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ESG

FSB task force releases recommendations for disclosing climate-related financial risks

The Task Force on Climate-related Financial Disclosures has made four recommendations for the effective disclosure of climate-related financial risks, covering the themes of governance; strategy; risk management; and metrics and targets.

The task force, chaired by Michael R. Bloomberg, was established by the Financial Stability Board in December 2015. It was tasked with developing a set of voluntary, consistent disclosure recommendations for companies that can be used to provide information to investors, lenders and insurance underwriters about their own climate-related financial risks. The recommendations were published in a report Thursday.

These recommendations are a tool for to financial-sector organizations, which the task force said includes money managers and asset owners since they "sit at the top of the investment chain and, therefore, have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures."

The first recommendation focuses on a firm's governance around climate-related risks and opportunities, such as describing the board's oversight of these factors and management's role in assessing and managing risks and opportunities.

Regarding strategy, firms should disclose the actual and potential impacts of climate-related risks and opportunities on their businesses, strategy and financial planning. Shared information may include those risks and opportunities identified over the short-, medium- and long term; and the resilience of the firm's strategy under various climate-related scenarios.

Risk management processes used by the organization regarding climate change should be disclosed, including how climate-related risk identification, assessment and management are integrated into the firm's overall risk management.

The final recommendation around metrics and targets said firms should disclose the factors used to assess and manage relevant climate-related risks and opportunities.

Alongside the four recommendations, the task force published guidance for financial and non-financial sector organizations. Disclosure by the financial sector, which the task force said covers money managers and asset owners, "could foster an early assessment of climate-related risks and opportunities, improve pricing of climate-related risks, and lead to more informed capital allocation decisions," said the report.

The recommendations and report are available on the task force's website.