There are some important frameworks that provide for climate-related disclosures. While some are voluntary, others are mandatory. The Task Force on Climate-related Financial Disclosure is a voluntary framework that provides guidelines of how companies can effectively manage climate-related risks. The Corporate Sustainability Reporting Directive (CSRD) is an instrument of the European Union (EU) used to compel the disclosure of climate risks by companies. The International Sustainability Standards Board (ISSB) was formed by the International Financial Reporting Standards (IFRS) to facilitate the reporting of ESG matters. It is commonly adopted in the United Kingdom, and Australia.
Climate risk disclosure mandate is a transparency requirement for public companies to make reports on the influence of environmental risks, and climate change on their businesses. It compels organizations to disclose their strategies and plans to combat climate transition risks. A very high carbon-emitting company operating in a country that suddenly imposes carbon taxes with mandatory decarbonization provisions will need to conduct thorough due diligence to determine the impact of the new policy on its profits, and proffer solution around it. Under the climate risk disclosure mandate, the company in question will be required to disclose the risk to its investors and provide plans on how it intends to combat the risk before they (investors) decide whether to invest in the company or not.
Beyond the balance sheet, companies are required to make relevant environmental disclosures. Unlike private companies which are closely knitted with few familiar owners, climate risk disclosure is made mandatory for public companies to provide maximum security for investors. The disclosure will afford investors with the opportunity to assess the company’s climate compliance and the viability of their investments.
Climate risk disclosure is a pivotal strategy for transparency in the investment landscape adopted to achieve sustainable, and climate-resilient economy across the globe.
Written by: Oladele Ajayi
Oladele Ajayi is a lawyer as well as a climate finance and energy buff. He researches and writes on the legal frameworks and the financing of energy transition.
