The European Union will likely to be the first in the world to build a climate framework that other major countries and regulators will adopt. History will soon draw parallels between the passing and implementation of climate regulations and that of the EU’s General Data Protection Regulation (GDPR). Just as California, home to numerous tech giants, quickly followed the GDPR with the California Consumer Privacy Act, so will the the climate framework brought forth by the EU surely be the catalyst to bring standardization to the world.
Climate action is gaining momentum outside of the EU as well. In September, New Zealand became the first country in the world to establish concrete policies that require companies and financial institutions of a certain size to disclose climate risk.
As part of this regulation, the Ministry for the Environment announced that publicly listed companies with more than NZ$1Billion ($673 million) in assets under management would be required to provide climate disclosures under the Task Force for Climate-related Financial Disclosures (TCFD) framework.
It is a trend that’s likely to proliferate quickly among other countries. In 2019, the EU unveiled its strategy for the “Green Deal” (not to be confused with the U.S. Democratic proposal for a “Green New Deal”). Managed by the European Commission, that program addresses a sweeping set of proposals and includes a significant amount of language on how to integrate sustainability considerations into its financial policy framework in order to mobilize finance for sustainable growth.
Though Brussels and London are at odds over Brexit, the U.K. government is tightly aligned with the EU on the need for such climate disclosure regulation. Recently, the Financial Conduct Authority published a proposal requiring all companies with their main listing in London to file TCFD reports or otherwise explain why they cannot.
The U.K. has historically been one of the most progressive countries in the world as it pertains to legislating climate-specific regulation and was the first major country in the world to enshrine a carbon net-zero law by 2050 for the government.
Executives, Investors Need to Prepare for Disclosure
Public company executives and institutional investors are paying closer attention than ever to climate disclosures. Many are already preparing for these disclosures to become formal regulations in the coming years. As simple as it may sound, providing climate disclosures won’t be an easy task, even when required by law, due to complexities around gathering, analyzing, and accurately reporting data.
At the World Economic Forum in Davos in January, a group of prominent business leaders led by Bank of America CEO, Brian Moynihan, launched a campaign to fix what they view as a fragmented field of sustainability reporting metrics and standards. Business leaders are voicing their frustration with the fragmented nature of investor-grade sustainability disclosure standards and frameworks. The hundreds of climate reporting standards leave companies in a state of bewilderment.
In the short time since then, TCFD has emerged as the clear front runner with endorsements that now include the governments of New Zealand, the UK, the EU and the world’s largest asset manager, BlackRock.
The news out of New Zealand provides further pressure to the EU Commission’s group working the Green Deal to get formal legislative proposals drafted. Additional pressure is being added based on the growing number of global devastations from climate change.
As the American West faces the worst forest fires in history across states like California, Oregon, and Colorado, other parts of the country are dealing with multiple hurricanes hitting the continental U.S. The clouds of smoke from those fires were observed as far away as Europe, raising the public discourse around the topic of climate change to levels unseen since Greta Thunberg began her climate strikes.
While it took yet another round of ‘once-in-a-century’ climate events to reignite the public discussion this summer, business leaders around the world have been tracking climate change and its effect on the financial markets much more closely.
Amidst this unprecedented climate destruction, Joe Biden announced a $2 trillion plan climate plan as part of his presidential campaign. Should the election go in his favor, the U.S. will almost certainly rejoin the UN’s Paris Agreement and become a key supporting player in the EU Green Deal talks.
While there is still a long road ahead, all signs point to meaningful regulation requiring climate disclosures across major economies. For businesses, the most immediate questions will revolve around regulation, timing, and how to build an accurate and actionable climate report.