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CERAWEEK Conversations: Governments join investors in pushing for climate risk disclosure
10 September 2021IHS Markit Energy Expert
Investors are no longer alone in asking companies to disclose
the exposure their operations face from climate risks. Governments
are now joining the fold in seeking to mandate disclosures that
until now have been voluntary in nature.
Lydie Hudson, head of sustainability, research and investment
solutions at Credit Suisse, spoke with IHS Markit Chief Energy
Strategist Atul Arya about the growing awareness among investors
and regulators about the need to disclose climate risk in a
CERAWeek Conversation (The entire conversation can be heard here).
Credit Suisse began reporting for the first time in 2020 the
climate risks its various operations face, using the guidelines
recommended by the Task Force on Climate-related Financial
Disclosures.
Leading up to the UN COP26 meeting this November in Glasgow,
Hudson said there is an "enormous amount of momentum" among
governments to be "a force for [climate] disclosure."
Banks like Credit Suisse are adopting and sharing best practices
too, while recognizing how they need to change their own business
models to achieve net-zero ambitions in order to assist clients in
transitioning towards a low-carbon economy, she added.
Financial institutions are working more closely with regulators
than they did when the Paris Agreement on climate change was signed
six years ago.
"All transitions are local"
Looking ahead, Hudson said companies evaluating risks,
especially those posed by climate change, have to take an
integrated view of the impact of environmental, social, and
governance (ESG) concerns.
She noted that the COVID-19 pandemic and social unrest of the
past year or more "really pushed the social topic to be almost
equal to some of the environmental topics."
"If you think about the ESG ambitions of an organization and
someone trying to deliver on [Paris Agreement targets], they have
to have considered the social factors and the social implications
of delivering on an environmental strategy that gets to some sort
of net-zero or decarbonization effort," Hudson said.
That means, she added, "you have to think through the type of
staffing you have, the type of employee engagement you have, and
all the ancillary topics that will enable a transition pathway on
climate sensitive sectors or climate sensitive business
strategies."
Hudson agreed with Arya that the ongoing energy transition, and
especially a "just" transition, has different meanings depending on
where a company is located.
"There's the expression 'all politics are local;' all
transitions are local. The energy transition for some people still
means getting electricity and we don't want to stand in the way of
that progress, and what that means versus decarbonizing an
organization in the Western world is very different," she
agreed.
Climate disclosure is about risk
disclosure
Ultimately, Hudson said, any form of climate disclosure is about
risk disclosure.
"It's about understanding risk profile so that various
stakeholders, whether it's investors or regulators, can understand
the fragility or strength of a company and how much exposure they
have to sensitivity around climate," she said.
Hudson said she does not underestimate the effort of writing a
rule to mandate climate risk disclosure.
"It is quite hard because the data is novel, and it's not
organized as much as we as an industry would want it to be," she
said.
But in the future, she said, "it will look very much like other
types of risks we manage once that data infrastructure is built
up."
CERAWeek Conversations summary by Amena Saiyid, Net-Zero
Business Daily.