G7 agree on ‘historic steps’ to make climate reporting mandatory
10 June 2021 | Mitigation
The UK’s Chancellor of the Exchequer, Rishi Sunak, met with finance ministers in London this weekend, with discussions leading to a historic agreement that G7 nations will mandate climate reporting in line with the recommendations of the global Taskforce on Climate-related Financial Disclosures (TCFD).
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 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.