Bank of England governor Mark Carney and businessman Michael Bloomberg have launched a report on the threat of climate change to financial markets today outlining recommendations for increased disclosure from companies to shareholders about climate risk.
The recommendations could be as influential as the Paris Agreement on climate change that came into effect one year ago.
The Task Force on Climate-related Financial Disclosures, which was established last December on request from the G20, has out set guidelines for companies to disclose carbon risk in a consistent way in today’s report.
Carney says financial markets need information about climate risk to manage risks and seize opportunities stemming from climate change. Bloomberg says climate change is a business risk and that addressing it will ensure more stable and resilient economies.
Carney has previously warned that climate change could represent a threat to financial stability due to sudden changes in asset prices, pointing out the market caps of the top four US coal producers had fallen over 99 per cent since the end of 2010.
Following a consultation period that runs to 20 February, the final report will be presented to G20 leaders in ahead of their July summit in Hamburg.
Asset Owners Disclosure Project chief executive Julian Poulter says the recommendations are a milestone and could be as influential as the Paris Agreement. But he says the guidelines focus on companies and should set an equally high bar for pension funds and insurers who finance them.
Poulter compares to the risk from climate change to the sub-prime mortgage crisis, which the FSB was established in response to.
“Banks and ratings agencies failed to spot the threat from sub-prime mortgage lending which triggered the global financial crisis.
“Trillions of dollars in debt and bonds are exposed to climate risk and the FSB must ensure all players in the market correctly assess and report on this risk.”
Poulter calls on G20 leaders to make carbon risk disclosure mandatory and noted that a 2009 FSB paper on the sub-prime noted that data gaps contributed to the crisis.
Chairman of the Climate Disclosure Standards Board Richard Samans says the task force is setting a new corporate governance norm. “That is ultimately what has been needed to price in climate risk in corporate capital expenditures and investor asset allocations,” Samans says.
Paul Simpson, chief executive of carbon reporting advocate group CDP, says the recommendations will help investors better assess the many companies yet to align business strategies with the requirements of the Paris agreement.
Earlier this week, a report on the fossil fuel divestment movement revealed its backers represented more than $5trn assets.
Divestment advocate Ellen Dorsey says supporters of the movement must step up following the “historic” US election, which saw Donald Trump, who has previously called climate change hoax, elected president.