Here’s a follow-up to our December 2016 blog on the Financial Stability Board’s (FSB’s) recommendations to facilitate wide-spread climate-related disclosures by organizations with public debt or equity to promote more informed investing, lending, and insurance underwriting decisions.
In late June 2017, the FSB Task Force of the G20 nations released its final recommendations (the “report”) to encourage companies and financial-sector organizations (e.g., banks, asset owners and managers, insurance companies, lenders) in G20 countries to assess and incorporate climate risks and opportunities in their mainstream public financial reporting. At the time the report was released, more than 100 CEO’s expressed support for the recommendations (full list of pre-release signatories). To supplement the final recommendations, the FSB also provided accompanying documents including:
In finalizing its recommendations, the Task Force received more than 300 responses through its public consultation process. The FSB noted that, overall the commenters were supportive of the recommendations (summary of the public consultative process and comments). The Task Force used the specific and constructive feedback on the draft to refine the recommendations in its final report.
Final Recommendations | Key Changes and Enhancements from the Draft
The Task Force made only slight changes from the draft recommendations. The final report keeps the focus on the four thematic areas targeted in the draft recommendations: governance, strategy, risk management, and metrics and targets.
O ne of the more notable refinements relates to the FSB’s recommended disclosures that organizations should make in their annual, public financial filings. The FSB provided clarifications in response to concerns about having potentially immaterial issues reported in public financial filings. The FSB also repeated its caution that organizations should not prematurely conclude that climate-related risks and opportunities are not material.
As highlighted in the FSB’s Summary of Key Changes and Clarifications document (see highlighted table below), the FSB now recommends:
Two other key changes between the draft and final recommendations report, included:
The FSB also added emphasis and/or further explanation about several items addressed in the draft report:
The FSB highlighted four key benefits to the publicly-traded companies that implement these recommendations:
The Task Force also re-emphasized the potential financial impacts of climate-related risks. The final report and the supplemental materials (e.g., Implementation Annex, Technical Supplement) provide additional explanation and examples of the potential climate-related financial impacts potentially facing many companies in the short, medium, or long term. For example, see Figure 1 (below) and Tables 1 and 2 from the final report.
What to Expect Next
Now that the FSB recommendations are final, we can expect continued action on these issues from a number of perspectives, including:
Our Suggested Action Items to Publicly Capitalized Companies
The FSB’s recommendations provide a great reflection point for publicly capitalized companies to consider their climate-related risks and opportunities.
For the many companies that have already begun this journey, it provides confirmation of the business case for doing so and additional guidance to improve the quality, efficiency, and consistency of the analysis and disclosures.
It provides impetus for increased collaboration amongst a company’s board of directors and leaders from across the organization including: the Chief Financial Officer and other financial leaders, the Chief Investment Officer and other investor relations leaders, risk management leaders, and climate/sustainability leaders.
For publicly capitalized companies that haven’t yet begun to assess which, if any, climate risks or opportunities may impact them, now is a good time to start. If you are a board member or senior leader at one of these companies, we recommend the following five initial steps:
If your next annual financial filing occurs before you’ve taken these steps and you choose to omit any of the recommended disclosures, you should consider providing a rationale for omitting the disclosures. This could include a statement that the company acknowledges the FSB’s recommendations, is assessing how it will implement them, and will reflect any such implementation in the next annual filing.
 The FSB recommends that certain companies (i.e., in the four non-financial groups with $1+ billion in annual revenue) should consider publicly disclosing the Strategy and Metrics and Targets information even if the information is not deemed material and not included in financial filings. Suitable public disclosure mechanisms would be “other official company reports” (i.e., defined as those issued at least annually, widely distributed, available to investors and others, and subject to internal governance processes substantially similar to those used for financial reporting).
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With increasing regulator, investor, and customer interest, board members must pay more attention to their company’s sustainability practices, impacts, and disclosures. The days when boards can view these as “soft issues” that they can ignore are quickly passing. Focusing on quantitative sustainability metrics and linking to innovation initiatives are ways that board members can help drive long-term corporate performance and value.
If you have 10 minutes or so, watch this @BoardResources interview with Evan Harvey (@EvanHarvey99, Nasdaq’s Director of Corporate Responsibility) for a great overview about why and how boards of directors should be more involved in their company’s environmental, social, and governance (ESG) programs.
I concur with Mr. Harvey’s three recommendations to boards about how they can begin to monitor sustainability more responsibly:
Hi. I'm Colleen, Corporate Sustainability Advisor's founder and owner. Blogging about corporate sustainability trends, benefits, and best practices.