The push to have companies spell out risks arising from climate change as part of their financial disclosures is misguided and would add unwelcome distortions into capital markets, energy analyst Daniel Yergin warned Tuesday.
Mr. Yergin, vice-chairman of IHS Markits, is urging caution as investors and governments look for additional disclosure from companies – especially oil and gas producers – on how climate change could pose material risks to their businesses in the future.
In a report released this month, IHS Markits took aim at the work of the task force on climate-related financial disclosures (TFCD), which was appointed by Bank of England Governor Mark Carney and headed by Bloomberg LP founder Michael Bloomberg.
In a draft report last December, the task force urged investors and companies to adopt a voluntary regime of financial disclosure in order to help avoid major risks to the financial system arising from climate change.
The task force will make its final report to leaders from the leading industrialized and advanced developing countries when they meet in Germany for the G20 summit in July. Already, prominent institutional investors – from BlackRock Inc. to Canada Pension Plan Investment Board – are calling for a more systematic reporting by companies of their climate-related risk.
In a report released last week, IHS disputed the notion that companies should report in their financial disclosures the potential risks that are likely to or may arise as a result of climate change, or that long-term impacts represent that type of current material risks that should be reported in financial disclosure.
"Financial reporting disclosure is basically about what has happened or will happen in the near-term future," Mr. Yergin said in an interview, "and this is asking for facts that won't happen for 20 years and so they're not really facts.
"We think it's fine to [deal with climate-related scenarios] in a sustainability report, but it shouldn't be part of legally mandated financial reporting that have a particular purpose."
In an effort to divert capital away from the fossil-fuel sector, environmental groups and responsible investment advocates have seized on the work of the Bloomberg task force to suggest that climate change poses a fundamental risk to the business model of oil and gas firms and that any such firms are therefore inherently poor investments.
The IHS work was funded by oil giants Chevron Corp., ConocoPhillips Co., BP PLC and Total SA.
"I think the energy industry feels it's been not as much a part of the dialogue as is appropriate given its significance in this arena," Mr. Yergin said, though he added the conclusions in the report reflect the work of IHS.
A spokeswoman for the Bloomberg task force said the IHS report inaccurately reported some key elements of the report.
The focus of the Bloomberg panel "has been to increase transparency by developing a framework for consistent climate-related disclosures, which helps industries and investors to better understand the risks posed by climate change," the spokeswoman said in an statement.
Last week, about 203 institutional investors signed a letter urging the G20 leaders to endorse the recommendations of the Bloomberg report and the need for voluntary standards of reporting.
"There clearly is very broad and deep support for what the task force is doing," said Andrew Logan, for the the oil and gas program for CERES, a non-profit organization that works with major investors.
"There are real material risks associated with climate change that need to be disclosed."
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