February 13, 2017 / Regnan Archive

249 words, contained on just one of the 219 published pages, fully describe “the recommendations” of the Task Force on Climate-related Financial Disclosures (TCFD). Four overarching sentences – one each on governance, strategy, risk management and metrics and targets – supported by eleven sentences on recommended disclosures.

Everything else is “context and suggestions on implementing the recommendations”. “Thought starters”, as one task force member put it.

This description is apt. The guidance is a rich collection of things worth thinking about in undertaking meaningful climate change analysis and disclosure, and it is a credit to the taskforce members’ substantial collective knowledge on the topic.

But is the reduced status (mere guidance, not recommendation) of so much that matters, potentially fatal to the achievement of the TCFD aims?

Take for example, one of the TCFD’s boldest recommendations (also the one Regnan considers of greatest potential value) – that all entities “describe the potential impact of … a 2°C scenario”. Yet, the Task Force is not recommending “a specific 2°C scenario”. Even the timeframe (2°C by when?) is left open. This lack of specificity risks the potential value of the recommendation in creating comparable, decision useful information. It also creates additional work for disclosers.

Ultimately, whether the TCFD aims are achieved depends on how disclosers respond to the voluntary guidance, as much as to the core recommendations. In this, I suspect corporate character will rule, leading different organisations to substantially different responses. Some will slavishly follow all aspects, risking over-disclosure that clouds the things that matter most. Some will be strategic, applying the guidance selectively. Others may give everything beyond the recommendations scant regard. Regardless of approach to the guidance, reporters will legitimately be able to claim compliance with the TCFD recommendations.

This is where investor groups, like Regnan, will play a key role – reviewing the disclosures produced and making the case for more where needed. In this, the TCFD guidance will enable more effective engagement with climate exposed sectors by more financial organisations. And there will be a clear imperative for the financial sector to resource this work, as achieving effective disclosure among non-financials is a necessary precursor to their own compliance with the TCFD recommendations.

The potential contribution of the TCFD’s work is enormous. Convened by the Financial Stability Board, with hopes for endorsement of the recommendations by the G20, this could be the moment climate change finally becomes a mainstream financial topic. While that in itself would be an achievement, my concern is that leaving so much as ‘voluntary to consider’, may do too little to counteract cognitive biases, shift entrenched positions, and address the lack of genuine engagement of those that most need encouragement to start their climate thinking.

Much of what is currently guidance needs to be elevated to the status of recommendation in order to give the greatest chance of achieving the TCFD’s important and worthy aims. More on the case for this change and other concerns and enhancement recommendations are included in Regnan’s submission.

Regnan Global Equity Impact Solutions Fund

This fund is distributed in Australia via Pendal and in the UK, Europe and other countries via J O Hambro Capital Management.

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