While political intervention in the form of widespread carbon taxes might still be some way off, markets are taking things into their own hands. In December 2015, the Task Force on Climate-related Financial Disclosures (TCFD) was established to develop recommendations for voluntary climate-related financial disclosures. These called for clear, consistent, comparable, reliable and efficient reporting. At the heart of TCFD is the belief that better access to data will enhance the way in which climate-related risks are assessed, priced and managed. It’s a belief that markets have the power to influence climate outcomes by driving much-needed changes in corporate behaviour. Following investor pressure, Shell, for example, will this year be putting to a shareholder vote a new remuneration policy that will link executive pay to three-to-five year net carbon footprint targets.
Since the launch of TCFD, the guidelines have been gaining popularity. TCFD’s declared supporters include companies with a combined market cap of US$7.9 trillion.[i] However its latest 2019 status report has outlined a gap between current levels of disclosure and the needs of the investor community, not to mention a wider group of stakeholders. There’s a need for more clarity on the potential financial impact of climate-related issues on businesses. Companies must be more proactive in developing scenarios they can use to assess the resilience of their climate strategies.