Recommendations for improved climate-related disclosures

Organisations should go beyond current practices in climate-related disclosures by including climate-related risks and opportunities in mainstream financial filings and by using scenario analysis to inform business strategy, according to a task force of accounting leaders.

Recommendations by the Task Force on Climate-related Financial Disclosures (TCFD) have been endorsed by 13 CEOs of accounting bodies, 37 CFOs, and 17 pension-fund chairs. The recommendations are scheduled to be discussed Tuesday at the One Planet Summit in Paris. The Prince’s Accounting for Sustainability Project (A4S) organised the task force.

Barry Melancon, CEO of the Association of International Certified Professional Accountants, is amongst the members of the A4S Accounting Bodies Network who have signed a statement of support for the TCFD recommendations.

Finance chiefs are among the three key groups that can help the business community adopt the recommendations, because “CFOs have primary responsibility for overseeing financial disclosures,” a news release said.

Two other groups, accounting bodies and the investment community, can also help with sustainability recommendations. “Accounting bodies provide support and direction to their members, and the investment world requires better disclosure to allocate funds,” the release said.

A4S said that consistent adoption of the recommendations can lead to:

• Effective management and improved company resilience;
• Informed decisions by investors; and
• Better evaluation of risks and exposures by lenders, insurers, and underwriters.

Sustainability initiatives can lead to cost savings for organisations, and more stakeholders are paying attention to disclosures related to sustainability, which includes climate-related issues. Some investment firms have stated a willingness to divest from companies with poor sustainability records.

And companies appear to be listening. The top global risks in terms of impact and likelihood include extreme weather events and major natural disasters, according to The Global Risks Report 2017, published by the World Economic Forum (WEF). Additionally, the failure of climate-change mitigation and adaptation is viewed as a top-five risk in terms of impact. Before 2011, no risks that the WEF classified as environmental were listed in the top five of the report, which has been released annually since 2007.

—Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.