FSB progress report - Roadmap for addressing financial risks from climate change

The Financial Stability Board has recently published a progress report for its Roadmap for Addressing Financial Risks from Climate Change: see here (pdf). The report notes "encouraging progress" in respect of all four blocks of the Roadmap (firm-level disclosures; data; vulnerabilities analysis; and regulatory and supervisory practices and tools).

With regard to firm-level disclosures, the report describes as a "milestone" the publication of two Exposure Drafts, by the International Sustainability Standards Board, on climate (ED IFRS S2) and general sustainability-related disclosure standards (ED IFRS S1). For an overview of these two Exposure Drafts, and a summary of feedback received as at 7 July 2022, see here (pdf).

ISSB consults on its first two standards - sustainability related financial information and climate-related disclosures

The International Sustainability Standards Board has published for consultation its first two standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (pdf); and IFRS S2 Climate-related Disclosures (pdf).

UK: The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022

The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 were laid before Parliament today and come into force on 6 April: see here or here (pdf). Their purpose is to require certain large UK LLPs to report climate-related financial information in their Strategic Reports or Energy and Carbon Reports. Further information is available in the accompanying explanatory memorandum: see here (pdf).

BCBS consultation - principles for the effective management and supervision of climate-related financial risk

The Basel Committee on Banking Supervision has published a consultation paper in which views are sought on proposed principles for the effective management and supervision of climate-related financial risk: see here (pdf).

IFRS Foundation: New International Sustainability Standards Board and publication of prototype disclosure requirements

Last week the IFRS Foundation announced: [1] the formation of a new International Sustainability Standards Board - to consolidate the work of existing organisations including the Climate Disclosure Standards Board - with the purpose of developing comprehensive sustainability disclosure standards; and [2] the publication of prototype climate and general disclosure requirements, developed by the Technical Readiness Working Group (a group formed to undertake preparatory work for the ISSB). For further information, see here.

UK: PRA report - climate change and the regulatory capital framework

The Prudential Regulation Authority has published a report exploring the links between climate change and the regulatory capital framework.  The report concludes that regulatory capital has a role to play in dealing with the consequences - the financial risks - of climate change, but notes that further work design and evaluation work is required.  In this regard, the PRA plans to publish a call for research and host a conference. The aim is to provide more guidance by the end of 2022. A copy of the report, titled Climate Change Adaptation Report 2021 - Climate-related financial risk management and the role of capital requirements, is available here (pdf).

G20 communique - corporate governance

The G20 communique issued yesterday, following the meeting of finance ministers and central bank governors, has received much attention because of what has been agreed in respect of corporate tax reform: see here (pdf).

The communique is also worth noting because of what is said about corporate governance and the G20/OECD Principles of Corporate Governance. To quote directly: "We recognise that a more comprehensive assessment of environmental and climate-related macro-economic risks can help develop innovative solutions to make our economies more sustainable, resilient and inclusive. We recognise the importance of good corporate governance and well functioning capital markets to support the recovery. We look forward to the review of the G20/OECD Principles of Corporate Governance and ask the OECD to report back on progress at our first meeting in 2022".  

Guernsey: GFSC publishes amended finance sector corporate governance code

The Guernsey Financial Services Commission has published an updated edition of its finance sector corporate governance code: see here (pdf). The new Code applies to financial years starting on and after 1 October 2021 and has been amended to include a new rule concerning climate change (5.2.1): "The Board should consider the impact of climate change on the firm’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures". 

UK: FCA consults on extending the reach of climate-related disclosure rules

Last December, the Financial Conduct Authority introduced a new disclosure rule requiring commercial companies with a UK premium listing to disclose in their annual report whether they had made disclosures consistent with the TCFD recommendations: see here. Today the FCA announced its intention to extend this disclosure regime to (1) standard listed companies and (2) asset managers, life insurers, and FCA-regulated pension providers - see, respectively, here and here.

UK: FRC launches review of the reporting (and auditing) of the impacts of climate change

The Financial Reporting Council has launched a review to consider how companies and their auditors assess and report on the impact of climate change: see here. As part of the review, the FRC will consider the extent to which companies are reporting in accordance with the Task Force on Climate-related Financial Disclosures framework.

New Zealand: Ministry for the Environment consults on climate related financial disclosure framework

The Ministry for the Environment has published a consultation paper setting out it proposals for a new framework on climate related financial disclosures: see here (pdf). This includes, in the chapter 4, a discussion of directors' legal obligations and climate change. The proposed framework would apply to listed issuers, banks, general insurers, asset owners and asset managers. It would subject them to a mandatory reporting obligation, draws on TCFD Recommendations.

UK: The FRC's annual review of corporate reporting

The Financial Reporting Council has published the results of its annual review of corporate reporting: see here (pdf). Published alongside the report is an open letter addressed to audit committee chairs and finance directors: see here (pdf). The FRC is calling for improvements in (a) companies' reporting of forwarding-looking information, (b) the potential impact of emerging risks on future strategy and (c) the carrying value of assets and the recognition of liabilities.

