How Strengthening Standards for Data and Disclosure Can Make for a Greener Future
IMF Blog, May 13, 2021
Source details
- Canonical URL
- How Strengthening Standards for Data and Disclosure Can Make for a Greener Future
Other formats
Bibliographic details
- Authors: Caio Ferreira, Fabio Natalucci, Ranjit Singh, Felix Suntheim
- Published: May 13, 2021
Context and framing
- Authors: Caio Ferreira, Fabio Natalucci, Ranjit Singh, Felix Suntheim
- Publication date: May 13, 2021
- Central problem: Data gaps and fragmented disclosure frameworks make it difficult for investors and policymakers to assess and compare firms’ exposure to climate risk and firms’ progress toward sustainable business models.
Key findings: data, disclosure, and taxonomies
- High-quality, reliable, and comparable data
- Investors and policymakers lack forward-looking, granular, and verifiable data on firms’ efforts to move to sustainable business models (for example, reducing greenhouse gas emissions).
- The vast majority of firms do not provide emission reduction target information; data gaps are particularly large for small and medium enterprises and for firms in emerging markets.
- Data gaps hinder assessment of firms’ exposure to climate risk and the impact of investments on nonfinancial objectives such as combating climate change.
- Harmonized and consistent set of climate disclosure standards
- “Sustainability reporting” of climate-change risks and opportunities (for instance, in line with the recommendations of the Task Force on Climate-related Financial Disclosures) is still in its infancy and uptake is low, especially among smaller firms.
- There are more than 200 frameworks, standards, and other forms of guidance on sustainability reporting and climate-related disclosures across 40 countries; the multitude of frameworks undermines consistency and comparability.
- Corporates may be required to report under different frameworks in different jurisdictions, complicating investors’ ability to assess climate risks.
- Broadly agreed-upon global taxonomy
- Taxonomies (such as the recently published EU taxonomy) classify assets or activities to improve clarity on the extent investments support climate change adaptation and mitigation.
- A well-designed and globally agreed taxonomy can foster sustainable finance markets by helping communication with investors and facilitating capital flows toward climate-sustainable investments.
- Overly narrow taxonomies that focus exclusively on fully sustainable investments can fail to recognize transition efforts by firms and countries, potentially hindering capital flows to transitioning firms—this is especially problematic in emerging markets where transition investments are most needed.
Policy recommendations and the way forward
- Strengthen the “climate information architecture” by delivering three building blocks:
- High-quality, reliable, and comparable data.
- A harmonized and consistent set of climate disclosure standards.
- A broadly agreed-upon global taxonomy.
- Bridge data gaps
- The Network for Greening the Financial System’s work to produce a detailed list of currently missing data items is an important step.
- The IMF’s Climate Change Indicators Dashboard brings together climate-related data needed for macroeconomic and financial policy analysis.
- Use technological solutions—artificial intelligence and open-source data platforms and tools—for data collection and distribution.
- Converge toward standardized sustainability reporting
- Reporting should enable investors to assess value and risks of firms and projects, monitor financial stability risks from climate change, and understand firms’ transition plans toward climate-sustainable business models.
- Support consolidation and convergence of existing reporting initiatives; the International Financial Reporting Standards Foundation’s initiative to develop global sustainability reporting standards is highlighted as helpful for transparency and global comparability.
- Align financial and non-financial reporting and provide assurance by auditors to facilitate decision making and improve market confidence.
- Move quickly in building on existing frameworks.
- Design flexible taxonomies
- Taxonomies should be flexible enough to recognize complex transition efforts, especially in emerging markets and developing economies where transition investments are urgently needed.
Implementation challenges and scope expansion
- Consistent, timely, and uniform implementation of internationally agreed sustainability reporting standards is necessary and requires strong international commitment.
- Implementation must consider regional, institutional, and legal specificities while allowing jurisdictions to introduce additional requirements if necessary.
- Special attention is needed for implementation challenges in emerging markets and for many small and medium enterprises.
- The scope of standards will need to widen over time to cover broader sustainability dimensions, for example environmental issues such as the loss of biodiversity, as well as social and governance issues.
IMF Blog: How Strengthening Standards for Data and Disclosure Can Make for a Greener Future (May 13, 2021).