Establishing the context
The biggest climate change related headline in 2017 was undoubtedly the announcement of the United States’ withdrawal from the Paris Agreement.
Although a number of states, cities and businesses are continuing their support through the “America’s Pledge” initiative, this marked a considerable setback for global efforts to coordinate reduction in emissions. Behind the front pages however, structural changes are occurring that will progressively redirect capital into more sustainable technologies and businesses, pointing to a gathering momentum behind the low carbon transition.
Increasingly, actors in capital markets are asking that the risks and opportunities presented by climate change should inform decision making. The credit rating agencies have been reminding borrowers that exposure to climate risk is part of their rating methodology. Institutional investors are coming under pressure to disclose their climate exposure, and have in turn increasingly been demanding greater transparency from investees.
Correspondingly, asset managers have been writing to companies urging better reporting of climate risks. In this context, the release in 2017 of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), established in 2015 by the G20’s Financial Stability Board, has been hailed as a landmark. The Task Force’s goal is to support more informed decision making across the financial system (in investment, lending and insurance underwriting).