Bank of England to mandate disclosures on climate risks

Existing rules on company disclosures to help markets price risks from climate change will become mandatory, the Bank of England has said.

“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,” declared Andrew Hauser, the BoE’s executive director for markets.

To date the UK has been applying climate disclosure principles for companies on a voluntary basis, based on principles developed by the global Taskforce on Climate-Related Financial Disclosures (TCFD).

However, that situation is now set to change. “You can expect it to become mandatory,” Hauser said.

TCFD is not granular enough to rigorously compare companies and more forward-looking measures were needed, he said.

He singled out three key building blocks to help do this to achieve the goals of cutting carbon emissions:

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

More tools are also needed to provide incentives for green investment, as well as a consensus on terminology for asset-allocation strategies to provide a “clear and credible” choice for investors.

“For much of the past decade, those three building blocks have been slow to develop, or vulnerable to charges of ‘greenwashing’ or projects, vehicles or investment strategies that are ‘green’ in name only,” Hauser said.

Separately, Hauser said, more countries have begun issuing green sovereign debt and the UK Debt Management Office is considering such a move.

“There is are some pretty hard incentives that other governments have embraced… In sovereign green bond issuance in the last three to four months there has been an explosion,” Hauser said.