G7 finance ministers made a commitment at the meeting to make it mandatory for corporates to report climate impacts and investment decisions, alongside new measures to strengthen central company beneficial ownership registries to crackdown on environmental crime.
The agreement to mandate climate disclosure does not yet have a
timeframe attached, but the wider
G20 group of nations are also set to
discuss the topic, potentially meaning that an international agreement
could be achieved prior to the COP26 climate negotiations in Glasgow
this November.
“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 was the first major nation to confirm plans to mandate climate disclosure back in November 2020.
The 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 into annual
reports. The recommendations are in line with the TCFD and look set to
impact more than 1,500 companies.
A consultation from the Department for Business, Energy and Industrial Strategy (BEIS) has now been launched with a view to enforcing the report approach from April 2022.
At the G7 meeting, ministers 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.
There are now more than 1,500 companies that support the TCFD’s
recommendations, including corporates with a combined market cap of
$12.8trn and investors with $138.8trn of assets under management
collectively. This is an enormous uptake of 85% since 2019.
The European Commission will force companies to “get serious” about
due diligence and non-financial reporting as it prepares to table key
legislation in the coming months.
The G7 also welcomed the launch of The Taskforce on Nature-related Financial Disclosures (TNFD)
on Friday, which has an overarching aim to align corporate reporting
and financial spending to alleviate nature-related risks.
Additionally, the G7 agreed to tax reforms that would see
multinationals pay their fair share of tax in the countries they do
business in. A global minimum rate of 15% for each country that a
business operates in looks set to be introduced.
The rules would apply to global firms with at least a 10% profit
margin – and would see 20% of any profit above the 10% margin
reallocated and then subjected to tax in the countries they operate.
Chancellor Rishi Sunak said: “These seismic tax reforms are something
the UK has been pushing for and a huge prize for the British taxpayer –
creating a fairer tax system fit for the 21st century.
“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.”
The G7 also committed to support poor and vulnerable countries to
address health and economic challenges raised by the COVID-19 pandemic. A
new commitment builds on the $650bn general allocations of Special
Drawing Rights (SDRs) issued earlier this year. Finance Ministers and
bankers at the G7 meeting called for the SDRs to be implemented by the
end of August 2021 and G7 nations will consider voluntary agreements to
use SDRs to support vaccinations and greener economic recoveries in
other countries.
The G7 also committed to publishing details of lending on a
loan-by-loan basis, although some critics believe that support should be
provided in the form of grants. The G7 will implore the G20 and
private-sector creditors to do the same.
Reporting on greenhouse gas emissions should become mandatory “as
soon as possible” for companies with more than 250 employees, argues
Michèle Lacroix, an EU expert who helped design the EU’s landmark green
finance taxonomy.
Green group reaction
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, 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, 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. Pledges to
reach $100bn are hugely welcome and must now be met and matched with an
investment plan for adaptation and mitigation.”
Dr Emily Shuckburgh, director, Cambridge Zero, said:
“Efforts announced today by the G7 to drive the global economy
towards net-zero greenhouse gas emissions and stamp out illicit
financing of environmental crimes are fundamental to tackling climate
change.”
Bethan Livesey, director of policy, ShareAction, said:
“We welcome the news that G7 economies will follow the UK in making
TCFD disclosures mandatory and are supportive of common international
reporting standards.
“Investors need consistent and comparable information about the
environmental and social impact of companies. The power of the TCFD
framework to address climate change risks and opportunities will be
greatly enhanced by it becoming standard practice globally. We hope
others will follow the G7’s lead.”
Chris Cummings, chief executive, Investment Association, said:
“The G7’s commitment to introducing mandatory climate-related
reporting against the TCFD framework is a crucial milestone in tackling
climate change. The shift to a more sustainable global future relies on
coordinated action from the world’s largest economies. Ensuring
high-quality and comparable data on the impact of climate change lies at
the heart of this and will shine a spotlight on the actions needed by
policymakers and companies to achieve net-zero emissions.
“As an industry which invests in companies around the world to
deliver sustainable value on behalf of both UK and overseas savers and
investors, we welcome this commitment which will enable us to take
informed investment decisions which support these aims.”
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