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The Actuary The magazine of the Institute & Faculty of Actuaries

IFoA call for effective climate-related financial disclosure

The Institute and Faculty of Actuaries (IFoA) has voiced its support for the recommendations presented by the Task Force for Climate-Related Financial Disclosure (TCFD) in December last year.

Climate change poses "serious risks to the global economy" ©Shutterstock
Climate change poses "serious risks to the global economy" ©Shutterstock

These were designed to allow a greater understanding of the financial and strategic implications associated with climate change, and involve companies producing clear climate-related financial disclosures.

Firms should consider the impact of climate change on their governance, risk management, and strategy, according to the TCFD guidelines, with the IFoA believing that failure to do so could lead to incorrect pricing and the destabilisation of markets.

IFoA president, Colin Wilson, said: “The IFoA strongly supports the recommendations of the TCFD. Climate change poses serious risks to the global economy, and without effective disclosure the financial impacts of climate change may not be priced correctly.

“This could have destabilising effects on markets. We applaud the TCFD’s balanced and useful recommendations, and hope that organisations across the financial services industry and beyond will engage with them in the long term.”

The IFoA’s submission states that asset owners and managers will be central in encouraging companies to adopt both qualitative and quantitative financial risk-relevant measures.

However, it warns about an over-preoccupation with the potential for a lack of political will to acknowledge climate change risk, and also argues that only a minority of organisations will be able to engage initially with the TCFD recommendations to a significant degree.

The institute has recently launched a bulletin that considers the role of discount rates, financial disclosure, and the importance of understanding both the likely possible outcomes, and potential worst-case scenarios, when assessing the impact of climate change.

“The IFoA is committed to highlighting the undeniable risks posed by climate change, and the effects that these will have on current and future generations,” Wilson added.

You can download the IFoA bulletin here.