Climate change reporting must be embedded into UK regulators’ remit, a parliamentary committee has recommended to environment secretary Michael Gove MP.
The key finance bodies—the Financial Conduct Authority (FCA), the Financial Reporting Council (FRC) and The Pensions Regulator—must be given power to compel organisations to produce more information about how they manage the risks associated with climate change.
Mary Creagh (pictured), chair of the Environmental Audit Committee, said in a letter to Michael Gove that there was evidence of “failings” in the current framework of financial regulation in monitoring the risk management of climate change.
“If financial regulators are not asked to report in this reporting round, it would be a missed opportunity for them to properly consider and integrate climate change risk management into their work,” Creagh stated.
She said that the FCA was of particular concern, suggesting that the authority’s own latest Risk Outlook document confined climate change risk to its impact upon the insurance sector.
The Pensions Regulator must help gauge long-term risk to savings caused by climate change.
As for the FRC, Creagh said it would be “appropriate and timely” for it to consider its role in how it monitors climate-related financial disclosures, and how that fits alongside its stewardship and governance remits.
Environmental lawyers ClientEarth, which provided evidence to the committee’s Green Finance inquiry, said “short” timeframes used by organisations to assess climate change risk meant that the full picture was not being revealed.
The Green Finance Taskforce has also today called on regulators to implement international best-practice standards on climate change reporting—standards set by the Task Force on Climate Change-related Disclosures (TCFD).
ClientEarth finance lawyer Alice Garton said: “The problem is that typically the time horizons used by an organisation to assess risk are too short—which means in turn that climate risk is not properly disclosed. The TCFD recommendations help address this problem.”
“Good corporate governance” would be promoted by following these guidelines, Garton added, and will help company directors and investors comply with their legal duties. But the regulators need to play their part in standard-setting and enforcement, she said.
“The UK government and regulators need to produce guidelines on climate disclosure for businesses and investors, so they are better equipped to protect themselves and the economy from the growing risks presented by climate change.”