Full Disclosure 5 highlights the importance of disclosing a strategy to mitigate climate change risks for companies and banks, investors, and communities. Relying on the work of the TCFD and critical reports from across sectors, it makes the case that effective mitigation, adaptation, resource efficiency, pollution reduction and transition strategies ensure that companies do not cause job losses, or negatively impact the economy and surrounding communities in the transition to a low-carbon economy. Effective strategies allow companies to build resilience in the face of transitional and physical risks.
The website considers the role of banks in financing high greenhouse gas emitting industries and the corresponding risk of instability in financial markets. Referring to UNCTAD’s 2019 Trade and Development Report, Full Disclosure 5 warns of a potential “‘climate Minsky moment’ where a rapid system-wide adjustment to climate change threatens financial stability” if banks fail to take into account the transitional and physical risks facing borrowers.
To mitigate risks, bank and companies should develop strategies based on scenario analysis which considers a 2°C or lower climate scenario. The scenario analysis informs the metrics and targets that a company might use to assess and manage its climate-related risks and opportunities. As one of these targets, companies ought to report on emission reductions, while banks should have a strategy in place to reduce their credit risk exposure to risky carbon-intensive industries. Companies’ TCFD compliant disclosures should inform bank decision making. Considering borrower disclosures can enable banks to set strategies to reduce concentrations of credit exposure to risky carbon-related assets.
Full Disclosure 5 assesses bank and company compliance with the four elements of the TCFD recommendations. It finds that, while ten out of the 15 companies and banks assessed identified climate change as posing a material business risk, only three set out the short-, medium-, and long- term impacts to their businesses, strategy, and financial planning. Only two companies report on the scenarios used to inform their strategy, and seven have a target to reduce their emissions. Only one bank discloses its concentrations of credit exposure to carbon-related assets while two have a policy in place on funding coal mining and coal-fired power.
Most companies assessed in Full Disclosure 5 comply with several elements of the TCFD Recommendations to some extent, despite only four noted as supporters. However, as compliance with scenario analysis remains worryingly low, Full Disclosure 5 draws on the TCFD’s 2019 Status Report to highlight how companies and banks can overcome challenges in disclosing scenarios to develop more effective strategies, reduce emissions, and lower concentrations of carbon-related assets in corporate loan portfolios.
The climate is changing.
Climate change has already impacted natural and human systems as human activities are estimated to have already caused a 1.0°C increase in global temperatures above pre-industrial levels.
Global warming is expected to reach 1.5°C between 2030 and 2052, according to the UN’s Intergovernmental Panel on Climate Change (IPCC).
The impacts affect you today.
Worsening droughts are threatening South Africa’s water and food supply. Climate change is placing banks and companies at risk.
Your money could be exposed to risk if your bank has not factored in the impacts of climate change and the transition to a low carbon economy.
Your investment in an emitter of greenhouse gas is at risk if the company has no strategy to mitigate the impacts of climate change and reduce its emissions.
Your water supply, food security, health and livelihood are at risk - which will be worsened if emitters have no strategy to reduce their emissions.
Responsible reporting can reduce your risks.
Companies that disclose their climate-related risks and strategies in their annual reports enable you, their investors, and the banks to make informed choices.
TCFD Recommended Disclosures
The Task Force on Climate-related Financial Disclosures (TCFD) has set out Recommendations that can help banks, investors, and insurance companies assess and price in climate-related risks, by standardising climate-related disclosures.
About the TCFD
The TCFD was set up by the G20 Financial Stability Board to consider the physical, liability, and transitional risks posed by climate change. It developed recommendations for voluntary and consistent climate-related financial disclosures that have attracted support from over 240 organisations and 150 financial institutions.
The TCFD Recommendations include guidance for companies to ensure they adequately and consistently disclose their climate-related risks and opportunities, and set out the strategies they have put in place to reduce their emissions and mitigate climate-related risks.
Full Disclosure 5 assesses the climate-related disclosures of South Africa’s top 10 emitters of greenhouse gases and five banks.
Using the TCFD Recommendations as a framework, Full Disclosure 5 can help you uncover whether South Africa’s ten largest emitters of greenhouse gasses and five commercial banks have adequate strategies in place to mitigate risks to their shareholders, financiers, and our planet.
Our joint responsibility.
We have a moral, ethical, and legal responsibility to do everything we can to mitigate the impacts of climate change.
Section 24 of the Constitution of the Republic of South Africa:
Everyone has the right –
- To an environment that is not harmful to their health or well-being; and
- To have the environment protected, for the benefit of present and future generations, through reasonable legislative and other measures that –
- prevent pollution and ecological degradation;
- promote conservation; and
- secure ecologically sustainable development and use of natural resources while promoting justifiable economic and social development.
Under our Bill of Rights, all people and companies have a duty to respect the rights of others – including section 24. Companies should honour that responsibility, accepting that government regulation is not the only means of ensuring environmental protection. Failing to do so increases a company’s transitional risks through litigation and reputational damage and jeopardises the future of our planet.