Corporations, especially those in the financial and energy sectors, should provide investors with clear and systematic disclosure of the risks that climate change poses to their future economic health, a task force reporting to Bank of England Governor Mark Carney recommended Wednesday.
The group, headed by Bloomberg LP founder Michael Bloomberg, pointed to carbon-intensive, fossil-fuel companies as being among those that will be most significantly affected by the transition to a lower-carbon economy, with risks being borne by their lenders and investors.
The panel laid out a series of recommendations on disclosure to make it easier for investors to assess the risk and opportunity that climate change poses in the economy and allocate their capital accordingly. The report was released in London on Wednesday by the Financial Stability Board, an international banking watchdog set up by the group of 20 industrialized countries and chaired by Mr. Carney.
"Warming of the planet caused by greenhouse gas emissions poses serious risks to the global economy and will have an impact across many economic sectors," Mr. Bloomberg said in an introductory letter to Mr. Carney.
"But until now, it has been difficult for investors to know which companies are most vulnerable to climate change, which are best prepared and which are taking action."
The widespread adoption of the task force recommendations "will lead to smarter, more efficient allocation of capital, and speed the transition to a low-carbon economy," he added.
The task force recommended that companies be asked to assess the impact on their businesses if the world succeeds in reducing greenhouse gas (GHG) emissions in order to limit the average increase in global temperatures to 2 C above preindustrial levels. The International Energy Agency has outlined a two-degree scenario that would see significantly less demand for coal and oil by 2040.
Mr. Bloomberg and Mr. Carney have separately highlighted the potential for disruption to the energy sector and its financial institutions that provide capital to resource companies and utilities as the world moves to reduce carbon emissions.
The report "is aimed at providing decision-useful financial information … and addresses the need for better information on climate-change risk and opportunity," said Stephanie Leaist, head of sustainable investing for the Canada Pension Plan Investment Board. Ms. Leaist is a member of the Bloomberg task force and was in London for its release.
She said the CPPIB has asked companies to disclose climate-change risk and opportunities for several years, but the results have been mixed. The Bloomberg report will provide a framework that will make it easier to assess and compare corporation performance, and to include that assessment in investment decisions where it is material.
Institutional investors are particularly keen to understand the longer-term impact of climate change on corporate performance, given their liabilities are also long term. They, too, are being urged to assess what impact a transition from fossil fuels to a low-carbon economy would have on their portfolios.
Climate risks are particularly high for fossil-fuel companies and related businesses with high GHG intensity in their supply chains, as well as energy-intensive manufacturing and transportation companies, the task force said. Oil sands projects and crude pipelines fall into that category, especially given the long time period over which companies expect to make a return on their investment.
Many Canadian energy companies already disclose carbon risks through CDP, formerly the Carbon Disclosure Project. But the Bloomberg recommendations would require them to assess the impact of a successful global effort to limit the temperature increase to two degrees, and include the analysis in its main financial disclosure, noted Jane Ambachtsheer, a consultant with Mercer and member of the task force.
Executives with large U.S. pension funds welcomed the report, and said it would help maintain momentum to a lower-carbon economy even if president-elect Donald Trump rolls back some of the Obama administration's regulatory efforts.