Open letter from MEPs to the European Commission
Rue de la Loi / Wetstraat 200
Integrating the FSB Task Force on Climate-related Financial Disclosures’ recommendations in the forthcoming EU Sustainable Finance Action Plan
Dear Vice-President Dombrovskis,
We, the undersigned Members of the European Parliament, would like to draw your attention on the importance to implement at EU level the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (FSB TCFD). These industry-led recommendations have received wide support from companies, investors and banks globally; 85% of EU-based companies representing a market capitalization of 77% disclose physical and regulatory climate risk to their investors already; technical TCFD reporting solutions exist, such as through the corporate environmental disclosure platform of CDP, an investor-led global initiative committed to adopt the TCFD recommendations in their entirety.
At Member State level, France has pushed for mandatory TCFD reporting during the September NYC Climate Week 2017; the UK government has launched a plan to accelerate growth of green finance, including an official endorsement of the recommendations published by the FSB TCFD and encourages all listed companies to implement this new framework to align climate-related risk management and financial governance; Sweden’s Finance Minister stated the importance of working at EU level to strengthen the sustainability competences at the European Supervisory Authorities, in close connection with TCFD’s recommendations; and the German government is conducting a study to assess the feasibility of regulation on sustainability disclosure requirements for financial actors, similar to those in the French Energy Transition Law.
Furthermore, the High-Level Expert Group on Sustainable Finance made an early recommendation in its Interim Report on the issue: “The recent TCFD recommendations should be integrated in a way that advances EU leadership on these areas, while providing legal certainty and maintaining a level playing field globally. The 2018 review of the Non-Financial Reporting Directive represents an opportunity.” We therefore believe that the EU needs to harness this unprecedented momentum on sustainable finance and, more specifically, on climate and wider ESG-related financial disclosures.
- In particular we endorse the following key elements of the TCFD recommendations:
The recommendation for all sectors to structure reporting on four issues: governance, strategy, risk management, metrics and targets;
- The recommendation to perform forward-looking climate scenario analysis (notably under a 2°C or 1.5°C scenario);
- The recommendations apply both to non-financial corporates and financial institutions.
The European Parliament sees the Commission’s forthcoming Sustainable Finance Action Plan in Q1 2018 as a major opportunity to take concrete action regarding climate and wider ESG-related financial disclosures. For this reason, we would like to see the European Commission enhancing sustainability disclosure by:
- Endorsing the FSB TCFD recommendations and committing for EU mandatory implementation to ensure a level playing field and harmonise climate reporting. This issue should be included in the EU Sustainable Finance Action Plan from the Commission in Q1 2018;
- Preparing the integration of the FSB TCFD recommendations in the Non-Financial Reporting Directive (NFRD), to be reviewed in 2018. As an entry point the NFRD Guidelines published by the Commission in June 2017 already mention TCFD and the HLEG interim report suggests TCFD implementation into NFRD in its recommendation 4 “Disclosures for sustainability”. The timeline of a few years until the reviewed NFRD is transposed and enters into force is adequate to ensure that companies and financial institutions can build on existing climate risk disclosure and develop best practice and operational guidance.
- Similarly, urging that listing requirements from stock exchanges integrate TCFD requirements for listed companies.
Without comparable, reliable and useful data on material climate and wider ESG-related issues, the market cannot accurately value companies; neither can investors effectively allocate capital; nor can they enhance their contribution to EU climate and sustainability objectives. Implementing the FSB TCFD recommendations will help redefine the notion of financial risks and provide a robust, strategic, harmonised and consistent reporting framework.
Bas Eickout, Greens/EFA
Fabio de Masi, GUE/NGL
Molly Scott Cato, Greens/EFA
Paul Tang, S&D
Sven Giegold, Greens/EFA
Reinhard Bütikofer, Greens/EFA
Sirpa Pietikainen, EPP
Ernest Urtasun, Greens/EFA
Pervenche Beres, S&D