BoE: Climate disclosures will become mandatory

The Bank of England intends to make company climate change disclosure rules mandatory. BoE’s executive director for markets, Andrew Hauser, told an Investment Association online event on Friday that “setting out pathways to mandatory TCFD disclosures should be a priority for public authorities.”

It is the latest push to harmonise standards across the financial sector globally.

“No-one needs to convince public companies of the merits of regular disclosure of their financial risks and returns: their economic health depends on it; and, just in case that’s not enough, it’s compulsory,” observed Hauser. “The incentives to disclose climate risks and returns may seem somewhat less hard-edged.”

“Much of the early discourse on disclosure has certainly been aimed at encouraging firms to adopt such disclosures voluntarily. But that is changing rapidly,” he added.

The UK, along with other countries, has been applying principles for companies on a voluntary basis from the global Taskforce on Climate-Related Financial Disclosures (TCFD).

“Companies at the sharp end have increasingly strong business incentives to disclose,” said Hauser. ”Robust climate metrics not only help with managing your own investment programme, they also signal clearly to your retail and business customers, and your employees, that you ‘get it’ and have coherent plans to address the risks over time. Doing so buys customer commitment and brand image, and helps your supply chain; failing to do so risks customer boycotts, lost contracts and poor investment planning.”

“Something similar is afoot in capital markets too,” he continued. “Disclosing your plans can improve your credit rating, broaden your investor base, reduce your cost of finance, and economise on the fixed costs of meeting increasingly vocal investor requests for information.”

TCFD is not granular enough to rigorously compare companies, thought Hauser, as he set out three key building blocks for an effective capital markets infrastructure: climate disclosure; climate-linked capital instruments; and climate-focused asset allocation strategies.

Standard setters needed to agree on a single, mandatory framework for companies to disclose risks from climate change, he said.