G7 agree on ‘historic steps’ to make climate reporting mandatory

G7 countries have agreed to make climate reporting mandatory for corporate entities in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD).

G7 finance ministers made the decision to make it mandatory for corporates to report climate impacts and investment decisions, and also agreed on new measures to strengthen central company beneficial ownership registries to help tackle environmental crime.

No date has yet been set for the introduction of mandatory disclosure but international agreement could be reached ahead of this November’s COP26 in Glasgow.

“We support moving towards mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants,” G7 finance ministers said in the final communique.

“This will help mobilise the trillions of dollars of private sector finance needed and reinforce government policy to meet our net-zero commitments.”

The UK outlined plans to mandate climate disclosure back in November last year – the first major nation to make such an announcement.

The outline proposals would see any company with more than 500 employees and more than £500m in annual turnover in the UK disclose potential risks associated with climate change and the net-zero transition in their annual reports.  It is estimated more than 1,500 companies will be affected by the measures.

consultation from the Department for Business, Energy and Industrial Strategy (BEIS) has now been launched with a view to implementing  proposals from April 2022.

Finance ministers at the G7 meeting also backed work by the International Financial Reporting Standards Foundation that will seek to develop a new global standard for sustainability reporting that builds on the TCFD framework.

And they supported the launch of the Taskforce on Nature-related Financial Disclosures (TNFD) which aims to align corporate reporting and spending to alleviate nature-related risks.

Chancellor Rishi Sunak said: “This is a truly historic agreement and I’m proud the G7 has shown collective leadership at this crucial time in our global economic recovery.”

Erkki Liikanen, chair of the IFRS Foundation Trustees, said: “We welcome the G7 Finance Ministers’ support for our work to develop the global baseline of sustainability-related financial disclosures and our ongoing dialogue with key stakeholders regarding the proposed establishment of an International Sustainability Standards Board ahead of COP26.”

Lord Karan Bilimoria, president of the CBI, said: “Finance has a critical role to play in driving an inclusive recovery as well as helping businesses across sectors respond to the climate crisis and social challenges. Increasing international alignment across sustainable finance regulatory and policy frameworks should be at the forefront of any and all plans.

“As hosts of G7 and COP26, it is great to see the UK must pick up the mantle on this global agenda which will help build sustainability for all.”

Catherine McGuinness, deputy chair of the International Regulatory Strategy Group, said: “We welcome the presidency’s commitments on tackling climate change announced by the Chancellor. The IRSG called in our recent report for tackling gaps in TCFD adoption amongst jurisdictions to be a priority, so it is very encouraging to see moves by the G7 towards mandatory climate-related financial disclosures based on the TCFD framework.

“This is an important step forward, and one that will help create a pathway to a successful COP26 in Glasgow and pave the road to deliver net-zero emissions globally. Similarly, we are pleased to see the G7 taking steps to tackle illicit finance and environmental crimes.”

Shaun Spiers, executive director of the Green Alliance, said: “It is good to see finance ministers starting to integrate climate and biodiversity into their economic thinking. Requiring companies and banks to report their impact on climate change marks important progress towards making economies more sustainable. Recognising the importance of the Dasgupta review is the first step to considering the true value of nature to the public purse.

“We now need these major economies to invest heavily in a green recovery and support developing countries to do the same.”