On 8 October 2019, the outgoing Governor of the Bank of England, Mark Carney, gave a speech on TCFD: strengthening the foundations of sustainable finance, to the Task Force for Climate-related Financial Disclosures (TCFD) Summit in Tokyo. In his speech Dr Carney takes stock of the progress made to date since the final TCFD recommendations were published, and the path ahead for improving reporting and risk management.

Key points include:

• The demand for TCFD disclosure is enormous (supports control balance sheets totalling USD 120 trillion), and the supply of disclosure is responding, with four-fifths of the top 1100 G20 companies now disclosing in line with some or all of the TCFD recommendations. Disclosure is steadily rising, from an average of 2.8 to 3.6 over the past three years.
• Markets need information to assess which companies can seize the opportunities in a low carbon economy and which are strategically resilient to the physical and transition risks associated with climate change.
• The PRA’s survey of UK banks last year found that almost three quarters are starting to treat the risks from climate change like other financial risks, rather than viewing them simply as a corporate social responsibility issue.
• Over the next few years, companies, banks, insurers and investors must: (1) increase the quantity and quality of disclosures; (2) refine disclosure metrics to determine which ones are most decision-useful; (3) spread knowledge on how to assess strategic resilience; and (4) consider how to disclose the extent to which portfolios are ready for the transition to net zero.
• Sustainable investing must catalyse and support all companies that are working to transition from brown to green. More widespread adoption is needed of “tilt” investment strategies, which overweight high ESG stocks, and “momentum” investment strategies, which focus on companies that have improved their ESG ratings. The huge variation in the measurement of ESG remains a big hurdle. Common taxonomies to identify environmental outperformance, such as the EU’s Green Taxonomy and the Green Bond Standard, can help but they tend to be binary (either dark green or all brown).
• UN’s Climate Financial Leaders have highlighted as an option the development of transition indices composed of corporations in high-carbon sectors that have adopted low carbon strategies.