News February 2017 FRC responds to Climate-related Financial Disclosures Task Force Report Consultation

FRC responds to Climate-related Financial Disclosures Task Force Report Consultation

27 February 2017

The Financial Reporting Council (FRC) has responded to the phase II consultation from the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD) (PDF).

The consultation aims to set out recommendations for consistent, comparable, reliable, clear and efficient climate-related disclosures by companies, as requested by the FSB. The recommendations provide a voluntary framework to guide the disclosure of climate-related risks in financial filings. The TCFD framework includes disclosures that relate to the way firms consider the impact of climate change on their governance, risk management and strategy and sets out metrics and scenarios firms should consider disclosing.
The key points from the FRC’s response are:
  • The FRC supports the publication of the FSB Task Force on Climate-Related financial disclosures as a stimulus to develop thinking and practice in this area, and as a tool to help companies identify the most appropriate disclosures for them to make.
  • However, it believes that a list of suggested disclosures may risk companies adopting a checklist mentality and boilerplate approach.  There is a risk that blind compliance may lead to Irrelevant or immaterial disclosures that obscure important information investors need about the principal risks a company faces.
  • Collaboration between companies, investors and climate experts to develop methodologies is more likely to succeed than a standard-setter attempting to establish restrictive practice standards or rules.
  • It believes that a more principles-based approach, with less emphasis on detailed lists of suggested disclosures, is likely to be more effective.
  • The recommendations should encourage an integrated approach to incorporating climate-related considerations within current governance processes. This approach, in conjunction with the fundamental principles for effective disclosure set out in Appendix 6, could provide a principles-based framework to guide companies from identification through integration and mitigation to effective disclosure.
  • It is concerned that the size, complexity and detail of the recommendations may impair their usefulness. There is a risks that some companies will be dissuaded from engaging if they consider the recommendations to be too onerous.
  • The Task Force has an important educational role to play in communicating its intention for a gradual implementation process and incremental improvements, with more sophisticated methodologies developing over time. The Task Force can facilitate this through stakeholder outreach, bringing companies and investors together to develop best practice. The FRC believes that this will be crucial for achieving the widespread adoption envisaged.