IOSCO, the international body bringing together securities regulators which has yet to addressed climate risk reporting, is ideally placed to set international expectations on climate disclosure according to analysts from the World Wildlife Fund (WWF), The Carbon Tracker Initiative financial specialists group, and ClientEarth, a non-profit environmental law organisation based in London.

Regulatory divergence

The report explores what is in IOSCO’s remit to do and how this could affect climate action across the world. The report argues that investors with a global portfolio suffer due to ‘regulatory divergence’ between countries in terms of climate risk disclosure and corporate governance practice. In particular, if implementation of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) is too slow in some jurisdictions and markets, investors will struggle to accurately assess risks and allocate capital accordingly, the report states.The authors urge IOSCO, which has stayed silent on the TCFD recommendations, to address this concern. The EU’s high-level expert group on sustainable finance has also highlighted the issue. The NGOs will be hoping to get the issue on the table at IOSCOs next annual meeting in Sydney, Australia.

'Trickle-down effect'

IOSCO’s mandates are to protect investors, ensure markets are fair, efficient and transparent, and reduce systemic risk. As such, the report identifies the body as being in the strongest position globally to harmonize climate risk reporting and promote widespread implementation of the TCFD recommendations by regulators. Meryam Omi, head of sustainability and responsible investment strategy at Legal & General Investment Management, says in a statement ‘as the window of action on climate change is closing fast, listing rules and guidelines play an important role in accelerating current progress. Raising the standards of climate disclosure, led by IOSCO, is an essential step in helping investors build a low-carbon and sustainable future.’ The report states ‘investors now understand that climate change carries significant financial risks.’ The authors argue that action by IOSCO could have a ‘trickle-down effect’ of national regulators and integrate ‘the TCFD recommendations into existing corporate governance and reporting frameworks,’ whether it is by ‘soft law’ corporate governance and stewardship codes or by mandatory listing requirements.