Ed Davey calls for the disclosure of climate-related risks to be made mandatory, to help investors assess companies' preparedness for the low-carbon transition
Lib Dem leadership contender Ed Davey yesterday set out detailed proposals to make disclosure of climate-related risks mandatory for UK companies and investors, echoing similar calls from rival candidate Jo Swinson.
Speaking at the Responsible Investor Europe conference, Davey framed the proposal as part of his call to "decarbonise capitalism" and make the UK "the green finance capital of the world."
"We can not credibly be this global green capital while we remain a fossil fuel finance capital, financing 15 per cent of global emissions in London," Davey told an audience of investors.
He argued the government needs to introduce mandatory disclosure by companies of both their direct carbon emissions and the emissions generated by their assets, including fossil reserves and supply chains.
Davey called for new disclposure practices to be combined with mandatory accounting procedures compelling companies to publish a Paris Agreement-aligned set of accounts in their main financial reports.
The accounts would demonstrate the gap between the book value and the Paris Agreement-aligned value by writing off any assets, products, and activities which do not align with a decarbonisation trajectory that halves emissions by 2030 and eliminates them by 2050.
"It's now time to tell the truth: fossil fuel investments are becoming increasingly risky and its my job as a politician to safeguard people of the UK, everyday pension holders, not vested interests," Davey concluded.
Davey's speech feeds into demands from the investor community for greater corporate disclosure of climate-related risks, enabling investors to compare the level of preparedness for the low-carbon shift across different companies.
It also comes as the government's adoption of a legally-binding net zero emission target is expected to spark a wide-ranging debate about the policies required to ensure the new goal is met.
Guidelines for disclosing climate-related risk were published in 2017 by the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD), setting out best practice recommendations for 11 climate-related risks.
Disclosure of these risks remains voluntary, but the guidelines have won broad backing from the global corporate and financial community since their launch. However, the TCFD's latest annual report found that the average number of recommended disclosures per company surveyed stood at 3.6 out of 11 throughout 2018, while not a single company had delivered more than half of the recommended disclosures, fuelling calls for the guidelines to be made mandatory.
Davey yesterday became the latest politician to back proposals for climate reporting to be made mandatory. Previously, his competitor in the race for the Lib Dem leadership Jo Swinson also backed making the reporting guidelines mandatory in an article for City A.M.
"Let's make it mandatory for companies to report on their climate risks and to disclose that information publicly," she wrote.
"This will make all businesses think long and hard about how their activities contribute to climate change and how they are affected by it. And investors would have the knowledge they need to move money to lower-risk, greener assets."