Corporate sector's climate role

27 November 2023

If you haven’t heard of Climate-Related Financial Disclosure (CRFD) it is time you did.

In 2015, concerns about the impact of climate change on insurance and the stability of the global financial system led the G20 Finance Ministers and Central Bank Governors to ask the Financial Stability Board how the global financial sector could best account for climate-related risk.

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The Financial Stability Board then established the Task Force for Climate-related Financial Disclosure. Chaired by Michael Bloomberg, the Task Force released its recommendations in 2017.

CRFD is an initiative of global finance and G20 to ensure more informed investment, credit, and insurance underwriting decisions concerning climate risk. This is coupled with a better understanding of distributions of carbon-related assets.

Future climate-friendly markets such as carbon and renewables will be supported as avenues of growth, which will allow the global economy to safely transition away from climate risk. The Task Force for CRFD provides additional guidance for climate-related disclosure of non-financial sectors of; energy, transport, materials and building, agriculture, food and forest products.

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Global financial concern over climate risk helps explain the steady profile of climate change as a global priority despite the ebb and flow of international political belief and interest. The task force’s recommendations have already affected global investment and national policies.

In Australia, this is evident in the development of national policies around carbon and renewable energy. In 2024, the Australian Government is going to introduce CRFD regulation.

Disclosure involves annual reporting on the management of relevant risks and opportunities via governance, strategy, risk management, and disclosure of metrics and data.

To design standards and reporting requirements that align with existing processes, the Australian Government is looking to make the reporting mandatory for largest organisations first – i.e. a ‘top-down’ approach is being adopted.

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In practice, the most efficient way for large companies like cement manufacturers, airlines and supermarkets to report their operational disclosure is to in turn require their supply chain to report the relevant information.

This is why CRFD is already influencing the financial and insurance services we rely on, and the information that large corporate clients are beginning to ask for.

While many government departments have been actively recruiting to design the roll-out, it is currently unclear what consideration is being given to the implications for different sectors or local economies, or what the impact will be on farming businesses operating in the domestic economy.

Until very recently, on-ground awareness of the design and evolution of CRFD has been almost non-existent across all sectors. What we do know is we will need to source and exchange information that we may not have previously had or used.

Of particular interest is understanding whether the demands for data that will flow down value chains will be matched by a flow down those value chains of commercial opportunities associated with CRFD. It is fair to say that market mechanisms tend to delegate data needs and absorb opportunities, so it is sensible to anticipate that businesses operating in the domestic economy will need to ‘step up’ and stay informed.