The European Central Bank has told lenders that they must do better on climate change disclosures. In an assessment of how banks disclose climate and environmental risks, the ECB finds that “no bank fully meets the supervisory expectations”. Regulation of climate and environmental risk disclosures will become stricter in the coming years, so banks need to improve “without delay”.
More than 70 per cent of the major banks assessed, up from just over 50 per cent two years ago, now explain how their board oversees environmental risks. However, roughly 75 per cent of the banks do not disclose whether the environmental risks have a material impact on their risk profile – even though around half have told the ECB that they are indeed exposed.
Banks’ disclosure of key metrics is also well below par, with only around 50 per cent publishing key performance or risk indicators on the subject.
Banks are on notice: Frank Elderson, vice chair of the ECB supervisory board, said: “There is very little justification for this lack of substantial progress. We see a considerable disconnect between banks’ perception of the importance of C&E [climate and environmental] risks as communicated to us, the supervisor, and what banks choose to publicly disclose. Banks are trying to compensate for the poor quality of their disclosures by issuing a great volume of information around green topics. We end up with a lot of white noise and no real substance on what both markets and supervisors really want to know: how exposed is a bank to C&E risks and what is it doing to manage that exposure?”
The International Organization of Securities Commissions (Iosco) will critique the climate and general sustainability disclosure requirements due to be put forward by the new International Sustainability Standards Board. If Iosco deems them fit for purpose, all 140 Iosco member jurisdictions will be free to decide how they might adopt, apply or be informed by the ISSB standards.
The move was announced in Iosco’s forthcoming work plan. The organisation has also committed to an in-depth review of carbon markets to identify the vulnerabilities in nascent voluntary carbon markets, as well as the transparency and integrity in the functioning of carbon markets from the perspective of financial regulation.
Stepping up and doubling down: Erik Thedéen, chair of Iosco’s Sustainable Finance Task Force and head of the Swedish regulator, said: “Iosco has an immense set of tasks ahead of itself in 2022. Our work on endorsing the ISSB standards is part of a wider push by Iosco to professionalise all aspects of sustainable finance. The task force Iosco has asked me to lead will work intensively in 2022 to deliver across a range of key issues, which have to be worked out if markets are to gear up to supporting investors’ desire to invest in ESG.”
Unscrupulous lobbyists and lobbying are in the sights of the Global Standard on Responsible Climate Lobbying initiative developed by investor networks representing more than $130tn of combined assets under management. Contributors include the UN Principles for Responsible Investment, the Institutional Investors Group on Climate Change, alongside BNP Paribas and the Church of England Pensions Board.
The initiative stipulates that participating organisations must take action against corporates that lobby “to delay, dilute or block climate action”. Investors may choose to divest from such firms but this is not a requirement. In the first instance, they must “escalate the issue”, for example, by filing shareholder resolutions. Also included is a commitment for supporters to funnel more money into businesses that can prove they consistently lobby in support of the Paris Agreement goals.
Signatories commit to publicly disclose all alliances and coalitions they participate in or collaborate with on climate-related lobbying. As well as providing names, they must disclose how much they pay lobbyists and whether members are represented on their boards and committees.
Enough is enough: Charlotta Dawidowski Sydstrand, sustainability strategist at AP7 pension fund, said: “Time must be called on negative climate lobbying. Investors will no longer tolerate a glaring gap between a company’s words and its actions on climate. As active owners we are committed to engaging collectively and individually with companies globally to highlight and improve their climate lobbying accountability and performance, and to escalate this stewardship where required. We will convey this expectation to the companies in which we invest and signal this commitment through our own actions and reporting.”
Nearly 100 financial institutions have added their names to the firms requesting companies to disclose environmental information using CDP, the non-profit that runs the disclosure system. Joining names such as Amundi, CalPERS, Capital Group and State Street, the new firms are among the financial institutions with a total of $130tn in assets that have begun sending requests to corporate boards this week.
They are demanding disclosure aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework on issues including climate change, deforestation and water security. The disclosure requests now go to 10,000 companies worldwide, with a combined market capitalisation of $105tn.
CDP says that nearly 4,000 companies, including Berkshire Hathaway, Chevron, Exxon Mobil and Glencore, failed to respond to disclosure requests from financial institutions last year. But, says the organisation, this will no longer be an option for many, with a series of mandatory environmental disclosure requirements coming in this year in the EU, Japan, New Zealand and India, as well as a TCFD regulation being introduced in the UK from next month.
The investor view: Jean-Jacques Barbéris, head of institutional and corporate clients coverage and ESG supervisor at Amundi, said: “We need this comparable, consistent and clear data for our investment decision making and our regulatory compliance. It is also vital for us to meet our own climate goals. But crucially, we don’t just need data on climate, we also need more information on other areas of natural capital, and we must ensure that this is incorporated in what companies disclose and take action on going forward.”
In other policy news
The EU has promised to “mobilise finance” as part of its drive on a new global accord to reverse the loss of the planet’s plants, animals and ecosystems. Talks have just been resumed in Geneva on what the bloc calls the post-2020 Global Biodiversity Framework. This represents the last official sessions where governments can negotiate before the UN Biodiversity Conference, COP15, meets later in the year.
The US Securities and Exchange Commission’s eagerly awaited vote on whether to adopt new rules designed to enhance and standardise climate-related risk information will take place in an open meeting on 21 March. Acceptance of the TCFD-style requirements would align the US more closely with the disclosure regimes in Europe and Asia. SEC chair Gary Gensler said: “Why am I talking about climate risk? Simple: because investors are.”
UK pension schemes will be required to demonstrate alignment with the Paris Agreement from October, but will also be given greater flexibility to make climate-positive investments as well as new stewardship guidance, UK work and pensions secretary Therese Coffey has confirmed.
In the wake of the Russian invasion of Ukraine, green finance advocacy group Eurosif has urged responsible investors to clarify their investment principles to ensure they don’t finance the aggression either directly or indirectly. Meanwhile, France has said that the invasion vindicates the controversial inclusion of nuclear power as a green fuel in the EU’s sustainable finance taxonomy. According to Ignites Europe, director-general of the French Treasury Emmanuel Moulin has said the invasion of Ukraine “makes people think about their choices in terms of energy and [their] energy mix”.