Michael R. Bloomberg, Bloomberg
President-elect Joe Biden’s pledge to rejoin the Paris climate agreement sends an important signal to the world about U.S. leadership. But the action will merely take us back to four years ago. To push us forward, on his first day in office, President Biden should bring together a group of G-20 leaders to join the U.S. in endorsing a mandatory standard for global businesses to measure and report the risks they face from climate change.
It’s a critically important step that’s entirely within reach, because such a standard already exists and has won widespread global support.
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.
Climate risk data — like any kind of financial data — is only useful to investors if they can compare it across companies on an apples-to-apples basis. If the data isn’t consistent and comparable, it’s not very helpful. And when financial regulation is confusing or contradictory across different jurisdictions, it can inhibit investment and economic growth — or worse, set the conditions for future economic crises.
The 2008 crisis demonstrated the devastation that can happen when risks aren’t properly understood, consistently disclosed, and priced into markets. But more than a decade after the crisis, financial markets are still operating largely in the dark when it comes to climate change, which is one of the biggest risks facing the global economy.
In the U.S., public companies are required to disclose key information about their financial health in quarterly and annual filings to the Securities and Exchange Commission, so that shareholders and investors can make informed decisions. However, those requirements currently don’t specifically include information about risks and opportunities associated with climate change, even though it will affect virtually every industry either directly or indirectly.
This lack of information leaves companies and investors — including public pension systems and individual retirement accounts — vulnerable to major losses. It threatens the resilience and stability of the global economy. It skews the market unfairly in favor of companies that are exposed to or ignoring risks, and unfairly away from companies that are acting responsibly. And by hiding opportunities for smart investment, it is slowing the global response to climate change.
Business leaders know they can’t afford to ignore climate change or pretend it isn’t happening. They want to reduce the risks their companies face. The problem is, they often don’t have enough information to act. That is starting to change, as more and more leaders from the public and private sectors and from countries around the world recognize the importance of better risk disclosure and are endorsing the TCFD guidelines. Michael R. Bloomberg, Bloomberg
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