Market News

 October 13, 2006
Climate Risk-Disclosure Framework released

 USA & UK (GLOBE-Net) - A global partnership of institutional investors and other organizations representing trillions of dollars of investment assets has released a framework to provide specific guidance to companies on provision of information on the financial risks of climate change.

The Global Framework for Climate Risk Disclosure was developed by a one-year Climate Risk Disclosure Initiative made up of 14 leading institutional investors and global organizations. Leading pension funds in the United Kingdom, Australia, California and Connecticut are among the members of the group. The initiative was launched in response to growing concerns about the business risks and opportunities created by climate change. Worldwide, many investors are acknowledging the material financial impacts that climate change will have, through regulatory changes, physical impacts, or increased demand for low-emissions products.

The investors pledged to use the disclosure framework in their engagement with companies on climate change, and to encourage firms to use existing reporting mechanisms. Existing disclosure methods such as mandatory financial reports, the Global Reporting Initiative, and the Carbon Disclosure Project can provide investors with the information they need to make analytical decisions.

The group also plans to distribute the framework to securities regulators, investors, and leading companies that failed to respond to previous investor requests for information.

In the view of the investors involved in creating the framework, not enough companies report adequate information on climate risks and opportunities through mandatory or voluntary disclosures. Investors are therefore facing a deficit of information when making their portfolio management decisions.

Fewer than one dozen Fortune 500 companies have issued comprehensive climate risk reports to date for shareholders, almost all of them electric power companies, reports Ceres. The recently compiled results of the 4th Carbon Disclosure Project (CDP) showed that although many companies acknowledge that climate change does present business risks and opportunities, few are taking action or reporting it in a meaningful way.

Of the Canadian firms that did respond to the CDP request, 77 percent indicated that climate change represented a matter of commercial risk, while sixty-three percent identified business opportunities related to climate change. However, eighty-two percent of respondents did not address the financial significance of the impact of climate change, and long term strategic information was largely absent from the report.

In terms of planning, only 36 percent of responding companies indicated they had a greenhouse gas reduction plan, and only one-fifth had established formal reduction targets with timelines.

See article:available online.

The newly-launched framework includes four key elements for adequate corporate climate disclosure:
  • Measurement of total and projected greenhouse gas (GHG) emissions by company operations and products
  • Strategic analysis of climate risk and GHG emissions management
  • Assessment of the physical risks of climate change
  • Risk analysis related to emerging GHG regulations in the U.S., Europe and other countries.
The partnership to create the reporting framework was first launched in May 2005 at the Institutional Investor Summit on Climate Risk at the United Nations. The draft framework was reviewed by investors, companies, financial analysts and other experts worldwide before being finalized. Investors and other groups who created and endorsed the framework include:
  • California Public Employees' Retirement System
  • California State Controller's Office
  • California State Teachers' Retirement System
  • Carbon Disclosure Project
  • Ceres
  • Connecticut State Treasurer's Office
  • Global Reporting Initiative
  • Institutional Investors Group on Climate Change
  • Investor Group on Climate Change Australia / New Zealand
  • Investor Network on Climate Risk
  • United Nations Environment Programme Finance Initiative
  • United Nations Foundation
  • United Nations Fund for International Partnerships
  • Universities Superannuation Scheme
The Global Framework for Climate Risk Disclosure is available here.