of the United States Securities and Exchange Commission. When markets have the information to accurately price the financial impacts of climate change, money will shift towards firms that do less harm to the environment. "But this virtuous circle cannot happen without critical information on how companies are managing the effects of a warming planet," she said.
The TCFD is all about transparency, and the idea is for firms to incorporate climate risk - and opportunity - assessments as part of their regular reporting. They might draw investments if they plan to transition to less polluting ways of doing business, like cutting emissions from their supply chains, making their factories more efficient, and using green energy.
The TCFD outlines areas for reporting recommendations and guidelines for organisations. These include governance, like describing the board's oversight on climate-related risks and opportunities; strategy of dealing with short, medium and long-term risks and opportunities; measuring and reporting emissions; and internal performance targets to cut risks and maximise the benefits of going green.
Since the task force started in 2017, its recommendations have rapidly become an accepted standard and it is now supported by the Group of Seven and Group of 20 nations. To date, 12 governments and dozens of central banks and regulators have formally expressed support for the recommendations.
In August, Singapore Exchange Regulation proposed to make climate-related disclosures mandatory for companies from Jan 1, 2023, starting with key sectors, including finance and transportation, and expanding to most industries in 2024. Company disclosures would be in accordance with the TCFD.
Ms Schapiro said the rapid growth in support was due in part to the surge in extreme weather events, consumer and investor pressure and the push from regulators to get a better handle on climate risk to businesses.
Corporate strategy, supply chain logistics, capital spending risk management, mergers and acquisitions, investor relations, boardroom governance and executive remuneration all require consideration of climate change, she noted.
"Not only as a risk to manage but also an opportunity to seize," she said. "Climate change is impacting our environment in ways that are very dangerous, make it difficult for companies for their supply chains, for their operations, for their employees to be successful."