Climate-related Risk Disclosures on the Rise – 12/26/16

Climate-related risk disclosures are on the rise as investors and governments around the world grow more concerned about the possible effects of climate change on business operations.

The Task Force on Climate-related Financial Disclosures, chaired by Michael Bloomberg and by the Financial Stability Board, is pushing more companies to include climate-related risk disclosures as part of their routine financial statements.

Provided input from the IEA, the Task Force has developed recommendations on future scenarios for energy markets during the transition to a low-carbon economy. The Task Force has stated its goal is to provide investors with better information to assess which firms are most vulnerable to shifting weather patterns and related threats.

The panel’s recommendations include broad suggestions applicable to almost any companies’ financial statements. More specific proposals include banks disclosing their exposure to energy and utilities sectors and insurers using models to predict potential losses under climate change scenarios. Actions to meet the recommendations are voluntary, but members of Mr. Bloomberg’s panel included senior executives from companies including J.P. Morgan Chase & Co., Indian conglomerate Tata Sons Ltd. and mining giant BHP Billiton Ltd.

The Task Force’s call to provide more information to investors about climate-related risks is part of a broader effort companies to disclose more climate-related information. More than 300 American companies have signed an open letter to President-elect urging him not to abandon the Paris agreement. And the number of companies incorporating an internal carbon price into their business and investment decisions continues to rise, a recent CDP report shows.

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