Pressure mounts on global securities body to set the bar on climate disclosure

Investors and finance experts have put further pressure on IOSCO – the international body bringing together securities regulators – to prompt a global gear shift on climate risk reporting.

A new report reveals that investors with a global portfolio suffer due to “regulatory divergence” between countries in terms of climate risk disclosure and corporate governance practice. In particular, if implementation of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) is too slow in some jurisdictions and markets, investors will struggle to accurately assess risks and allocate capital accordingly.

The authors suggest IOSCO, which has to date stayed silent on the TCFD recommendations, must address this concern. The EU’s High Level Expert Group on Sustainable Finance (HLEG) has already flagged this shortcoming by the regulatory association.

Why IOSCO?

IOSCO is a global standard-setter for the securities sector – its mandates are to protect investors, ensure markets are fair, efficient and transparent, and reduce systemic risk. As such, the report identifies that it is in the strongest position globally to harmonise climate risk reporting and promote widespread implementation of the TCFD recommendations by regulators.

The report also identifies that such action falls within IOSCO’s mandate – its failure to take any action to date is a significant shortfall.

Meryam Omi, Head of Sustainability and Responsible Investment Strategy at Legal and General Investment Management (LGIM) said: “As the window for action on climate change is closing fast, listing rules and guidelines play an important role in accelerating current progress. Raising the standards of climate disclosure, led by IOSCO, is an essential step in helping investors build a low-carbon and a sustainable future.”

ClientEarth lawyer Dave Cooke said: “Inconsistent climate risk reporting is a problem for global investors. Many large asset managers have expressed concerns about the inconsistent climate risk disclosure leading to capital misallocation and the build-up of systemic risks. As such, they have a strong basis to demand action on this subject from IOSCO – and it is in their interests to do so.

“Getting IOSCO to wield its influence has the potential to shape global progress on management and disclosure of climate risk.”

Andrea Marandino, Sustainable Finance & Corporate Risk Manager at WWF said: “It’s clear we need a level playing field in climate risk disclosure as the patchwork of approaches threatens both capital and action to tackle climate change. Investors are well placed to engage their national securities regulators or IOSCO directly. This is a key step to enabling widespread implementation of the TCFD recommendations. Full disclosure will not only help companies prepare for climate change impacts, but allow investors to manage risks better and allocate capital accordingly.”

Carbon Tracker’s Robert Schuwerk said: “Our analysis of the fossil fuel sector has shown that companies themselves admit there will be losers from the low-carbon transition, while their disclosure only portrays a future of success.

“Without action, the financial impacts from climate change will be severe but unpredictable and investors are calling for disclosure to help them navigate an uncertain path.”

The report’s authors anticipate developments when IOSCO assembles in September. Cooke added: "Heading into the committee meeting in September, IOSCO should announce its plans for formal work on climate risk. Investors are expecting IOSCO to lead in bringing greater harmonisation and consistency to climate risk reporting.”

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Steps to take for consistent international climate disclosure

The report offers several suggestions for how IOSCO can exert its influence to help improve the management of climate risk by global capital markets.

• Formally acknowledging the TCFD recommendations and making a clear link between climate disclosure and achievement of the IOSCO Principles
• Updating the IOSCO Principles and Methodology to reflect climate risk disclosure considerations
• Developing new climate risk reporting standards, based on the TCFD recommendations
• Producing reports on climate risk, building on the work initiated by the TCFD