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Climate disclosure framework creates a better environment for investors

Stephanie Leaist is a member of the Task Force on Climate-related Financial Disclosures, and managing director, Head of Sustainable Investing at Canada Pension Plan Investment Board

A year ago there was an air of optimism around the Paris Agreement to limit global warming. Driven by a sense of urgency, encouraging action has since been taken by policy makers, regulators, companies and investors, including the Financial Stability Board-led Task Force on Climate-related Financial Disclosures (TCFD). While progress has been made, in many ways, we've just begun.

Climate change poses an unprecedented challenge for investors. Its effects are pervasive and dynamic. The changing planet creates physical risks, such as water scarcity, biodiversity and extreme weather. Human reactions must also be considered, including technological innovation and carbon-emission regulations.

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Financial Stability Board chairman and Bank of England Governor Mark Carney has cautioned that climate change could pose a risk to the stability of the global financial system. That's why he convened the TCFD, an industry-led task force, to design a voluntary standard for corporate carbon-related disclosure to help the market better anticipate the global transition to a lower-carbon economy. An ambitious timeline of one year was set and has now been met.

The 32-member global TCFD, which is headed by former New York mayor and corporate leader Michael Bloomberg with adviser Mary Shapiro (former chairwoman of the U.S. Securities and Exchange Commission), is now releasing its recommendations for voluntary, consistent financial reporting on climate change that can apply to any company in the world.

What sets the TCFD apart from other climate-change reporting frameworks is that it is a private-sector-led initiative. It is neutral – it does not seek to direct decisions, rather it aims to improve information so we all (companies, investors, stakeholders) can make better-informed decisions.

Its report sets out a framework for disclosure under four headings: governance, strategy, risk management and metrics and targets. All industries, from the oil sands to consumer-goods companies, can use the framework to give investors deeper insight into their thinking about climate-change risks.

There is a two-month consultation period before the report is finalized next year. I urge companies and investors to put the consultation on their priority list and share their views. Start today: Consider the report and take steps to be early adopters of the recommendations. It's okay that we don't have all the answers now.

There are many unknowns surrounding climate change, and that can cause discomfort. As investors, our job is to draw from current information sources to look into the future. Not knowing all the answers shouldn't stop us from making plans based on the information at hand. The more detailed and relevant the information, the better investors can look forward, assess risks and opportunities and allocate capital accordingly.

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At Canada Pension Plan Investment Board, we are invested in all sectors. Improved disclosure from the companies we invest in will enable us to improve our own decisions and disclosure.

In parallel to the work of the task force, CPPIB this year created an internal climate-change working group, which is looking at ways to develop a better system for assessing climate-related risks and opportunities across our investment strategies and consider the long-term energy transition under way. This is foundational work to position CPPIB's portfolio in light of both the short- and long-term climate-related risks and opportunities. Nothing is static. We look forward to working with others on this path and urge investors and companies to join us.

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