Mary Schapiro taskforce demands greater disclosure of climate risks

Mary Schapiro, former chair of the US Securities and Exchange Commission, has warned that climate change is a material risk for public companies.

A task-force on climate-related financial risk believes greater disclosure by companies will benefit investors, businesses, capital flows and ultimately the planet. Picture: Getty Images

Mary Schapiro, former chair of the US Securities and Exchange Commission, has warned that climate change is a material risk for public companies – with both investors and regulators demanding greater transparency on how global warming could threaten the financial viability of business.

She now leads a coalition of like-minded companies from 89 countries with a total market capitalisation of just over $US25 trillion that support fuller climate disclosure to give investors a greater understanding of risk.

The former regulator said investors needed to have all the information before them before making investment decisions that would direct capital to the most resilient companies, even though this might come with higher costs.

“As a lifelong regulator I can tell you it is always a trade-off between the cost and the benefits. But this is one where we believe, and the private sector largely believes, the costs are absolutely justified by the benefits of having information about climate risk,” Ms Schapiro said.

“We try to be very sensitive to the cost burdens that are placed on companies from additional disclosure requirements, but there is an enormous cost to a lack of disclosure, there is an enormous cost to the planet, to business and to investors for not having the information needed to make the kind of decisions that will have capital flow to the most resilient companies,” she said.

“Investors have made a very credible case that they cannot make rational, well-informed capital allocation decisions without that information: how climate risk impacts the companies that they might seek to invest in.

“Regulators have added their voice and believe the information is necessary for investors.”

Ms Schapiro was appointed as SEC chair by former president Barack Obama.

Addressing the latest findings of the Taskforce on Climate-related Financial Disclosures that she now heads, she said “the time had come” for even more disclosures by companies, including Scope 1, 2 and possibly 3 greenhouse gas emissions, as it was information “investors absolutely want to see”.

“We believe it is foundational to understanding where companies are in transition, where jurisdictions are in transition and what is the concentration of carbon-related assets in the economy that could actually have financial stability implications,” she said.

The recommendations are part of the taskforce’s new agenda launched on Thursday, which is increasingly being picked up by public companies, investors and regulators across the world.

The taskforce was established in 2015 by the Financial Stability Board, with billionaire and three-term New York City mayor Michael Bloomberg as chair.

“The support for the TCFD has skyrocketed since our last report,” Ms Schapiro said on the release of the latest status report, which includes new guidance for companies to disclose their plans for a transition to net zero in line with the Paris Agreement.

“Our supporter base has grown by over a third, with more than 1000 new organisations becoming supporters in the past year. TCFD supporters now span 89 countries and nearly all sectors of the economy with a market cap of over $US25.1 trillion, a 99 per cent increase since last year,” she said.

“Today, 83 of the largest global 100 companies have either supported or report in alignment with the TCFD 5 recommendations, and disclosure has increased more in the past year than in any other year.”

She said disclosure was foundational to the battle against climate change and that capital markets could be powerful forces in this fight. “When markets have the information to accurately price the financial impacts of climate change, capital will shift towards businesses that prioritise climate resilience, transition and sustainability. But this virtuous circle can’t happen without critical information on how companies are managing the effects of a warming planet.”

Ms Schapiro said there was no excuse for failing to consider and address physical and transition climate risk in the conduct of business. Corporate strategy, supply chain logistics, capital spending, risk management, mergers and acquisitions, investor relations, board room governance and executive remuneration all required consideration of climate change, not only as a risk to manage, but an opportunity to seize, she said.

“Momentum is also being driven by investor demand,” she said.

“Forward-looking investors have long requested climate risk information, recognising that they cannot make well-informed capital allocation decisions without understanding the financial implications of climate change on the companies they seek to invest in.”

The taskforce’s agenda is also finding favour among many regulators which have implemented TCFD guidelines or based new disclosure rules for market participants on its recommendations. These include the Singapore Exchange, Switzerland’s Financial Market Supervisory Authority, the European Commission, several UK regulators and the Australian Prudential Regulatory Authority, which published TCFD-aligned guidelines on managing climate risks.

APRA recently disclosed it was undertaking two key initiatives in the area: a prudential practice guide setting out APRA’s expectations of entities in response to climate-related financial risk and a pilot program of Climate Vulnerability Assessments.

“When companies disclose clear, consistent and accurate information on the risks they face from climate change, investors and business leaders can make more informed and sustainable financial decisions,” Mr Bloomberg said.