Climate-Related Financial Disclosures: What Next for Environmental Sustainability?

Abstract

The recently published Recommendations of the Task Force on Climate-Related Financial Disclosures are innovative, and should receive a cautious welcome from those who want to see businesses behaving in a more environmentally sustainable manner. Addressed to companies and investors, the primary goal of the Recommendations is to prevent financial instability in the face of the physical and regulatory risks posed by climate change. Their indirect goal is to steer companies towards greater sustainability. The first part of the paper sets out the background to, and scope of the Recommendations, focusing in particular on the novel use of scenario analysis. The second part explores how far the Recommendations are likely to achieve their indirect goal, focusing on a number of problematic areas, including the credibility and comparability of reporting, the need for transition risks in the form of regulation, and the prospects of investors acting on the disclosure in ways which further environmental sustainability. The brief conclusion looks at how the Recommendations might be integrated into the European regulatory framework and evaluates the potential contribution of pension funds to environmental sustainability.