Posted on 09 March 2022
Financial regulators and supervisors urgently need to encourage clear, reliable and comparable climate risk disclosure by financial actors, says WWF.
In order to support and enable banks and insurers to effectively disclose and manage their climate-relataed financial risks, WWF has launched guidance for financial regulators and supervisors on the use of climate science-based disclosure principles and standardized reporting templates.
Financial regulators and supervisors started to acknowledge the urgency of tackling climate-related financial risks in 2019 with the formal establishment of the Network for Greening Financial Systems (NGFS)
. Since then, they have been making increasing efforts to encourage financial regulators to disclose those financial risks in order to subsequently manage and reduce them.
The demand to disclose climate risks – which is based on the Task Force on Climate-related Financial Disclosures (TCFD) framework
– has become particularly widespread. Several jurisdictions have already implemented disclosure requirements for climate-related risks, or are in the process of doing so.
However, although these are important steps, they do not integrate the latest scientific findings. A recent study by Bingler et al. (2021)
compared 14 different transition climate risk assessment methods applied to the same portfolio of companies, concluding that despite consistently identifying the firms emitting the most and least greenhouse gases, there is considerable variation between different risk assessment results for the majority of companies. The researchers show that the level of climate-related financial risk depends largely on the method that has been selected to assess the risk in the first place.
Unless financial regulators and supervisors prescribe a standardized set of disclosure principles and reporting templates, the risk analyses run by banks and insurers will be unreliable, difficult to understand, and impossible to compare. Without such standards, climate risks cannot be adequately priced in by financial markets or consistently considered in financing decisions. Furthermore, trust in climate risk assessment methods and belief in the need for disclosure of climate-related financial risks will fall if the results cannot be compared or understood.
In particular, the comparability and reliability of disclosed climate risk metrics need to be improved, addressing the need to harmonize:
With the launch of the International Sustainability Standards Board (ISSB
), accounting for climate-related status quo data may soon become more harmonized. However, there is a considerable risk that forward-looking assessment approaches and disclosure formats will remain incomparable.
To this end, WWF has created a set of science-based disclosure principles to guide the setup of regulatory disclosure requirements for forward-looking assessment approaches, and a set of machine-readable templates for harmonizing the disclosure format.
These are complementary to the TCFD recommendations,
and will help financial institutions to produce meaningful climate-risk disclosures. The principles and templates could also be added to the Basel Banking Supervision Committee’s Principles for the effective management and supervision of climate-related financial risks, or the Guide on climate-related disclosure for central banks by the Network for Greening the Financial System (NGFS).
For more information or questions about this guidance, please contact: firstname.lastname@example.org