The report no longer contains a review of corporate governance disclosures and compliance with the UK Corporate Governance Code because a separate report covering these matters will be published later this year.

UK: FRC Reporting Lab report - climate related corporate reporting

The FRC's Financial Reporting Lab has published a report on climate-related corporate reporting: see here (pdf). The report provides guidance for companies on how their reporting can be improved. It is recommends that companies use the Task Force on Climate-related Financial Disclosures (TCFD) framework to report on climate-related issues; it is noted that the UK Government expects all listed companies and large asset owners to disclose in line with TCFD recommendations by 2022.

UK: FCA feedback statement - climate change and green finance

The Financial Conduct Authority has published a feedback statement in respect of the discussion paper on climate change and green finance it published a year ago: see here (pdf). The FCA has confirmed that it will, in early 2020, publish a consultation paper in which new disclosure rules are proposed, operating on a 'comply or explain' basis for some issuers, and aligned with TCFD recommendations. The FCA has also stated that it will, in the next few weeks, publish a feedback statement concerning its joint discussion paper with the Financial Reporting Council on effective stewardship.

Australia: ASIC report on corporate finance regulation

The Australian Securities and Investments Commission has published its latest report on its corporate finance oversight activities for the period January to June 2019: see here (pdf). The report notes, amongst other things, that ASIC asked for amended or additional disclosure in more than a quarter of the prospectuses lodged during this period. Under the heading of corporate governance, the report outlines what ASIC has recently done to clarify its policy concerning the disclosure of the risk and opportunities associated with climate change. 

UK and Australia: Directors' duties and climate change - a speech by Lord Sales

Lord Sales, a justice of the UK Supreme Court, delivered a speech at the end of August in Australia titled "Directors’ duties and climate change: Keeping pace with environmental challenges": see here (pdf). With reference to laws in England and Australia, Lord Sales observed:

... the clear message to be taken away from this lecture is that company law in England and Australia alike is still undergoing a process of coming to terms with the new challenges raised by climate change and wider environmental issues ... There is a clear case for these company laws to be modified, by legislation, to provide a greater impetus to boards and individual directors to accord greater attention and weight to climate issues than has until now been considered appropriate.  That said, even as things stand, there is much force in the view that directors may and, increasingly, must take into account and accord significant weight to climate change in their decision-making. This is not least because a failure to act sustainably is more and more likely to have adverse financial impacts on companies who are, or are perceived to be, behind the curve on environmental issues"

UK: PRA statements - managing the financial risks from climate change

The Prudential Regulation Authority has published a policy statement and supervisory statement regarding banks' and insurers' approaches to managing the financial risks from climate change: see, respectively, here and here.

The supervisory statement explains, to quote directly from it (para. 3.2): "The PRA expects a firm’s board to understand and assess the financial risks from climate change that affect the firm, and to be able to address and oversee these risks within the firm’s overall business strategy and risk appetite"

It also adds (at para. 3.4): "The PRA expects firms to have clear roles and responsibilities for the board and its relevant sub-committees in managing the financial risks from climate change. In particular, the board and the highest level of executive management should identify and allocate responsibility for identifying and managing financial risks from climate change to the relevant existing Senior Management Function(s) ...".

UK: financial risk from climate change - what the PRA expects from boards

The Prudential Regulation Authority has today published for consultation a draft supervisory statement setting out its expectations of firms in respect of their approach to managing the financial risks from climate change: see here (pdf). The accompanying press release is available here (pdf). The PRA's expectation of the board is explained as follows (see para. 3.4 of the draft supervisory statement):

The PRA expects firms to have clear roles and responsibilities for the board and its relevant sub-committees in managing the financial risks from climate change. In particular, the board and the highest level of executive management should identify and allocate responsibility for identifying and managing financial risks from climate change to the relevant existing Senior Management Function(s) (SMF(s)) most appropriate within the firm’s organisational structure and risk profile, and ensure that these responsibilities are included in the SMF(s)’s Statement of Responsibilities. The PRA expects to see evidence that the board and its relevant subcommittees exercise effective oversight of risk management and controls. Further, the PRA expects the board to ensure that adequate resources and sufficient skills and expertise are devoted to managing the financial risks from climate change."

UK: EAC report - 'Greening Finance: embedding sustainability in financial decision making'

The Environmental Audit Committee has today published its report Greening Finance: embedding sustainability in financial decision making: see here or here (pdf). The conclusions and recommendations are available here. The report calls on the Government to set a deadline for all listed companies and large asset owners to report on climate-related risks and opportunities (in line with the TCFD recommendations) on a comply or explain basis by 2022 (with appropriate changes to the UK Corporate Governance Code and UK Stewardship Code).

USA: updated CalSTRS Corporate Governance Principles

An updated edition of the CalSTRS Corporate Governance Principles was approved last week: see here. An important change has been made to A1 (Board composition) and the skills of the board: risk management, including climate risk management and cyber risk management, is now included. A copy of the new Principles is available here (pdf).