The disclosure work required for financial firms is substantial and will demand a considerable amount of work from the compliance team. Key disclosure requirements include:
- a description of the governance approach for assessing and managing climate risks and opportunities
- an explanation of how the firm identifies, assesses and manages climate risks and opportunities, as well as how these processes integrate into the firm's overall risk management programme
- a description of the firm's exposure to key climate risks and opportunities
- a description of actual and potential impacts of the key climate risks and opportunities on the firm's business model and strategy
- an evaluation of the operational resilience of the firm, using a variety of climate-related scenarios
- a list of the targets used by the firm to manage climate risks and opportunities
- a summary of the key performance indicators (KPIs) used to determine progress against targets and manage climate risks and opportunities. Firms also need to describe the KPI calculations.
Compliance will have to engage with teams to implement a governance framework to capture and report this data to the board, senior management and regulators.
This is also an opportunity for compliance teams to embed the 'E' in ESG within their corporate culture. These requirements can then translate into genuinely ethical operations and deliver reputational value. Full disclosure and supportive training can help drive the right ethical behaviours.