Weekly Roundup: Mandatory US and EU climate-related disclosures

The flaw in TCFD disclosure

This past weekend, Thomas O’Neill made the insightful argument that the “TCFD-articulated link between disclosure, market forces and company change is flawed.” Climate risk mitigation does not necessarily mean lower emissions, climate risk can not be hedged, and the practical effect of disclosure on emissions relies on a chain of assumptions that do not hold up. Climate-related financial disclosure is not nearly enough, writes O’Neill, warning that “the excuse of ‘not wanting to be prescriptive’ will not stand the test of time.”

Hungary “average” in new MNB sustainability index

Monday saw Hungary score just below the EU average in a new sustainability index compiled by the country’s central bank, the Magyar Nemzeti Bank (MNB). The index consists of 108 indicators and places Hungary at 51.8 points, close to the EU average of 53.9. “The results confirm that Hungary must continue its shift to a green economy,” the MNB said. “The reduction of greenhouse gas emissions, boosting energy efficiency and the broader use of environmentally-friendly energy sources remains an essential task for increasing sustainability.”

The Bank of Canada’s dirty bonds

On Wednesday, the Financial Post’s Kevin Carmichael looked at the Bank of Canada’s (BOC’s) efforts to go green. “It isn’t the greenest of the major central banks,” he acknowledges, explaining that Canada’s oil companies are big issuers of corporate debt and the BOC mirrors this market in its carbon-intensive corporate bond purchases. As Greenpeace and other environmental groups press the BOC to be more active on climate change, so far the bank’s response has been confined to research focusing only on climate risk.

SEC working on mandatory climate disclosures

Also on Wednesday, US Security and Exchange Commission (SEC) Chair Gensler confirmed for the first time that the SEC is working on new rules mandating climate-related financial disclosures. Addressing a congressional subcommittee during an oversight hearing, Gensler said that the requirements would involve full “notice-and-comment rulemaking”, and not only requests for information.

ECB’s Luis de Guindos calls for mandatory disclosure

European Central Bank (ECB) Vice President Luis de Guindos also spoke about mandatory climate-related financial disclosures on Thursday. In a keynote speech delivered to the joint ECB and European Commission conference on ‘European Financial Integration and Stability’ de Guindos said that “mandatory, harmonised and audited disclosure standards” are needed to close data gaps and address the problem of greenwashing. Much of de Guindos’s speech was an upbeat review of the ECB’s climate risk efforts. In response, experts warned that climate risk disclosure is insufficient by itself and criticised the lack of penalties on dirty assets.

The European Commission on financial stability and climate

Also on Thursday, the European Commission published its annual ‘European Financial Stability and Integration Review‘ with a chapter on both sustainability and climate change. “The market failure linked to climate change… calls for timely global cooperation in this area, ” the report concludes, warning that “precautionary measures may be needed in view of the urgency to act now on climate change.”

New appointment for BoE’s Breeden

Finally, the Bank of England’s (BoE’s) Sarah Breeden has been promoted from her role supervising UK Deposit Takers to become Executive Director for Financial Stability Strategy and Risk, the bank has announced. Breeden, who has been prominent in the BoE’s communications on climate change, recently outlined how financial services firms in the UK can act as stewards in the move to a ‘net zero’ economy. She will also become a member of the Financial Policy Committee.

Breeden will also speak at next week’s Green Swan conference on green central banking.