Coming Soon: Requirements for Climate-Related Financial Disclosures

March 8, 2021 Advisory

Recently, your financial disclosure antennae may have noticed the noise about the ever-growing call for climate-related financial disclosures. In fact, it is more than just noise—it is a growing global issue that is leading to many different and fragmented approaches.

The Issue

Rising global temperatures are being linked to business losses, threatened infrastructure and devalued assets. Governments and organizations are considering ways to reduce emissions. These policies, some of which have already been implemented, have impacted and will impact financial sectors.

Even with advanced degrees in economics and a crystal ball, it is difficult for investors, lenders, insurers and consumers to determine which companies will prosper and which ones will struggle as climate change impacts the environment, laws and regulation, emerging technology and consumer behavior. 

It is similarly difficult for financial markets to price climate-related risks and adjust asset values without reliable climate-related financial information. Right now, there are no established standards for companies and financial institutions to disclose any of these risks. At best, information regarding companies’ climate risk is inconsistent and therefore unreliable.

New Zealand

In September 2020, New Zealand’s central government proposed legislation to Parliament that would require certain financial organizations doing business in New Zealand to produce climate-related financial disclosures. Companies, large insurers, banks and investment managers with assets greater than $1 billion would be required to disclose their climate change-related risk on the last day of the two most recent financial years under the proposed legislation. 

The United Kingdom

In November 2020, Rishi Sunak, the U.K.’s Chancellor of the Exchequer, announced that by 2025, companies doing business in the U.K. must disclose the climate change-related risks they face. According to Sunak, this will apply to most businesses including those listed on the London Stock Exchange, banks, large private businesses, insurers, asset managers and regulated pension funds.

United States

New York

Also in September 2020, the New York State Department of Financial Services (NYDFS) issued guidance to all insurance companies about climate change and the related financial risk. NYDFS supervises and regulates 1,500 banking and other financial institutions with assets totaling more than $2.6 trillion and approximately 1,800 insurance companies with assets of more than $4.7 trillion. NYDFS expects all insurers to:

  • start integrating the consideration of the financial risks from climate change into their governance frameworks, risk management processes and business strategies; and
  • start developing their approach to climate-related financial disclosures and consider engaging with the Task Force on Climate-Related Financial Disclosures (TCFD) – created in 2015 by the Financial Stability Board – framework and other established initiatives when doing so.


California, not surprisingly, is ahead of the curve in this arena. In September 2018, then California Gov. Jerry Brown signed into law Senate Bill 964 which requires California public pension funds CalPERS and CalSTRS to publicly report every three years on the climate-related financial risks of their public market portfolios. In 2019, a spokesperson for CalPERS stated that CalPERS intended to align its reports with the TCFD recommendations.

The Federal Government

Finally, President Biden has promised action on climate change including issuing an executive order requiring “public companies to disclose climate risks and the greenhouse gas emissions in their operations and supply chains.” President Biden appears to be making good on his campaign promises. On Feb. 24, 2021, Allison Herren Lee, Acting Chair of U.S. Securities and Exchange Commission (SEC), issued a statement in which she revealed a directive to the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings.” Lee doubled down on climate-related disclosures when speaking at the CERAWeek by IHS Markit virtual conference earlier this month when she stated that the SEC was looking to implement a global climate disclosure framework. Lee said the SEC has already engaged with the Financial Stability Board and the International Organization of Securities Commissions to develop a global framework. Further, on March 4, the SEC announced the creation of a Climate and Environmental, Social and Governance (ESG) Task Force in its Division of Enforcement. The task force will develop initiatives to proactively identify ESG-related misconduct with its initial focus on identifying “any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.”

A Global Solution 

One solution to the lack of standardized disclosure of climate-related risk is the TCFD, created by the Financial Stability Board. The Financial Stability Board is an international body that monitors and makes recommendations about the global financial system. It was established after the G20 London summit in April 2009 as a successor to the Financial Stability Forum. TCFD’s goal is to develop recommendations for climate-related disclosures that will enable stakeholders to make more informed financial decisions. For example, TCFD will make recommendations for investments, extending credit and underwriting insurance. TCFD believes more and better information on climate-related risk will increase company and investor knowledge of the financial implications of climate change, which will lead to investment in “sustainable and resilient solutions, opportunities, and business models.”

In 2017, TCFD released four recommendations in these key areas:


TCFD recommends that companies (1) describe their governance around climate-related risks and opportunities; and (2) describe management’s role in assessing and managing climate-related risks and opportunities.


TCFD recommends that companies (1) describe the climate-related risks and opportunities the organization has identified over the short, medium and long term; (2) describe the impact of climate-related risks and opportunities on the company’s businesses, strategy and financial planning; and (3) describe the resilience of the company’s strategy, taking into consideration different climate-related scenarios, including a 2˚C or lower scenario.

Risk Management

TCFD recommends that companies (1) describe the company’s processes for identifying and assessing climate-related risks; (2) describe the company’s processes for managing climate-related risks; and (3) describe how processes for identifying, assessing and managing climate-related risks are integrated into the company’s overall risk management.

Metrics and Targets

TCFD recommends that companies (1) disclose the metrics used by the company to assess climate-related risks and opportunities in line with its strategy and risk management process; (2) disclose Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and related risks; and (3) describe the targets used by the company to manage climate-related risks and opportunities and performance against targets.


Global momentum requiring companies to disclose climate-related risks is building. Whether proposed legislation and policies are implemented remains to be seen. In the U.S., the Biden administration appears to be moving toward a federal disclosure regime that requires public companies to disclose their climate-related risks. If it does, TCFD has provided a framework for doing so.

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