G7 supports mandatory disclosure of climate risks

In a highly significant move, the Group of Seven (G7) countries have backed moves to force corporates to disclose their exposure to climate-related risks.

“We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants…,” said a final communique released after the two days of talks.

The G7 communique said mandatory disclosures should be made according to existing recommendations made by the internationally recognised framework, the Task Force on Climate-related Financial Disclosures (TCFD).

“This will help mobilise the trillions of dollars of private sector finance needed, and reinforce government policy to meet our net zero commitments,” it said with regard to a growing number of pledges by major economies to attain net-zero carbon emissions.

G7 finance ministers meeting in London also called for more coordination to measure what impact companies are having on the climate and environment, warning of the risk of fragmentation as local jurisdictions adopt different approaches.

Central banks and other financial regulators have been increasingly vocal in recent months, complaining that there is a lack of reliable data about how exposed businesses on their territories are to climate risk and how environmentally friendly or otherwise their activities are.

Such data are now most often collected on a voluntary basis, although some jurisdictions such as France have already made such reporting mandatory.

Indeed, the UK was the first major nation to confirm plans to mandate climate disclosure in November 2020.

The proposals would see any company with more than 500 employees and more than £500m in annual turnover in the UK disclose potential risks associated with climate change and the net-zero transition into annual reports. The recommendations are in line with the TCFD and look set to impact more than 1,500 companies.

The push towards mandatory reporting is being discussed by the wider group of G20 nations and some believe an international agreement on it could be reached by the time of the UN Climate Change Conference in Glasgow, COP26.

The announcement by the G7 follows that last week Swiss financial regulator FINMA, which said that Swiss insurers will have to provide qualitative and quantitative information about risks they face relating to climate change.

The Swiss watchdog said the step fulfils its strategic goal of contributing to sustainable development.

FINMA said it crafted the disclosure requirement after talking with industry representatives, academics, NGOs and the federal government last year.

The watchdog has previously said the risks such as natural catastrophes are substantial for the sector and merited new disclosure standards.

It added that it has based its disclosure rules on the recommendations of the TCFD.

G7 finance ministers meeting in London also called for more coordination to measure what impact companies are having on the climate and environment, warning of the risk of fragmentation as local jurisdictions adopt different approaches.

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