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Countries leading the way on climate risk reporting

Climate Valuation summarises which countries are leading the way on mandatory reporting guidelines for climate risk disclosure.

As awareness of the connectivity between our natural and built environment increases, mandatory climate risk reporting has been gaining momentum on a global scale. There has now been widespread adoption of the TCFD framework throughout many countries including the UK, USA, New Zealand and Australia.

The TCFD recommendations are built around a 4-pillar approach:

Core Elements of Recommended Climate Related Financial Disclosures.

  1. Governance: The organisation’s governance around climate-related risks and opportunities.
  2. Strategy: The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.
  3. Risk Management: The processes used by the organisation to identify, assess and manage climate-related risks.
  4. Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.
, Countries leading the way on climate risk reporting, Climate Valuation
Creative Commons License: Retrieved: 2/7/2021. Recommendations of the Task Force on Climate-related Financial Disclosures, Core Elements; governance, strategy, risk management and metrics & targets.

These TCFD recommendations have been adopted voluntarily by approximately 60% of the world’s 100 largest public companies. However, due to the diversified approach across these companies, a number of countries are now introducing mandatory reporting guidelines to bring these entities into alignment.

Below, we outline some of the countries that are leading the way in the global push for mandatory climate risk disclosure…

New legislation in New Zealand imposes strict penalties for failure to comply with mandatory climate risk reporting.

In September 2020, New Zealand became the first country to announce mandatory climate risk reporting for banks, asset managers and insurers. New Zealand’s reporting model is developed in conjunction with the TCFD recommendations and targets around 200 organisations: including banks and institutional investors with more than $NZ1 billion ($920 million) in assets, and insurers with either $1 billion in assets or annual premium income of more than $NZ250 million. This new legislation needs parliamentary approval and would not be enforced until 2023 but would be enacted by the financial year of 2022.

The current draft of the Bill (Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill),  requires that “climate reporting entities” prepare climate related disclosures (CRD) and statements, obtain assurance from qualified practitioners and retain records on their climate change related risks and opportunities. Entities will also be required to lodge statements Registrar of Financial Service Providers and provide a link to the statements in their annual report.

The Bill announces hefty penalties for infringement; For individuals, an imprisonment of up to 5 years and a fine of up to $500,000. For climate reporting entities, a fine of up to $2.5 million may be issued.

The NZ Financial markets authority will be responsible for enforcing the new regime while the External Reporting Board (XRB) will develop and issue new reporting standards and implementation materials to help businesses with their climate change related disclosures.

Ultimately this bill seeks to embed climate risk reporting into common business practices, encouraging more open and transparent assessment of the risks and opportunities associated with a changing climate.

The UK to become the first to make TCFD disclosures mandatory across the entire economy by 2025.

In November 2020, the UK closely followed NZ’s announcement, declaring mandatory reporting will be enforced across limited sectors by 2022, with aspirations to become a global first in mandatory TCFD disclosures across the wider economy by 2025.

The UK government plans to utilise the TCFD framework as the foundations for climate risk disclosure statements, adjusting where necessary to comply with UK law.

Under the new rules, premium listed UK companies will be required to comprehensively report on climate risks affecting their businesses in line with the TCFD recommendations and standards. Programmes of compliance are now being implemented from accounting periods on or after 1st of January 2021, while TCFD obligations are being introduced to asset managers, life insurers and pension providers throughout 2021.  This will cover approximately 66% of the market capitalisation of equities on the UK Official list

Initially this new regime will be a “comply or explain” situation, in which companies disclose if they are compliant with TCFD guidelines in their annual financial report or provide an explanation in the event they are not. This is the first step in the UK’s grand scheme, to become the first to make TCFD disclosures mandatory across the entire economy by 2025.

Other international movements regarding mandatory climate risk reporting

In the U.S, as of 20th May 2021, Biden enacted an executive order on climate related financial risk, stating the development of a comprehensive, government wide strategy; assessing, mitigating and disclosing financial risk to federal government programs, assets and liabilities.

Hong Kong has announced that climate related statements complying with TCFD recommendation will be mandatory by no later than 2025 but many local fund managers are concerned about the level of expertise and support available.

Australia has released plans for mandatory financial disclosures as of 2021. The plan, Confusion to clarity: A plan for mandatory TCFD-aligned disclosure in Australiahas been developed by three founding partners of the Investor Agenda and issues advice to establish clear, mandatory TCFD-aligned reports.

Takeaway message

With the increasing threat of climate change, precautions to protect the longevity of our economy and environment are paramount. Those who voluntarily practice climate risk reporting will be better equipped to price their current climate risk and manage the identified risks, while preparing themselves for the future of mandated climate risk reporting.

Climate Valuation was established in 2016 to help homeowners and homebuyers quantify and manage the physical and financial risks of climate change to their residential property assets. Our analysis harnesses the world’s most powerful Climate Risk Engine software, leveraging the most advanced extreme weather and climate change science used by governments, utilities and financial corporations. For more information on how we can assist your organisation in meeting its TCFD reporting requirements, contact us

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Climate Valuation is a passionate advocate for the rights of homeowners and homebuyers to protect themselves and their investments against the threat of climate change. We are the first company in the world to calculate the physical and financial costs of climate change to residential property. By giving homeowners and homebuyers access to this information, we aim to empower individuals to make more informed decisions and build a more climate-resilient community.

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