Creating a climate of change digest

The stocktake report, prepared for the G20 Finance Ministers and Central Bank Governors meeting on July 25–26, 2024, reveals varying levels of recognition of nature-related risks among global financial authorities. Some regulators have identified biodiversity loss and other nature-related factors as "material financial risks," while others are just beginning to track these issues due to data scarcity and differing urgency levels compared to climate risk. The report highlights the lack of reliable data and accurate models as a major challenge, preventing financial authorities and institutions from aggregating these exposures into well-defined, internationally comparable measures of financial risk.

On July 18, United Nations Environmental Programme Finance Initiative (UNEP FI) released its inaugural set of reports offering guidance for banks. These reports aim to help banks implement and leverage the connections between the circular economy and key sustainability challenges, including climate change, nature loss, and pollution. The two published reports are part of a new series of resources titled “Circular Economy as an Enabler for Responsible Banking.” This resource series aims to help the 300+ signatories of the Principles for Responsible Banking, as well as the wider banking sector, to move from target-setting for sustainability objectives to delivering on climate commitments.

On July 24, 2024, the Science Based Targets initiative (SBTi) released a draft of its Financial Institutions Net-Zero (FINZ) Standard for a second round of multistakeholder public consultation. SBTi conducted a public consultation on the initial draft of the FINZ Standard in 2023 and updated it based on feedback. In a second consultation round, SBTi is seeking input from finance sector experts, academia, and civil society until September 20, 2024. To facilitate engagement, SBTi held a global webcast on August 22 to explain the draft and answer questions. Additionally, financial institutions are invited to pilot test the draft standard, with their feedback also informing the final version.

On July 30, 2024, the SBTi then published four technical outputs as a preliminary step in its process for the revision of the SBTi Corporate Net-Zero Standard. As per the previously announced timeline and Standard Operating Procedure for the review of the Corporate Net-Zero Standard, the revision project of the SBTi Corporate Net-Zero Standard also includes a research phase. In this phase, the Technical Department will review existing SBTi standards that may overlap with the standard under development to ensure alignment and consistency. 

On July 31, 2024, the International Accounting Standards Board (IASB) published a consultation document proposing eight examples to illustrate how companies apply IFRS® Accounting Standards when reporting the effects of climate-related risks and other uncertainties in their financial statements. In March 2023, the IASB initiated a project to enhance the reporting of climate-related risks in financial statements. This project, driven by strong stakeholder demand—especially from investors—aims to address concerns about insufficient or inconsistent information on climate-related risks compared to other general-purpose financial reports. The IASB developed illustrative examples as part of this effort, expecting these examples to improve the reporting of climate-related and other uncertainties in financial statements and to strengthen the link between financial statements and other company reports, such as sustainability disclosures.

The Securities and Exchange Commission (SEC) has launched a defense in court against litigations challenging the Final Rule on Enhancement and Standardization of Climate-Related Disclosures for Investors. Back in April, the SEC stayed the climate disclosure rule after petitions for review of the Final Rules were filed in multiple courts of appeals between March 6 and March 14, 2024. On August 5, the SEC submitted its response brief to the Eighth Circuit Court, defending the rule by arguing that it has the statutory authority to adopt the rule, complied with the Administrative Procedure Act (APA) and other requirements, and that the rule aligns with the First Amendment. The SEC requested the court to remand, rather than vacate, the rule if any issues were not adequately considered or explained, and to sever any unlawful provisions.

On August 15, 2024, the National Association of Insurance Commissioners (NAIC) adopted a Financial Condition for revisions in Risk-Based Capital (RBC) Structure. From the end of 2024 through 2026, insurers must disclose the impact of climate-related risks on modeled losses for hurricanes and wildfires. They can choose between a time-based or frequency-based approach for their disclosures. Regardless of the chosen approach, insurers should maintain consistency in their book of business, reinsurance strategy, and total insured value (TIV) inflation over the projected time horizon.

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