The Task Force on Climate-related Financial Disclosures (TCFD) is the global standard for corporate climate-related financial reporting. Endorsed by the G7 and G20, more than 2,200 organizations have officially supported reporting in alignment with the TCFD, while countries like the UK and New Zealand have introduced mandatory reporting requirements aligned with the TCFD’s recommendations.
In this blog, we look at how requirements for climate-related financial disclosures are developing for financial and non-financial companies in the largest economy in the world, the United States.
Support from The White House
The election of Joe Biden has kicked off a flurry of climate-related initiatives at the federal level. In an executive order, signed on May 20, Biden directed Treasury Secretary Janet Yellen, as Chair of the Financial Stability Oversight Council (FSOC), to issue a report within six months “on any efforts by FSOC member agencies to integrate consideration of climate-related financial risk in their policies and programs”. The report will contain recommendations on how climate-related financial risk can be addressed through regulatory standards. Notably, the executive order asks for the inclusion of specific actions to improve climate-related disclosures in financial markets. While not explicitly referencing the TCFD, Biden said in the order that it is his administration’s policy to promote “consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk” and to “act to mitigate that risk and its drivers”.
Less than a month later the US signed on in support of the G7 finance ministers’ communique, which formally endorsed the TCFD: “We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants and that are based on the [TCFD] framework, in line with domestic regulatory frameworks.”
Emergence of federal financial regulators
On March 15, the Securities and Exchange Commissions (SEC), which came under Democratic control on Biden’s inauguration, launched a consultation on corporate climate risk disclosures to inform potential future rulemaking. Previous guidance on climate disclosures was last issued by the SEC in 2010, under then-chair Mary Schapiro, who now heads up the TCFD secretariat.
The consultation explicitly asked respondents for their views on “…the advantages and disadvantages of rules that incorporate or draw on existing frameworks, such as, for example, those developed by the [TCFD]”, and other questions related to the implementation of mandatory climate disclosures for public companies. Over 75% of the 550 respondents supported mandatory climate disclosures.
In a speech to the Principles for Responsible Investment on July 28, SEC Chairman Gary Gensler said the regulator has a role in ensuring climate-related financial disclosures are “consistent and comparable” by making them mandatory for corporate issuers. He added that he has directed his SEC colleagues to “develop a mandatory climate risk disclosure rule proposal” by the end of 2021, pulling on the views shared by the consultation’s respondents.
Federal legislators continue to push
The legislative branch is also leading parallel initiatives to enhance climate risk disclosures. On June 16, the US House of Representatives passed a bill – The Climate Risk Disclosure Act of 2021 – that would direct the SEC to publish rules requiring public companies to produce annual climate-related financial disclosures within two years. The Act would also require companies to disclose their Scope 1, 2, and 3 GHG emissions, the amount of fossil fuel assets they own or manage, and potential valuation impacts from different climate-related transition and physical impact scenarios.
While falling short of full alignment with TCFD recommendations and not expected to gather enough Republican support in the Senate to become law, these activities signal growing support in the US for mandatory climate-related financial disclosures.
At the state level, TCFD-aligned climate disclosure requirements have to date focused on insurance companies. The New York State Department of Financial Services (NYDFS) proposed guidance on insurer management of climate-related financial risks, which asked insurers to consider the use of the TCFD as a framework for their disclosures.
Washington and California’s insurance commissioners are two other state-level financial regulators that have asked insurers to provide climate risk disclosures in alignment with the TCFD.
Notably, New York, Washington and California are among a handful of state-level insurance regulators who require insurers to respond to an industry-specific survey developed by the National Association of Insurance Commissioners. The NAIC Climate Risk Disclosure Survey is sent annually to insurers that generate USD$100 million or more in annual premium income. The other participating states are Connecticut, Delaware, Minnesota, and New Mexico. Although the survey pre-dates TCFD recommendations, the eight questions asked align closely with the TCFD disclosure framework.
How Manifest Climate can help
We believe that it is only a matter of time before TCFD-aligned reporting is mandatory for publicly traded companies in the US and Canada. Applying a TCFD lens has strategic value for organizations beyond providing a framework for climate-related disclosures. It also provides a scaffold to build the business expertise necessary to navigate a world where a low-carbon transition is necessary and the severe physical impacts of a changing climate is commonplace and becoming more intense . This remains true whether a business decides, or is mandated by law, to disclose its climate risks and opportunities.
Manifest Climate is already working with privately held companies, which do not have an obligation to make any public disclosures, to develop their climate risk management expertise, helping them deliver credible, comprehensive TCFD-aligned climate disclosures. Whether you are just starting your climate journey or looking to improve your current disclosures, we can help. Manifest Climate’s mission is to close the information and action gap on climate. We connect artificial intelligence with climate expertise to deliver solutions and empower organizations to rapidly identify climate risks and opportunities, and improve climate-related financial disclosures. Contact us today.