In 2022, climate-related considerations are a mainstream focus in capital markets as part of global Environmental, Social and Governance (ESG) reporting initiatives. The most widely adopted framework is a voluntary initiative with key climate-related financial disclosure recommendations known as the Task Force on Climate Related Financial Disclosures (TCFD). However, despite an increased focus on environmental considerations in the capital markets, both the TCFD’s 2021 status report and the European Central Bank’s report, the State of Climate and Environmental Risk Management in the Banking Sector, indicate gaps in current disclosure practices. Meanwhile, a new sustainability reporting framework was announced at the 2021 United Nations Climate Change Conference (COP26).
Voluntary disclosures related to climate change have dramatically increased in the capital markets as integration of sustainability concerns gains momentum. Previously seen as the domain of specialists, or the plot of Hollywood blockbusters, climate-related considerations are now taking the main stage in capital markets decision-making with products, regulations and corporate strategies being impacted.
The COP26 conference in November 2021 marked an important milestone with several key announcements, including the launch of a new sustainability framework headed by the International Financial Reporting Standards (IFRS) Foundation. Earlier in the year, the Intergovernmental Panel on Climate Change (IPCC) report, AR26 Climate Change 2021, warned of the immediate need to reduce global emissions, indicating that global temperatures are predicated to rise to a level 1.5 degrees Celsius above pre-industrial levels far more quickly than previously anticipated. However, both the 2021 TCFD status report and the ECB’s report on the state of the climate and environment risk for the banking sector indicated significant gaps in the integration of climate-related risks into capital markets firms’ risk frameworks.