WFE calls for standardised format for climate-related targets

Rick Steves

Industry leaders have been increasingly calling for a global framework for ESG investing as the sector faces a massive uptick of inflows and, at the same time, faces accusations of inconsistency in their approach to sustainable impactful investments.

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The World Federation of Exchanges has welcomed the updated guidance on Climate-related Metrics, Targets, and Transition plans.

The proposed updates announced by the Task Force for Climate-related Financial Disclosure (TCFD) will provide a foundation for reporting on climate-related risk and opportunity, according to WFE.

The TCFD framework has played a pivotal role in improving climate-related disclosure practices—with formal endorsement amongst the WFE membership continuing to grow.

The draft guidance proposed a more systematic approach to the selection and disclosure of metrics by introducing a set of cross industry climate-related metrics.

A systematic approach should help all participants within the financial services ecosystem access clear, consistent, and comparable sustainability-related data.

While welcomed, the guidance has room for improvements, which led the WFE to make further recommendations:

• The adoption of a standardised format for climate-related targets.
• Encouraging organisations to provide climate-related opportunity metrics, such as ‘green revenues’.
• Taking a proportionate approach to reporting expectations with regards to Small and Medium-Sized Enterprises.
• Robust calibration of performance metrics when tying executive compensation to climate targets.
• Support for a materiality assessment which is reflective of the diverse range of views on this subject.

Nandini Sukumar, Chief Executive Officer of the WFE, commented: “The risks presented by climate change to business and society are clear, and we fully support the TCFD’s efforts to further refine its disclosure framework.

“As an industry that sits at the heart of the financial services ecosystem, we see many benefits in a globally consistent approach to disclosure that promotes transparency and accountability as well as effective capital allocation towards greener solutions.”

Industry leaders have been increasingly calling for a global framework for ESG investing as the sector faces a massive uptick of inflows and, at the same time, faces accusations of inconsistency in their approach to sustainable impactful investments.

The regulatory landscape must reflect the situation and catch-up to this megatrend as there remains a startling lack of consistency in definitions and data.

A global regulatory framework for ESG investing would provide greater protections for those investors who are looking for profits with purpose and will also help to reduce ‘greenwashing’ – when an investment or company gives an inaccurate impression over its green, socially responsible, or corporate credentials.

A study published earlier this month found that almost half (45%) of valuation experts believe a lack of a standardised and recognised measurement system is the biggest threat to effective environmental, social and governance (ESG) disclosures for businesses.

Some of the most popular current ESG frameworks include Global Reporting Initiative (GRI) used by 33% of respondents, Sustainable Accounting Standards Board (SASB) at 32% and Task Force for Climate related Financial Disclosures (TCFD) at 25%.

A standardized system is thus seen as a priority for the ESG space, but 21% of respondents pointed to indifference from business leaders as the biggest threat to effective ESG disclosures, followed by limited checks on greenwashing (17%) and too much regulation (11%).

Over a third (35%) of respondents said that better reputation was the primary driver for their ESG strategy and investment, while almost a quarter (24%) pointed to an increase in company valuation.

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