Governor of the Bank of England Mark Carney told the annual Accounting For Sustainability meeting that it is too early to make TCFD disclosure mandatory, though he accused insurers of 'cognitive dissonance' on climate risk. Terry Slavin reports
It would be “premature” to make requirements for reporting under the voluntary Task Force for Climate-Related Disclosure mandatory, the Governor of the Bank of England, Mark Carney, told the annual meeting of Prince of Wales’s Accounting for Sustainability project at St James’s Palace last week.
Answering questions from the audience, which included chief financial officers and CEOs from some of the UK’s biggest companies, Carney said: “The initiative was always private sector-led but public sector enabled. The point is still to learn by doing.” He said he believed the TCFD required further iterations of disclosure. “It’s not my call, but I think it would be premature to make it [TCFD] mandatory at this stage.”
Sadly, with respect to climate, history repeats not as farce but as tragedy, with growing frequency
Carney, who spoke after the Prince of Wales at an event that also celebrated the Prince’s 70th birthday, began with a tribute to the prince. “His Royal Highness has provided inspirational leadership on these critical issues for decades,” he said. “Indeed, if we had heeded his advice when it was first offered, we might have already solved the tragedy of the horizon.”
But he quickly made clear that the “tragedy of the horizon”, a term he coined in 2015 to explain how the catastrophic impact of climate change will impose a cost on future generations that the current generation has no incentive to fix, was still a clear and present danger three years after he and New York mayor Michael Bloomberg created the Task Force for Climate-Related Disclosure.
“Sadly, with respect to climate, history repeats not as farce but as tragedy, with growing frequency.”
Carney pointed out that while insurers and reinsurers are on the front line of managing the physical risks from climate change, there is “cognitive dissonance in some insurers, whose careful management of climate risks on the liability side of their balance sheets is not always matched by similar considerations on the asset side”.
He said the Bank of England expects insurers to use stress-testing and scenario analysis as part of their assessment of climate risk impacts on both their balance sheets and in broader business strategy. “This will also be reflected in our own market-wide insurance stress test exercises,” he said.
Turning to banks, Carney pointed out that a recent survey by the Bank of England’s Prudential Regulation Authority, which included 90% of the UK banking sector, found that planning horizons averaged four years, a shorter time frame than risks of climate change would be expected to be fully realised and shorter than the time it would take for ambitious climate policies to take effect.
Many banks have some way to go to identify and measure the financial risks from climate change comprehensively
While the majority of banks are starting to treat the risks from climate change like other financial risks, rather than as CSR issues, Carney said, “many banks have some way to go to identify and measure the financial risks from climate change comprehensively. This requires strategic board oversight and more dynamic scenario analysis so actions today can be considered in light of future impacts.”
Carney said the voluntary TCFD, which aims to help companies disclose climate risk information in a clear and consistent way, had led to a “clear transition in thinking and action about climate-related financial risks”, with the TCFD now supported by three-quarters of the world’s globally systemic banks, eight of the top 10 global asset managers, the world’s leading pension funds and insurers, major credit rating agencies, the Big Four accounting firms, and the two dominant shareholder advisory service companies, together representing a fifth of global GDP.
But he said the TCFD implementation report issued in September highlighted weaknesses:
• Financial implications are often not yet disclosed
• Disclosures are often in multiple reports, making comparisons harder
• Disclosure varies by industry and region, with higher percentages of European firms
• Disclosure is weakest with respect to strategic resilience, which is the topic of greatest interest to most capital providers.
“Getting climate disclosure right will mean that investment flows to firms which are managing the risks and seizing the opportunities,” he said.
In his speech, Prince of Wales told how his sons had found an early recording of a speech he made in 1970 in which he had highlighted the issue of plastic pollution.
“At long last, serious attention is being given to find solutions to this, and other environmental crises, but only after we have allowed the problem to grow to a point where it is nearly insurmountable,” he said. “We are facing a truly terrifying combination of risks, such as dangerously accelerating climate change, water scarcity, ecological degradation, unsustainable population growth and massive resource depletion.”
He added that the message of the recent IPCC report was clear: “We are rapidly running out of time to deliver the ambition of keeping the rise in global average temperature to well below two degrees as set out in the Paris Agreement, let alone the more ambitious 1.5 degrees which is absolutely crucial for so many communities around the world.”
Adopting sustainable business models is 'utterly essential for the ultimate viability of life as we know it'
The Prince of Wales called for a realistic price for carbon, and urgent action to tackle perverse subsidy regimes for fossil fuels, fisheries and agriculture.
He said he founded Accounting for Sustainability (A4S) in 2004 because he realised that the financial community was critical to bringing about the systemic change in the global economy required to set the world on a more sustainable path.
“You are all vital in ensuring that this monumental shift, which absolutely must take place, occurs in a measured and transparent way,” he said.
He pointed out that A4S launched the International Integrated Reporting Council in 2010 and had played an important role in establishing the Natural Capital Coalition. Meanwhile A4S’s CFO Leadership Network, which set up a chapter in Canada last year, will soon be launching a chapter in the US, headed up by Salesforce CFO Mark Hawkins and Alphabet CFO Ruth Porat.
The Prince said adopting more sustainable business models was “utterly essential for the ultimate viability of life as we know it. … The time for action is right now.”