Carney Panel Set to Demand Climate-Risk Scenarios From Companies

  • Task force urging G-20 to elevate issue to board level
  • About 180 companies already hold CEOs responsible on climate

Companies should tell investors how their profits may be hit by tighter pollution rules and extreme weather events coming from climate change, a panel advising the Group of 20 nations will conclude next week.

The group, set up by Bank of England Governor Mark Carney in his role as head of the Financial Stability Board, is due to report on Wednesday on best practices for companies disclosing how they manage environmental risks.

Two of the 31-member group said companies will be advised to investigate and publish an outlook for how they would be affected by targets to cut greenhouse gases. It’s a key issue for fossil-fuel producers from Peabody Energy Corp. to Exxon Mobil Corp., which have clashed with New York Attorney General Eric Schneiderman over accusations they didn’t adequately inform investors about risks they face.

“For us, the biggest thing is having more information about the longer-term assumptions being used,” said Michael Wilkins, a managing director at S&P Global Inc. who is a member of the FSB’s Task Force on Climate-Related Financial Disclosure. “Scenario analysis is the most interesting and forward-thinking aspect of the recommendations.”

Carney set up the panel at the request of the G-20 and in December 2015 named Michael Bloomberg, founder and majority owner of Bloomberg News and its parent company Bloomberg LP, to lead the group. It also includes executives and advisers from a variety of industries around the world. 

Officials for the FSB and the task force declined to comment on the report, which is due to be released on Wednesday in London.

Bringing Transparency

The previously unreported comments shed light on how the panel may suggest bringing transparency to financial reports. The aim is to help investors assess which companies have the most to lose from environmental issues and which management teams are moving quickest to address risks. The guidelines may eventually be adopted as either regulation or corporate best practice in G-20 nations and beyond.

The report “recommends the use of scenarios and to disclose, but we’ve had to leave it to the company to pick what works best for them,” said Jon Williams, a partner at PricewaterhouseCoopers LLP and another member of the FSB’s task force. “It’s down to management to say if they can’t disclose and why not.”

Peabody and Exxon, the largest U.S. coal and oil producers, were sued by New York state over their disclosures and the assertion that it’s not possible to predict the impact of future environmental laws stemming from the global fight against climate change. Peabody reached an accord in 2015 over the litigation. Exxon is still fighting the suit.

Financial Incentive

The task-force report also is likely to stop short of recommending stronger action, like a link between executive pay and company performance on climate-related targets. Currently, about 180 companies offer financial rewards to their chief executives for how they manage climate issues, according to the CDP, a research group that surveys companies on their response to climate issues and was formerly known as Carbon Disclosure Project.

Williams from PwC said the task force wants to make climate into an issue that’s addressed by corporate boards, particularly for the energy industry and for companies with a direct impact on greenhouse-gas emissions.

President-elect Donald Trump has said he wants to cut through some of the environmental red tape that companies face, suggesting the task force’s findings won’t find backing from the next U.S. administration. The U.S. also may be able to block an official endorsement from the G-20, though the guidelines were always meant to be voluntary and may instead spread as a standard that companies willingly accept to underpin their environmental reputations.

Carney’s ambition is to bring consistency to the hodgepodge of environmental and social governance reporting that companies currently do. The effort is among the first to set out best practices for issuing data on everything from carbon dioxide emissions to workplace deaths, which isn’t often comparable between companies or industries.

The central bank chief has repeatedly warned climate change is a “tragedy of horizon,” because its full-impacts fall beyond the typical short-term timescales evaluated by bankers, creditors, insurers.

“We do expect it to be significant,” said Michael Ellam, a former U.K. Treasury adviser now leading the sustainable finance unit of HSBC Bank Plc. “This will force a much wider group of corporate entities to take this seriously than they have done in the past.”

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