Climate change risk disclosure: What does it mean for corporate boards?

Author:Mr Lloyd Kavanagh
Profession:Minter Ellison Rudd Watts
 
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A step-change in financial disclosure expectations In late 2015, in the shadow of the Paris Agreement and amid increasing concerns of investors, regulators and other stakeholders about the financial implications of climate change, the G20 tasked its Financial Stability Board (FSB) to review how the financial sector could take account of climate-related issues.

The FSB commissioned an industry-led taskforce: the Taskforce on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg. The TCFD was charged with developing a voluntary framework for companies to disclose the material impacts of climate change on their financial performance and prospects, in a consistent form, that would be decision useful for investors, lenders and insurance underwriters. The TCFD released its final Recommendations in June 2017. Whilst 'voluntary', the TCFD recommendations are emerging as the key benchmark against which to assess a company's strategic approach to the climate change mega-trend. However, many directors (and the executives on which they rely) are ill prepared to navigate this step-change in governance and disclosure expectations.

Reporting and assurance The board's approval of financial statements, and the accompanying narrative directors' report, is a primary source of assurance to shareholders. In turn, directors must exercise due care and diligence in assuring that the company's disclosures present a true, fair and balanced view of financial performance and prospects, and that they have been prepared on the basis of a robust process. This requires the board to both understand key risk areas...

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