FSB Climate Panel Focuses on Stress Tests and Deep CO2 Reporting

  • Consensus forming among climate risk panel, says S&P executive
  • Task force due to meet again in Washington next week

Large businesses will be pressed to reveal the pollution coming from their suppliers and prove their resilience to tightening climate-change regulations under recommendations due to be made later this year by a panel set up by Financial Stability Board Chairman Mark Carney.

A consensus is forming among the 24 members of the FSB’s Task Force on Climate-Related Financial Disclosures that would focus the attention of companies both on their own fossil-fuel emissions and also those of their suppliers, said Michael Wilkins, global head of environmental and climate risk research at Standard & Poor’s Ratings Services, who sits on the committee. The panel has its third session in Washington next week.

“There are some unifying themes coming out, like ensuring there is a focus on what is material and relevant in terms of disclosure,” Wilkins said in an interview Tuesday at S&P’s offices in Canary Wharf, London’s financial district. 

Companies increasingly are disclosing the financial risks they face from climate change, but they lack a coherent framework to do so. The FSB task force was established by the Group of 20 nations to draw up guidelines for reporting that would allow investors to compare the performance of different companies on a number of sustainability measures.

Certain areas are still up for debate, such as the size of companies covered by the guidelines. Panel members agree that it’s also important not to waste the time of investors with extraneous data, he said.

Useful information would include stress tests on how businesses would perform under different scenarios for rising temperature. That’s a key concern for insurance companies on the panel, he said. Temperatures warming by just over 4 degrees Celsius (7.2 degrees Fahrenheit), would wipe $4.2 trillion off the value of global assets this century, according to research commissioned by U.K. insurer Aviva Plc, which is on the panel.

“The task force is coming at it from a very cold light of day angle,” said Wilkins, adding that the panel members hadn’t had many heated debates yet or objections from climate change skeptics. “It’s very much the financial side. Are banks going to have to write down their loans? Are those companies going to take bigger losses? Are they going to be downgraded by the ratings agencies?”

A report by S&P showed that extreme storms and floods caused by climate change increases the risk of downgrades of sovereign borrowers by 20 percent. Climate change alone would increase government debt by between slightly more than 4 percent of gross domestic project in Vietnam to 42 percent in the Bahamas, it found.

The task force also believes companies should reveal greenhouse gas pollution in their supply chains -- known as Scope 3 -- as well as their operational emissions, he said. “There seems to be a growing consensus that unless you look at the total sources of carbon then you’re not picking up everything.”

Carney namedMichael Bloomberg, founder and majority owner of Bloomberg News and its parent company Bloomberg LP, to lead the panel. It’s due to publish a series of voluntary guidelines at the end of this year.

The guidelines will prompt many companies to change their reporting practices despite being voluntary, predicted Wilkins. “Not to comply with the FSB’s recommendations stands out like a sore thumb,” he said.

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