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TIMELY INSIGHTS: Pushing the New Administration on Climate Change Risk Financial Reporting

Since September we have written two Musings (September 23 and November 17) and posted a Timely Insight on the growing chorus of calls to mandate financial reporting around climate change risk. This week two excellent new articles appeared on this subject, and we recommend both to you. It is clear that this issue is gaining considerable traction, and no one should be surprised when these disclosure requirements become a reality for asset owners, insurers, financial institutions and the like.


The World Needs Biden to Lead on Climate Reporting

This is an editorial written by Michael Bloomberg this week, in which he argues:

…”In 2017, under the auspices of the Financial Stability Board, the international Task Force on Climate-related Financial Disclosures (TCFD), which I chair, issued a set of guidelines to help companies measure and report climate risks and opportunities, including those associated with the shift away from fossil fuels. That information empowers companies to protect themselves and embrace opportunities; provides investors with information they need to make smart decisions; and will help drive more capital to companies that are acting responsibly.


“So far more than 1,600 companies and organizations in nearly 80 countries on six continents have endorsed or adopted TCFD reporting guidelines. Together they represent more than $16 trillion in total market capitalization, and they include financial firms with more than $155 trillion in assets under management. A number of countries have endorsed the framework, including Canada, France and Japan, and New Zealand and the U.K. have already announced they will make risk disclosure along TCFD guidelines mandatory.


As the world’s biggest economy, official U.S. support for the TCFD guidelines would serve to unify the global effort to measure climate risk, remove uncertainty about the direction of regulation, and enable the creation of a single system that is consistent across borders and industries. On the other hand: To not make disclosure an immediate priority, or to create a new U.S. standard different from what the rest of the world is already adopting, would be a highly costly mistake that would deal a major blow to climate progress globally”....

https://www.bloomberg.com/view/articles/2020-12-14/the-world-needs-biden-to-lead-on-climate-disclosure


Making Climate Policy Stick

This article appeared in the Brookings Institution magazine this past weekend, suggesting the new Biden Administration could institute important climate policy via enacting climate financial risk disclosure requirements.


…”Most regulatory discussions about climate change tend to focus on places that have direct control over emissions and technology — for example, the Environmental Protection Agency, the Department of Energy, and the Federal Energy Regulatory Commission. But the most profound regulatory shifts might be those taking shape, quickly, in the unlikeliest of places: financial markets.

“Over the last year alone, there has been a sea of change in how some American financial regulators have been thinking about climate change. At root, the concern is that today’s markets are filled with hidden risks and instabilities because investors and regulators don’t have reliable information about how climate change might affect the value of the financial instruments they trade and oversee.


“These risks come in two flavors. One is “transition”: the risk that financial instruments could revalue quickly as the economy shifts away from today’s polluting activities to greener industries of the future. The other is “physical”: that impacts of climate change, such as wildfires or hurricanes, could impair or erase valuable assets such as roads, buildings, and public transport systems. Particularly striking, as we found in our earlier research, are the risks that whole communities could suffer as their tax bases erode from loss of public infrastructure and out-migration — a prospect that very few municipal bond issuers grapple with at present”...

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