The (limited) power of disclosures

Sergio Scandizzo and Tony Hughes

INTRODUCTION

Climate risk disclosure for banks is part of a broader movement towards integrating ESG considerations into financial reporting in order to enhance transparency and enable stakeholders, including investors, regulators and the public, to assess how well financial institutions are managing and mitigating climate-related risks. The Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB), has been a major influence in shaping global climate risk disclosure standards. The TCFD framework provides recommendations for disclosing climate-related information across four key areas: governance, strategy, risk management, and metrics and targets.

Climate risk disclosure is increasingly being integrated into existing financial reporting frameworks. Banks are required to include climate-related information in their annual reports, financial statements and risk management disclosures while also conducting scenario analysis to assess the potential impacts of different climate scenarios on a bank’s business. Disclosure frameworks encourage or require banks to engage with stakeholders, including customers, investors and communities, to