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Centre for Environmental Rights

About Full Disclosure 5

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 Taskforce on Climate-related Financial Disclosures (TCFD) and critical reports from across sectors, Full Disclosure 5 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.