Insights from the UN Climate Risk Landscape Report 2024 — Part 2
Disclaimer: This blog post represents a personal interpretation and analysis of the United Nations Environment Programme Finance Initiative’s 2024 Climate Risk Landscape Report. The views expressed are those of the author and do not necessarily reflect those of the United Nations.
The original report can be accessed at: UNEP FI 2024 Climate Risk Landscape Report.
The regulatory landscape for climate-related financial risk management and disclosure has undergone substantial transformation in 2023–2024. With 2023 breaking temperature records for 116 consecutive days and marking the warmest year on record, the urgency for enhanced transparency and resilience in financial systems has never been more apparent.
Global Standards Convergence
A significant milestone in 2023 was the International Sustainability Standards Board’s (ISSB) release of its inaugural sustainability disclosure standards. These standards, which include IFRS S1 (General Requirements) and IFRS S2 (Climate-related Disclosures), represent a crucial step toward global standardization. The ISSB’s collaboration with the Global Reporting Initiative (GRI) and European Financial Reporting Advisory Group (EFRAG) has created an interoperable framework that reduces the disclosure burden for companies.
The United Kingdom’s Transition Plan Taskforce (TPT) has made notable progress by launching its ‘gold standard’ disclosure framework. This framework provides a robust foundation for companies and financial institutions to articulate their climate transition plans within annual reporting. The TPT’s approach aligns seamlessly with IFRS S2, creating a coherent framework for climate-related disclosures.
Regional Regulatory Developments
European Union
The European Commission’s Corporate Sustainability Reporting Directive (CSRD) introduced a comprehensive framework for ESG disclosures in January 2023. The directive requires companies to conduct ‘double materiality assessments’ and will affect approximately 50,000 companies by 2024. By 2028, non-EU companies operating in Europe must also comply with these standards.
United States
The Securities and Exchange Commission (SEC) adopted new rules in March 2024 to enhance climate-related disclosures by public companies. These rules require larger public companies to disclose climate disaster risks and greenhouse gas emissions when financially material to investors.
Asia-Pacific and Emerging Markets
Countries like Brazil, Hong Kong, and Singapore have implemented their own climate-related disclosure requirements. For instance, Brazilian financial institutions must now provide annual disclosures of social, environmental, and climate-related risks and their governance structures.
Climate Stress Testing Evolution
- The European Central Bank’s climate risk stress test of 104 significant institutions
- The United States Federal Reserve’s pilot climate scenario analysis involving six major banks
- The Hong Kong Monetary Authority’s enhanced Climate Risk Stress Test framework
- New Zealand’s climate stress test for its five largest banks
Anti-Greenwashing Initiatives
2023–2024 has seen increased regulatory attention on preventing greenwashing practices. Key developments include:
- The United Kingdom’s Competition & Markets Authority’s sector-by-sector review
- The Federal Trade Commission’s updated Green Guides in the United States
- The European Parliament’s Directive Empowering Consumers for the Green Transition
- The Monetary Authority of Singapore’s Singapore-Asia Taxonomy
COP28 Impact on Regulatory Direction
The COP28 conference in Dubai marked a pivotal moment in global climate action consensus. The agreement signals the “beginning of the end” of the fossil fuel era, encouraging ambitious economy-wide emission reduction targets. This global consensus sets the stage for intensified regulatory requirements and adaptation of the financial sector to climate imperatives.
Future Implications
The evolving regulatory landscape presents both challenges and opportunities for financial institutions. The convergence of global standards, while complex, promises to streamline reporting requirements and enhance comparability of climate-related disclosures. Financial institutions must now focus on:
- Building robust data collection and reporting systems
- Enhancing climate risk assessment capabilities
- Developing comprehensive transition plans
- Strengthening governance frameworks around climate risk
The regulatory developments of 2023–2024 represent a significant step toward a more climate-aware financial system. However, continued evolution and refinement of these frameworks will be essential to address the growing complexities of climate-related risks.
Abbreviations and Acronyms
- COP28: The 28th United Nations Climate Change Conference
- CSRD: Corporate Sustainability Reporting Directive
- EFRAG: European Financial Reporting Advisory Group
- ESG: Environmental, Social, and Governance
- GRI: Global Reporting Initiative
- IFRS: International Financial Reporting Standards
- ISSB: International Sustainability Standards Board
- SEC: Securities and Exchange Commission
- TPT: Transition Plan Taskforce
References
- UNEP FI (2024). 2024 Climate Risk Landscape Report
- ISSB (2023). Comparison IFRS S2 Climate-related Disclosures
- TPT (2023). Huge welcome for launch of ‘gold standard’ TPT Disclosure Framework
- European Commission (2022). Corporate sustainability due diligence
- SEC (2024). SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures
- COP28 (2023). COP28 UAE Conference outcomes
- FSB (2023). Progress report on climate-related disclosures
