6th February 2018
Industry and regulators should be given until 2020 to boost climate risk disclosure, or face government intervention, a senior ClientEarth lawyer told the Commons Environmental Audit Committee (EAC) today.
Alice Garton told the committee’s inquiry into Green Finance that existing laws in the UK already required companies and investors to manage and disclose climate risk but that these laws are not working effectively due to an “oversight and enforcement gap”.
She told the committee that there needed to be a “systemic shift” in the industry. She said: “We ultimately want it not to be ‘Green Finance’ but for finance to be green.”
Speaking after the hearing, she added: “We’ve heard industry and regulators say they want time to let disclosure practices evolve. If they want time, it has to be capped.”
Climate risk disclosure is essential to avoid the ‘tragedy of the horizon’ identified by Mark Carney in 2015. It is essential for financial markets to operate efficiently and move effectively towards a more sustainable economic model.
The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) released its recommendations last June.
ClientEarth’s lawyer said that if regulators such as the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC) failed to effectively incorporate the TCFD’s recommendations into corporate governance and reporting rules, then the government should legislate to make the TCFD reporting recommendations mandatory.
She said: “Our current laws can be made to work effectively through amendments to codes and guidance, alongside a thorough review of oversight and enforcement practices of UK financial regulators - particularly the FRC and FCA, and this should form a key part of the audit committee's inquiry.
“If regulators and industry fail to act in the next two years, then government should step in with new legislation.”
Alice explained to the committee that existing laws could be made to work better by amending legislation to explicitly incorporate climate risk, or a new standalone law, perhaps following the disclosure model used in the Modern Slavery Act 2015, could be introduced.
Using the Modern Slavery Act as an example of how market practice can make a radical shift in a short space of time, she stressed that a similar shift in disclosure practices was needed, with climate risk disclosure in line with TCFD recommendations or better.
She also encouraged the committee to support the Department for Work and Pensions’ proposed amendments on fiduciary duties.
Alice Garton is an Australian qualified lawyer.