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TIMELY INSIGHTS: More on Climate Change Financial Disclosures

Since September we have periodically written about the increasing drumbeat of climate change “financial disclosure” initiatives underway globally. In one of our recent Musings, on November 17, we highlighted the US Federal Reserve’s first-time-ever identification of climate change as a risk to financial markets that should be treated with greater transparency, and described similar trends across Europe and within the banking, investment and insurance industries. That Musing followed an earlier posting on September 23 that talked about a recent CFTC subcommittee recommendation, proposing that climate change should be treated as a material risk for financial reporting purposes.

This past week, two additional contributions to this discussion came across our desk that we wanted to share. Sullivan & Worcester published a helpful “INSIGHT” on the topic, linking it to the broader environmental, social and governance (ESG) movement. That INSIGHT covered many of the regulatory and industry announcements we identified previously, as well as others, and made the point that the Investment industry’s increasing focus on these disclosures are no longer being promoted as an ethical issue but rather as an important financial driver. The risks they highlight that should be detailed by businesses include physical risk to investment assets (from sea level rise, increasing storm activity and flooding, desertification, temperature rise, wildfires, water shortages, etc.), the GHG emissions impacts of assets/technologies in a world where zero carbon mandates are increasingly being put in place, and how those same zero carbon mandates will impact the future economics of an industry, plant or technology.

Also, this past week, the NYTimes hosted a webcast titled Transforming the Financial System for a Zero-Carbon Future” which covered many of these same topics and is well worth a watch. The same themes were touched on regarding the upcoming disclosure requirements, and how “business as usual is over”. A theme that came through loud and clear was that investors have not been pricing climate risk into their portfolio decisions – but panelists felt that is going to change both because of regulatory requirements as well as investment economic drivers.

We recommend both these additional resources to readers. More to come….

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