The Financial Stability Board (FSB) Task Force on Climate-related Disclosures, chaired by Michael Bloomberg, issued recommendations at the end of 2016 that companies disclose climate-related impacts in financial filings. The recommendations are supported large financial institutions, corporations, and key G-20 Central Banks. Third Partners also supports these findings and outlines four key takeaways.

1. Climate change will have widespread financial impacts, starting now

Climate change is a large-scale, long-term and distributed issue. Climate change impacts will be felt everywhere, yet the specifics of how and when any one place will be affected are difficult to predict. Because of this uncertainty, many companies incorrectly determine that climate change is not relevant to decisions today.

The Taskforce, with Mark Carney from the Bank of England as chairman, set the record straight. Climate change affects most economic sectors and industries. We are already feeling the impacts of climate change today, and companies need to analyze, plan and disclose how climate change impacts them.

2. Climate change disclosure is already required

In most G20 countries, and many non-G20 jurisdictions, companies are legally required to disclose any material risk, which is any issue that could have a significant impact on the firm’s financial performance. Climate change has the potential to impact all companies and should, therefore, be included in financial filings.

Most large companies are already disclosing aspects of climate strategy in separate CSR or sustainability reports. Including the topic in financial filings would achieve two benefits: first, it would put climate change information at the forefront for potential investors, and second, the information would likely be subject to similar processes of that of financial statements, including audits and C-suite sign-off.

3. What should companies disclose?

Companies willing to disclose climate-related risks often struggle to understand what that means. The Taskforce report recommends a framework with four elements: governance, strategy, risk management, metrics & targets.

The Taskforce also recommends that companies conduct and disclose a scenario analysis – showing how different climate futures will impact the company. They suggest that one of these scenarios is a 2-degree Celsius limit to warming. This is of the more ambitious recommendations presented; few companies are currently conducting 2-degree scenario analysis, and there is no standard methodology.

4. Where should companies start?

Mainstream investors are gaining an interest in climate risk. Last year shareholders of both ExxonMobil and Chevron brought forward climate-related resolutions. The resolutions were narrowly rejected, but that is hardly the end of the story. Shareholder advocates are determined to keep bringing similar proposals. For Exxon, the company’s history of poor climate management has become something of a public relations nightmare with protests; press exposes, and it’s own Twitter hashtag #Exxonknew.

A smart strategy with climate risk is to stay ahead of investor interest. We recommend a two-tiered approach with the initial focus on analysis and gaining a good understanding of climate impacts internally, followed by strategic disclosure of the most materials risks, including a discussion of risk management strategies and opportunities within a low carbon future.