Prepared by the Task Force on Climate related Financial Disclosures
One of the essential functions of financial markets is to price risk to support informed, efficient capital-allocation decisions and it is increasingly important to also understand the governance and risk management context in which financial results are achieved. One of the most significant, and perhaps most misunderstood, risks that organisations face today relates to climate change. While it is widely recognised that continued emission of greenhouse gases will cause further warming of the planet which could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making.
To help identify the information needed by investors to appropriately assess and price climate related risks and opportunities, the Financial Stability Board recommends for consistent, comparable, reliable, clear and efficient climate related disclosures. The framework considers the impact of climate change on the following four elements: (1) governance, (2) strategy, (3) risk management and (4) metrics and targets.