Institutional fund managers and large asset owners are slowly warming to global climate-reporting standards in the face of considerable technical difficulties, according to a new report.
The just-published Task Force on Climate-related Financial Disclosures (TCFD) 2022 status report excludes asset managers and owners from the formal review this year but notes a growing uptake of the standards based on an earlier survey of the sector.
Over 90 per cent of fund managers or asset owners surveyed during the March 2022 quarter were reporting to the TCFD standards or intended to.
However, the TCFD report says as the 229 respondents (out of 3,000 requests) had already indicated interest in the climate-reporting rules “the Task Force recognizes the survey results should not be extrapolated to a broader population of asset managers and asset owners”.
“The Task Force also recognizes the significant challenges faced by asset managers and asset owners in reporting TCFD-aligned information. Nearly two thirds of asset managers and asset owners identified insufficient information from investee companies as a significant challenge in reporting climate-related information,” the 2022 review says. “Despite this challenge, almost 60% of asset managers and over 60% of asset owners indicated they report on the information they have and acknowledge gaps in their reports. The second biggest challenge — identified by nearly 60% of the survey respondents — was the lack of methodologies for calculating climate-related metrics.”
Many Australasian institutional investors, particularly government-owned funds, have started reporting to the TCFD template, which has emerged as the global standard for portfolio climate disclosures.
The climate-reporting practice is also filtering down through private fund managers as several jurisdictions, including NZ, prepare for mandatory climate disclosures for the sector.
NZ fund managers with at least $1 billion under management will first have to file portfolio climate reports – according to standards based on the TCFD – for the 2023/24 financial year.
However, the initial TCFD push focuses on companies rather than investors with the latest review showing an uptick in compliance across all industries – albeit with reporting still well below target.
“… the average number of recommended disclosures addressed per company has steadily increased each year for the past five years — from 1.4 in 2017 fiscal year reporting to 4.2 in 2021 fiscal year reporting. In addition, while 80% of companies disclosed in line with at least one of the TCFD-recommended disclosures for fiscal year 2021, only 43% disclosed in line with at least five,” the report says. “These levels of disclosure fall short of the TCFD’s 11 recommended disclosures.”
Established in 2017 by the Financial Stability Board, the TCFD aims to create global climate-reporting standards akin to corporate accountancy rules.
More than 3,900 organisations now back the TCFD standards compared to just 2,600 last year including 92 of the largest listed companies in the world (up from 83 in 2021).
Mary Schapiro, TCFD secretariat head, said in a release: “These findings demonstrate that the TCFD framework has become essential in guiding companies as they analyze how climate risks and opportunities impact their financial position.
“While we are proud of the progress we’ve seen since 2017 in company disclosures, and in adoption of TCFD by governments, standard setters and regulators, these findings make it clear there is more work to be done to improve transparency as companies and investors assess their risks through the lens of climate change.”
Schapiro is also public policy vice chair for financial data behemoth, Bloomberg, whose eponymous founder, Michael Bloomberg, chairs the TCFD.