The Group of Seven (G7) countries backed moves this weekend to force companies, including insurers, to disclose their exposure to climate-related risks, a measure considered vital to efforts to safeguard the financial system from climate change shocks.

The meeting of the G7 finance ministers in London (UK) also called for greater coordination in measuring what impact companies are having on the climate and environment. They also warned of the risk of fragmentation due to different nations currently adopting different approaches.

“We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants…,” said a final communique released after the G7 talks.

The G7 Finance Ministers met in London on 4-5 June 2021, joined by the Heads of the International Monetary Fund (IMF), World Bank Group, Organisation for Economic Cooperation and Development (OECD), Eurogroup, and (on 28 May) Financial Stability Board (FSB).

Transformative effort to tackle climate change

The G7 meeting agreed it was essential to emphasise the need to green the global financial system so that financial decisions take climate considerations into account. This will help mobilise the trillions of dollars of private sector finance needed and reinforce government policy to meet net zero commitments.

Those at the meeting stated their support for moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants and that are based on the Task Force on Climate-related Financial Disclosures (TCFD) framework, in line with domestic regulatory frameworks.

The G7 found that investors need high quality, comparable and reliable information on climate risks and agreed on the need for a baseline global reporting standard for sustainability, which jurisdictions can further supplement.

Those meeting welcomed the International Financial Reporting Standards Foundation’s programme of work to develop this baseline standard under robust governance and public oversight, built from the TCFD framework and the work of sustainability standard-setters, involving them and a wider range of stakeholders closely to foster global best practice and accelerate convergence. They encouraged further consultation on a final proposal leading to the establishment of an International Sustainability Standards Board ahead of the 26th UN Climate Change Conference of the Parties (COP26) scheduled to take place in Glasgow (UK) in November 2021.

In addition, there was recognition for the growing demand for more information on the impact that firms have on the climate and the environment. There was recognition too that many jurisdictions and organisations are already developing impact reporting initiatives, including but not limited to reporting on net zero alignment and broader sustainability metrics. The G7 agreed to work closely together and with international partners to determine the best approach to ensure global consistency.

The G7 meeting recognised that climate change poses increasing physical and transition risks to regulated financial institutions and to financial stability, and that these risks have distinct characteristics that must be taken into account. G7 authorities consider it important for financial firms to manage the financial risks of climate change using the same risk management standards as applied to other financial risks.

The G7 meeting confirmed its full support for the FSB in developing an ambitious roadmap that identifies and addresses climate-related financial risks, including through steps to promote comparable disclosures, address data gaps, enhance vulnerabilities assessments and promote consistent regulatory and supervisory practices. Those in attendance also confirmed their support for the Sustainable Finance Working Group in developing a G20 sustainable finance roadmap, with an initial climate focus.

ICMIF’s Chief Executive Shaun Tarbuck welcomed the announcement that the TCFD reporting initiative will be mandated in all G7 countries from the G7 leaders saying: “This is an important step forward as previously only the UK had mandated this for listed companies. As with all big announcements the devil will be in the detail so whilst Finance Ministers are aligned, they need to ensure national and supra-national regulators and supervisors are similarly aligned and do not disadvantage insurers that are leading the way in this area, as is currently the case.”

Tarbuck noted with pleasure that several ICMIF members are already using TCFD to report against and many more are ready to follow suit.