Earlier in January, when Blackrock's Chairman & CEO, Larry Fink pushed climate change to the forefront of the corporate agenda, his letter to the CEOs carried a couple of acronyms that pointed to new additions in financial reports and company disclosures.
Fink mentioned the Task Force on Climate-related Financial Disclosures (TCFD) as a framework for assessing and reporting climate-related risk. Formed in 2015, the TCFD is an industry-led group formed by the Financial Stability Board (FSB) with the preparers and consumers of financial reports as members.
The FSB itself is an international organisation comprising senior policy makers from central banks, ministries of finance and supervisory and regulatory authorities, for the G20 countries. Apart from officials from the four major financial centres – Hong Kong, Singapore, Spain and Switzerland, the FSB also includes standard-setters and regional bodies like the European Central Bank and European Commission.
The broad-based nature of the FSB comes with an implicit moral authority. The TCFD's mandate included developing "voluntary, consistent climate-related financial risk disclosures" for use by companies when interacting with investors, lenders, insurers and other stakeholders.
Physical, liability and transition risks associated with climate change were considered to build effective financial disclosures across industries. The Task Force's recommendations help companies understand what financial market players such as Blackrock want from disclosures.
The aim is to measure and respond to climate change risks and align disclosures with investors’ needs.
The other acronym used by Fink in his letter to investee companies was SASB, or Sustainability Accounting Standards Board. That is an independent standard-setting arm of the similarly named SASB Foundation.
The SASB sets sustainability disclosure standards that are industry-specific and tied to the concept of materiality to investors. In November 2018, SASB published a full set of 77 industry standards.
These are globally-applicable, industry-specific standards which identify the minimal set of financially material sustainability topics and their associated metrics for the typical company in an industry.
The SASB Foundation is funded by contributions from philanthropies, companies, and individuals, as well as through the sale and licensing of publications etc. It has no government backing or any linkages to any government bodies or other financial accounting standard-setting bodies.
Though voluntary and not legally binding, these policies nevertheless come with the backing of major players across different sectors of the global financial system. Hence, they are poised to creep into the disclosure formats for financial reports soon enough.