Climate Risk Disclosures: A Market Imperative

Climate risk disclosures are more important than ever. In the context of the Trump Presidency and the latest round of cabinet appointments, it may be tempting to dismiss the risk associated with the “Energy Transition” -- the rapid transition to a low-carbon economy. It may be tempting to ignore the need to disclose risks from the physical impacts of climate change in a context that promises fewer regulations and a dismissal of climate policy.

Yet, there’s no escaping the science and the reality of climate change, and the Trump administration’s stance on climate change gives even more urgency to both transition and physical risks of climate change.

Climate change and its impacts are not going away, and will likely worsen at an increasing rate if we continue to ignore them. Looking out a few years, these same physical impacts from climate change will eventually force us to transition rapidly away from fossil fuels to stop further degradation of the climate, leading to a ripple effect across the economy as entire value chains relying on fossil fuels, including major energy and transportation systems, will need to adapt – potentially at a high cost. The only question is how fast, and how expensive.

Markets have a chance to avoid being blindsided by a predictable risk. The TCFD offers a market solution, by the market, for the market. Mark Carney and Mike Bloomberg point out in an Op-Ed in The Guardian that “early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately.” This is our chance to repeat a good deed. 

Disclosures are a small step that can help set in motions much larger changes through market forces, by pricing risk accurately, rewarding companies that take appropriate steps to prepare and adapt, and unlocking finance for resilience. Climate risk disclosures are an opportunity and a necessity for markets to both accelerate the energy transition and prepare for growing climate impacts.