Market Developments Around Climate-Related Financial Disclosures

A recognition of the risk of climate change and its bearing on a company's financial stability was one main outcome of the 2015 Paris Climate Agreement. The G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to review how the financial sector can take account of climate-related issues. The FSB created the Task Force on Climate-related Financial Disclosures (TCFD) to develop recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters in appropriately assessing and pricing a specific set of risks related to climate change. The work of the TCFD is complete, and in 2024, per the request from the Financial Stability Board, the IFRS Foundation took over the monitoring of the progress on companies’ climate-related disclosures from TCFD. Companies can continue to use the TCFD recommendations, and still may be required to do so. The International Sustainability Standards Board (ISSB) Standards IFRS S1 [General Requirements for Disclosure of Sustainability-related Financial Information] and IFRS S2 [Climate-related Disclosures] fully incorporate the recommendations of the TCFD.

In March 2024, the U.S. Securities and Exchange Commission (SEC) released a final rule, Enhancement and Standardization of Climate-Related Disclosures for Investors, which, requires certain companies to disclose, as part of financial reporting: material climate-related risks, GHG emissions, and any climate-related targets or goals. To facilitate investors' assessment of certain climate-related risks, the final rule requires disclosure of scope 1 and/or scope 2 GHG emissions on a phased-in basis by certain larger companies when those emissions are material; the filing of an attestation report covering the required disclosure of such companies’ scope 1 and/or scope 2 emissions, also on a phased-in basis; and disclosure of the financial statement effects of severe weather events and other natural conditions including, for example, costs and losses. View a fact sheet about the final rule. (pdf) (On April 4, the SEC paused the implementation of its climate disclosure rule.)

The Conference Board found that more than half of S&P 500 companies disclose climate risks in annual reports and 71% disclose GHG emissions in their annual reports, sustainability reports, or company websites, according to a January 2022 study.