CHAPTER 05 Competing Frameworks: Mandatory Climate Disclosure Is (Almost) Here
The Rising Tide of Voluntary Disclosure As reported in the 2020 edition of Davies Governance Insights , the Task Force on Climate-related Financial Disclosures (TCFD) is currently the predominant voluntary climate disclosure framework. According to the TCFD’s most recent status report, as of October 2021, the TCFD had over 2,600 supporters (including 1,069 financial institutions), spanning 89 countries, with the following eight jurisdictions having announced TCFD-aligned mandatory reporting requirements: Brazil, the European Union, Hong Kong, Japan, New Zealand, Singapore, Switzerland and the United Kingdom. In light of such widespread and ever-increasing support for the TCFD framework, both issuers and investors generally view TCFD-aligned disclosure as the key benchmark against which to measure both the quality and the quantity of an issuer’s climate-related disclosure. It was precisely this benchmark that was used in the 2022 Review, which was aimed at evaluating the extent to which such disclosure complied with the TCFD framework. Compared with our similar review of such climate disclosure since 2020, the 2022 Review confirmed that the mining sector has made impressive progress in improving both the quality and the quantity of climate disclosure, and in aligning that disclosure with the TCFD framework. Taking just two examples that are commonly viewed as the more onerous elements of the TCFD recommendations, the 2022 Review identified a significant increase in the number of reviewed issuers that have undertaken scenario analysis (83% compared with 63% the previous year), a modelling tool used to analyze how specific climate-related risks, both physical and transition, may affect an issuer’s business, strategy and financial performance. Scenarios typically used in this analysis include (i) a baseline scenario, in which the world follows a path consistent with existing climate policies; (ii) a “below 2˚C” scenario, in which collective global action is taken to reduce greenhouse gas (GHG) emissions to a target of below 2˚C by 2100; (iii) a “below 2˚C delayed” scenario, in which collective action to align with a target below 2˚C begins only in 2030; and (iv) a “net-zero 2050” target, in which collective global action is taken to reduce GHG emissions to a 1.5˚C target. Second, the 2022 Review also showed improvement in the disclosure of GHG emissions that may be (i) the direct result of the issuer’s operations (Scope 1 Emissions); (ii) the result of the issuer’s use of energy (Scope 2 Emissions); or (iii) the result of upstream and downstream activities (Scope 3 Emissions), which
In light of such widespread and ever-increasing support for the TCFD framework, both issuers and investors generally view TCFD-aligned disclosure as the key benchmark against which to measure both the quality and the quantity of an issuer’s climate- related disclosure.
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