Climate-related risk is building throughout global markets, just as the contagion effect of excess housing debt led to the Global Financial Crisis. To fend off another destructive chapter in global finance—another preventable surprise—FSB Chair Mark Carney formed the Task Force on Climate-Related Financial Disclosure. We applaud the task force’s Phase 2 report, released today, for its efforts to make markets more transparent and more resilient. Particularly important is the emphasis on forward-looking information and 2°C scenarios. We believe that transition planning for a 2°C world can yield more insights than point-in-time metrics.
Will publicly traded companies embrace the task force’s voluntary suggestions? Will investors in those companies demand the detailed reporting and metrics sought by TCFD? Based on voting records at AGMs, most institutional investors are not willing to press companies on risk management and disclosures related to climate change (a problem we highlighted in our Missing60 campaign). However, TCFD recommendations apply to asset owners and asset managers themselves, not just to investee companies—a sage acknowledgement of risk transference throughout markets. Will this attention to portfolio risk alter how institutional investors think about climate risk?
We hope so. At Preventable Surprises, we have always pushed institutional investors to be forceful stewards of their clients’ money. We have encouraged large asset owners and asset managers to use their leverage to demand companies develop business plans that align with the Paris Agreement goals. We note that the task force includes an impressive cross-section of market participants. We hope they will be leaders not only in implementing TCFD suggestions but also in supporting resolutions that force companies to deal with climate risk head on. We agree with Carney that climate risk is systemic–and therefore pervasive, interconnected and unpredictable. In the face of populist electoral politics, it is more critical than ever that market participants step up to manage this systemic risk before it is too late to do so effectively.