9 January 2017
In this recent article by HSBC, new research indicates that lack of corporate transparency on climate remains an impediment to informed decision-making by investors. Subsequent to publication of this article, the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCDF) set out recommendations for helping businesses disclose climate-related financial risks and opportunities. Improving transparency is a critical component of measuring and managing progress on climate specifically, and on sustainable development generally, and this piece provides a current and valuable context for the issues.
Getting everyone on the same page through corporate disclosure
According to recent research, commissioned by HSBC and conducted by East & Partners, nearly 85 per cent of institutional investors who were contacted believe that current levels of corporate disclosure around climate related risks faced by a business are inadequate, with over half of European and American investors finding the level of current disclosure as highly inadequate. To date, corporate disclosure has been voluntary with little to no consequences for those who did not comply either in full or in part. With less than a quarter (23.8 per cent) of corporate issuers contacted disclosing their environmental impact and a limited 37 per cent disclosing their green strategy initiatives, it is not difficult to grasp the magnitude of the task ahead for the Financial Stability Boards Task Force on Climate-related Financial Disclosure (TCFD).
While green bonds are a vital piece of the sustainability agenda, corporate disclosure around use of natural resources and CO2 emissions remain a key factor in establishing a global green financial system. The lack of a standardized reporting structure hinders the ability of investors to assess potential risks faced by companies such as exposure to stranded assets, disruptions in supply chains and damage to infrastructure, all of which weigh on institutional investors.
While the levels of climate related disclosure are increasing, with the research showing a rise of 23.7 per cent of corporate issuers planning to disclose their environmental impact over the coming year, there is a lack of consistency in the scope and quality of information being disclosed. Consistent, reliable data is needed to enable comparisons across companies, markets and regions, to compare performance and implement financial policies. Recommendations from the TCFD are due in December and should provide clear guidelines on the route to increased transparency, which should support efforts by the financial community to mainstream environmental, social and governance (ESG) investments and move the focus of the sustainability agenda from education to one of active management.
For the complete article, please link here.