Disclaimer: Hi my name is Anna (she/her) and I am the author of this post. I just wanted to clarify a couple things before you start reading. I speak from a position of privilege as someone who is white and a settler on Treaty 13 lands. I acknowledge the struggles businesses and individuals have faced throughout the pandemic, especially those of small businesses which are being forced to close due to financial struggles caused by COVID-19 regulations. I am not speaking on behalf of any group that may be mentioned within this blogpost, I am simply trying to bring awareness to this concept and share resources from groups who have spent their existence researching this.
While climate change is a risk to all of us, the financial sector is not typically an area that comes to mind in terms of facing immediate ramifications. However, the changes to our environment will ultimately cause consequences that small businesses and larger corporations will need to prepare for. Back in 2018, Canada’s Minister of Environment and Climate Change and Minister of Finance created the Expert Panel on Sustainable Finance, made up of members they appointed together (1). The Panel’s job is to ensure that Canada’s financial sector will be ready to help the economy adjust to major industry changes caused by climate change (1). The Panel ultimately released a final report - Mobilizing Finance for Sustainable Growth, detailing fifteen suggestions to help Canada’s economy transition amidst societal changes towards sustainability (1). One such suggestion is the implementation of climate-related financial disclosures, based off the recommendations made by the Task Force on Climate-Related Financial Disclosures (TCFD) (1).
The TCFD was created by the Financial Stability Board (FSB) to develop plans for the implementation of climate-related disclosures in the financial sector (2). Climate-related financial disclosures are a tool developed by the FSB, with input from the Bank of England Governor Mark Carney, as a way to ensure that businesses and entrepreneurs are adequately prepared for future climate-driven changes that effect economies and industries (2). Climate change poses a threat to the financial sector through two main mechanisms:
1. Major weather events (eg. droughts, wildfires, etc.)
2. The transition to more sustainable practices will threaten businesses and industries that are unable to adapt.
Thus, climate-related financial disclosures are used for entrepreneurs to acknowledge the threats climate change poses to their business and begin to develop adaptation plans (2).
The TCFD released a report in 2017, detailing its recommendations for the implementation of climate-related financial disclosures. To ensure accurate representation of climate-related concerns to businesses and finances, the TCFD consulted with the public, as well as those who have implemented a climate-related disclosure program in other industries (3). These consultations were used as a basis for the making of recommendations by the TCFD (3). The recommendations enlisted by the TCFD are broken down based on the core focuses of governance, strategy, risk management, metrics, and targets (3). TCFD recommendations for the climate-related disclosures include thorough descriptions of the various climate-related risks that are being faced now, and could be faced in the future, as well as the plan for adapting to these risks, including roles of the management teams and the changes to the organization in response to the climate-related risks (3). The full report can be read here, which further details the TCFD’s recommendations for implementation of climate-related financial disclosures.
The most recent report from the TCFD was an update in 2019, which can be read here, providing an updated status on the implementations of climate-related financial disclosures. The research conducted for this report found that although the information provided due to climate-related financial disclosures has increased since the release of the first TCFD report, there is still a need for more concise direction to allow for effective and informed investments in a sustainable economy (4). Another issue disclosed in the 2019 report is that although companies are reporting the climate-related risks they are facing, they are failing to indicate their plans for combatting and adapting to the issues they are and will be facing (4). Based on this information, the TCFD has made additional recommendations, such as the development of a guideline for determining climate risks in order to clarify the appropriate recommendations necessary for action from the 2017 report (4).
There are some circumstances that businesses cannot prepare for. A global pandemic has resulted in the shutdown of most countries, bringing about unexpected circumstances that very few businesses were equipped to navigate, with entire national economies shutting down. Most governments have provided some form of assistance to individuals, families, students, and businesses, including Canada. To support struggling businesses, a Large Employer Emergency Financing Facility (LEEFF) was developed by the Government of Canada as a way to help some of the largest employer’s in Canada maintain operations (5). As a condition for receiving financing from the LEEFF, businesses are required to provide "annual climate-related disclosure reports” using the recommendations from the TCFD, as well as incorporating Canada’s climate goals into their operations (5).
The use of climate-related financial disclosures will ultimately help businesses prepare themselves for the potential impacts climate change can have, and the incorporation of mandatory climate-related disclosure reports as a condition of receiving the LEEFF prioritizes the impacts of climate change within the financial sector.