Disclosure of climate-related financial risks not enough to drive action

A new study is cautioning over-reliance on a financial disclosure framework for driving climate action. In addition to disclosure, it is equally important to ensure the appropriate incentives to disclose, the mechanisms to enable market discipline, and supply chain compliance, says the study.

Financial disclosure frameworks do not themselves drive market change, says a new study from Griffith University. It recommends the positive global response to the Task Force on Climate-related Financial Disclosure (TCFD) framework be tempered with the reality of its limitations to drive climate action.

Since its establishment by the G20’s Financial Stability Board in 2015, the TFCD recommendations have received support by over 800 private entities world-wide, and is now being up-taken by the public sector, according to a statement.

“The TCFD framework asserts that a more thorough disclosure of climate-related financial risks will promote better informed decision-making, risk-management and pricing of risk by market participants,” said lead author, Ian Edwards from Griffith University, in the statement.

“While risk disclosure can support a market-driven transition towards a more sustainable financial system, it is only one part of the puzzle. To ensure its success the TCFD Framework should be updated to incorporate consideration of other crucial factors.”

The study identified that in addition to disclosure, it is equally important to ensure the appropriate incentives to disclose, the mechanisms to enable market discipline and supply chain compliance.

This is the first of many practice-focused studies now underway at the new Griffith Climate Action Beacon, launched in March 2020, said co-author and Head of Practice for the beacon Sam Mackay.

“A limited timeframe to act on climate change means we need more applied studies to ensure societal practices are evolving to meet the challenges ahead. We cannot assume our knowledge will naturally translate into good practice and in turn deliver effective climate action.”

This realisation has led to the Griffith Climate Action Beacon establishing the Climate Ready Initiative, a partnership-based social impact initiative to help drive societal climate action.

Photo credit: euze, flickr/Creative Commons

 

You may also like...

Leave a Reply