CFOs: Uniquely Positioned to Lead on Climate Disclosure
By Sarah Keyes, Principal, Research, Guidance and Support at Chartered Professional Accountants of Canada. CPA Canada is a member of the Accounting Bodies Network (ABN). A4S has partnered with CPA Canada to run the Canadian Chapter of the A4S CFO Leadership Network.
As organizational leaders who are responsible for overseeing financial reporting and risk management, CFOs are well-positioned to lead the charge on implementing climate disclosure.
In December 2015, the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosure (TCFD). The TCFD recommendations are about enhancing market transparency and enabling the efficient allocation of capital in the transition to a low carbon economy as envisioned by the Paris Agreement.
After months of consultations, the final recommendations of the TCFD were released in June 2017. They focus in four key areas:
Metrics and Targets
What Makes the TCFD Different?
Led by Michael Bloomberg and established by the Governor of the Bank of England, Mark Carney, the TCFD has elevated the conversation on climate disclosures on an unprecedented scale. The 32 members of the TCFD were chosen by the FSB to include both users and preparers of disclosures from across the G20’s constituency covering a broad range of economic sectors and financial markets.
The recommendations are designed by the market for the market. The value of peer-to-peer engagement cannot be understated. It is evidenced in the statements of support for the recommendations issued by over 100 companies with a market cap of approximately $3.3 trillion USD and financial institutions responsible for assets of more than $24 trillion USD. This impressive level of support sends a clear signal that the market sees the value in enhanced climate disclosure.
The final recommendations were welcomed by the FSB – an indication that G20 countries view improved climate disclosure as an important factor in global financial stability.
Today vs. Tomorrow
While the recommendations are voluntary in nature, they are intended to be included in mainstream financial filings rather than standalone sustainability or corporate social responsibility reports. In fact, the majority of the G20 countries, including Canada, already have a legal obligation to disclose material risks in their financial reports – including those that are climate-related. However, evidence suggests that there is room to improve when it comes to existing disclosure practices.
Chartered Professional Accountants of Canada (CPA) recently conducted a study of climate-related disclosures made by Canadian public companies’ in their regulatory filings. Overall, the study found that while 79% of companies are making climate-related disclosures, the nature and extent varied significantly. In particular, climate-related disclosures did not provide sufficient context, lacked comparability across and within industries, and used inconsistent terminology.
Opportunities for CFOs
The TCFD recommendations present a real opportunity for CFO leadership in this space.
Increasingly, Boards of Directors are being asked questions about climate-related risk by investors seeking greater clarity on how the issue is being managed. As this issue grows in significance, CFOs will repeatedly be called upon to explain how they are evaluating the materiality of climate risks and identifying these risks in financial disclosures.
The A4S CFO Leadership Network, with Chapters in both Europe and Canada brings together business leaders and encourages them to take practical action within their organization and influence peers, policy makers and the wider financial community.
Given the global momentum on the topic of climate-related disclosures, the time is now for CFOs to step into the spotlight and take ownership of this issue and drive positive change.