UK regulators, companies and financial institutions have come under fire from MPs and climate finance experts for failing to take appropriate action on climate risk.
The House of Commons’ Environmental Audit Committee (EAC) released the final findings of its Green Finance Inquiry today. The EAC has called on the government to set out its expectations that listed companies and big investors should all be reporting on climate risk, in line with best practice guidelines as laid out by the Task Force on Climate-Related Financial Disclosures (TCFD), by 2022. It also called on regulators to issue guidance now to support this process – or face new law.
Head of ClientEarth’s climate programme Alice Garton, who gave evidence during the inquiry, said: “There are already legal duties in the UK, including under the world-leading Companies Act, to report on risks that may affect financial performance – but companies and business leaders aren’t properly recognising that this includes climate risk.
“The EAC has recognised that embedding higher standards of reporting as quickly as possible is essential and that mandatory reporting on climate risks is required to allow shareholders and investors to make informed decisions.
“The EAC’s suggested timeframe of reporting in line with the TCFD recommendations by 2022 should be considered a longstop and we urge companies and regulators to act well before then to manage the risks identified in this report.”
Spotlight on the pensions industry
The EAC condemned the short-termism that reigns in the financial sector – drawing particular attention to pension funds.
Alice said: “Vast numbers of companies and investors have been turning a blind eye to the gravity of the financial risks posed by climate change. These risks will affect investment portfolios, business plans and the stability of the wider economy – but a refusal to face facts means short-termism prevails.
“Nowhere is this more pertinent than pension funds, which by their nature need to look to the decades ahead. The EAC has pushed for clearer guidance for pension providers to finally put to bed what it calls the ‘outdated perception’ that climate change is a purely ethical issue.”
ClientEarth also welcomed the focus on the importance of regulators in bringing about these much-needed changes. Alice added: “Strong laws are meaningless without proper enforcement: those who oversee our business and financial sectors need to start being more proactive and take steps to show that they can supervise effectively without new laws. Producing adaptation reports that indicate how they will deal with climate risk would be an obvious first step.”
From the evidence
Alice is quoted in the EAC’s report as saying: “Our view, as lawyers, is that there are more than enough laws out there. They are just not being used effectively, and what we are seeing is that climate change has moved from an ethical environmental issue to a core business issue. That core message is not being picked up by regulators themselves because they are also caught in short-term horizons.”
ClientEarth gave examples in its evidence of codes and guidance that regulators should update to reflect corporate climate risk reporting requirements – but it falls to regulators to compile an exhaustive list.
Alice is an Australian-qualified lawyer.