It has been a good year for bad weather. To date, 2019 has brought record-shattering heat in much of Europe, torrential rain in the US Midwest and a dramatic loss of ice in the Arctic.
It was also a year when investors felt the effects of climate change in an unexpected place – their financial returns. Battered by California wildfires, an investor-owned utility sought Chapter 11 protection, becoming the nation’s first climate-related bankruptcy. And at about the same time, the US Supreme Court declined a request by a major oil producer to block state investigations of its climate actions, making lengthy litigation against the company more likely.
These events set the stage for the June 2019 update from the Task Force on Climate-related Financial Disclosures (TCFD) on the state of corporate climate reporting. Its report examined current disclosure practices and identified challenges associated with implementing the recommendations of the TCFD’s groundbreaking 2017 report, which offered detailed guidance to companies on how to report decision-useful information on their climate-related risks and opportunities.
The 2019 report provided a mixed assessment. While the Task Force found some signs of adoption, it expressed concern that “not enough companies are disclosing decision-useful climate-related financial information.” It summarized its findings as follows:
- Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors
- More clarity is needed on the potential financial impact of climate-related issues on companies
- Of companies using scenarios, the majority do not disclose information on the resilience of their strategies
- Mainstreaming climate-related issues requires the involvement of multiple functions
The TCFD update identified several areas where climate-related financial disclosures need improvement: wider use of scenario analysis, greater standardization of metrics and more clarity on the financial impact of climate-related issues.