Weekly round-up: April 19-23

The top five climate risk stories this week

**Programming note** There will be no deep-dive article on April 26. The Thursday comment article will be out as usual.

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1) EU pushes ahead on sustainability reporting

The European Commission on Wednesday adopted a plan to mandate consistent reporting of sustainability information by companies.

Under the proposed Corporate Sustainability Reporting Directive (CSRD), firms would have to disclose environmental, social and governance matters in line with standards being drafted by the European Financial Reporting Advisory Group. Reporting would have to adhere to the “double materiality principle”, meaning disclosures would cover both a firm’s exposure to sustainability risks and its own impact on ESG objectives — including climate change.

The CSRD would also oblige companies to report how much their activities align with the EU’s taxonomy for sustainable activities, a cornerstone of the bloc’s climate plan which was approved by the Commission on Wednesday. The taxonomy spells out those businesses that most contribute to the EU’s environmental objectives, and will be used to steer investors to fund a low-carbon economy.

It’s now up to the European Council and parliament to negotiate the final legislative text of the CSRD, a process that can take around 18 months. The proposal calls for a first set of sustainability standards to be completed by October 31, 2022, which will cover “double materiality”, data quality, and priority subject areas including climate change.

2) US Treasury launches ‘Climate Hub’

The US Treasury on Monday set up a ‘Climate Hub’ to police climate-related financial risks, support funding for the transition to a low-carbon economy and coordinate economic and tax policy efforts to fight global warming.

The new unit will be led by John E. Morton, Treasury’s first Climate Counselor. Morton worked in the Obama administration as White House Senior Director for Energy and Climate Change at the National Security Council. His most recent employment was at Pollination, a specialist climate change advisory and investment firm, where he was a partner.

Morton will report directly to Janet Yellen, the Treasury Secretary. “I look forward to working with John and our team to leverage their expertise and ensure that Treasury is doing everything it can to respond to climate change while creating opportunities that strengthen our economy,” she said on his appointment.

Non-profit groups Americans for Financial Reform and Public Citizen welcomed the hub’s launch, but said they were “disappointed” with the appointment of Morton, who they argue “lacks experience with financial regulation or a history of using regulatory tools to drive change”.

3) Australian watchdog issues climate risk guidance

The Australian Prudential Regulation Authority (APRA) on Thursday published a blueprint for financial institutions on how to manage and report their climate-related financial risks.

The 19-page guide sets out the regulator’s view on how climate change should be incorporated into firms’ governance, strategy and risk management, drawing on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It also recommends institutions develop metrics to measure and monitor their climate risks and explore scenario analysis as a way to gauge their exposures.

The APRA guidance is non-binding, and does not impose new requirements on financial institutions. Its intent instead is to ensure investment and lending decisions are “well-informed and appropriately consider both the risks and opportunities that the transition to a low carbon economy creates,” said Wayne Byres, APRA chair.

The guidance is open for consultation until July 31.

4) BNP Paribas, London Stock Exchange Group join open climate data initiative

OS-Climate, a cross-industry group that plans to create an open source, free-to-access climate data library, added five new members on Wednesday, including French bank BNP Paribas, the second lender to join after Goldman Sachs in February.

The other joiners are consultancy KPMG, the London Stock Exchange Group, Ortec Finance and the Net-Zero Asset Owner Alliance. Together, they’ll work with the original members — The Linux Foundation, Allianz, Microsoft, Amazon, Federated Hermes and S&P — to build out the OS-Climate platform.

This will host a ‘data commons’ of climate-related physical and transition risks that could impact companies, markets, and financial products as well as a suite of tools to assist with climate risk management and to help align investment portfolios with the goals of the Paris Agreement.

“Accelerating the mobilization of green capital continues to be one of the critical challenges in the fight against climate change,” said KPMG’s head of climate change and decarbonisation, Mike Hayes. “In providing access to quality data, the OS-Climate platform is an important solution in this battle”.

OS-Climate plans to launch a first iteration of its platform in 2022.

5) Banks form net zero alliance

Citi, Deutsche Bank, HSBC and 40 other lenders launched the Net-Zero Banking Alliance (NZBA) on Wednesday, with a promise to scrub carbon from their lending and investment portfolios by 2050.

Each member of the UN-convened group has committed to set 2030 greenhouse gas (GHG) reduction targets within 18 months, and to publish further intermediary targets in five year increments. Banks are allowed to use offsets to help fulfill their net-zero goals, though these must be restricted to carbon removals that are “additional and certified”. Members must also publish annually the absolute emissions and emissions intensity of their portfolios “in line with best practice”.

The NZBA is part of a broader Glasgow Financial Alliance for Net Zero (GFANZ) that unites new and existing net zero initiatives by banks, asset owners and insurers under one “sector-wide strategic forum”. Set up by Mark Carney, former governor of the Bank of England and UN Special Envoy for Climate Action and Finance, GFANZ has over 160 members and the ambition to “mobilise the trillions of dollars necessary to build a global zero emissions economy and deliver the goals of the Paris Agreement”.

Climate activist groups criticised the alliance for not including a commitment to divest from fossil fuels. “When it comes to climate, actions speak louder than words — that means comprehensive measures to phase out fossil fuels. Nothing less will do,” said Lucie Pinson, founder of the non-profit Reclaim Finance.

Many of the banks involved in the NZBA have put their name to other climate-friendly initiatives in the past, some with similar goals to the new grouping. The Principles for Responsible Banking, another UN-convened alliance, was launched in 2019, with members committing to align their business strategies with the goals of the Paris Agreement and UN Sustainable Development Goals (SDG). Today, it has 220 members.

Please send questions, feedback and more to louie.woodall@climateriskreview.com

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