Global regulators and other stakeholders are working to improve the quality and availability of climate-related financial information. The Financial Stability Board1 (FSB)’s Task Force on Climate-related Financial Disclosures (TCFD), created in 2015, has led to one of the most significant efforts to enhance climate-related information in financial disclosures.
The TCFD has issued several climate-related disclosure recommendations that are designed to help public companies and other organisations disclose more effectively climate-related risks and opportunities through their existing reporting processes. These guidelines were first released in June 20172 and were updated and re-issued in October 20213.
The TCFD guidance suggests that all financial and non-financial organisations with public debt or equity implement its recommended disclosures; it also encourages asset managers and asset owners, including public- and private-sector pension plans, endowments and foundations, to implement the disclosure recommendations.
What are the TCFD recommendations?
The FSB created the TCFD to develop consistent climate-related financial risk disclosures. The TCFD recommendations are climate-related financial disclosures structured across four key areas that represent foundational elements of how organisations operate: governance, strategy, risk management, and metrics and targets (“TCFD Recommendations”).
How will the TCFD recommendations be implemented?
The TCFD suggests that all financial and non-financial organizations with public debt or equity implement its recommended disclosures in their public annual financial filings.
The TCFD also encourages asset managers and asset owners, including public- and private-sector pension plans, endowments, and foundations, to implement the disclosure recommendations, report them to their beneficiaries and clients through existing means of financial reporting, when possible, and disclose publicly via their websites or other public avenues of disclosure.
In 2022, certain regulators in Asia-Pacific (APAC) such as those in Hong Kong and Singapore made disclosures on how climate-related risks are managed mandatory for asset managers.
In addition, in 2022 the United Kingdom (“UK”) became the first G20 country to make it mandatory for large companies and certain financial institutions to disclose their climate-related risks and opportunities, in line with TCFD recommendations.
In the UK, FCA-regulated asset managers and asset owners – including life insurers and pension providers – are also in-scope of these obligations and have to disclose how they take climate-related risks and opportunities into account in managing investments. They will also have to make disclosures about the climate-related attributes of their products.
Asset managers and asset owners will have a phased implementation, with the rules initially applying to the largest firms (with over £50 billion in AUM) and coming into effect for smaller firms (above the £5 billion threshold) one year later.
How is J.P. Morgan Asset Management implementing the TCFD recommendations?
J.P. Morgan Asset Management (“JPMAM”) has decided the best way to report on climate-related topics, including, where relevant, to meet climate-related disclosure requirements applicable to different legal entities of JPMAM, is to adopt a globally consistent approach, and to address any specific local requirements via local addendums.
In 2019, JPMorgan Chase & Co. (“JPMC”) published its first TCFD report. Since 2022, we have produced a TCFD report specific to J.P. Morgan Asset Management, on an annual basis, to continue in our journey towards providing more transparency and disclosure on climate-related matters.
What is the impact to our clients, our portfolios and the financial services ecosystem?
Climate-related disclosures may comprise of voluntary disclosures made by financial market participants or companies to mandatory disclosure and reporting requirements at a legal entity and financial product level, as applicable. While the implementation of these disclosures is still evolving, we believe the result will be an increase in the quality and availability of information and transparency, benefiting clients, our portfolios and the broader financial services ecosystem.
While we believe that our clients will ultimately benefit from greater climate-related disclosures, the impact may vary. For example, institutional asset owners may be more likely to find the disclosures more immediately useful as they may be working to establish or improve their own frameworks to assess climate-related risks and opportunities or define sustainability goals, which may involve climate-related aspects, such to explore ways to lower their carbon footprint or seek to capitalize on the transition to a lower-carbon economy.
Some of the investee companies in our portfolios may begin to disclose in line with the TCFD recommendations, which will provide our portfolio managers with more detailed information, among others, when considering candidates for a portfolio. Improved climate-related disclosures may also help with our climate-related engagement efforts with investee companies.
1The FSB promotes international financial stability; it does so by coordinating national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory and other financial sector policies. It fosters a level playing field by encouraging coherent implementation of these policies across sectors and jurisdictions.