Last week, the UN Principles for Responsible Investment (PRI), the largest investor network focused on sustainable investing, challenged its over 2,250 signatories to step up their financial reporting when it announced that, beginning in 2020, all signatories will be required to report on climate change risks. PRI requires signatories, which include international asset owners, investment managers, and service providers that collectively manage over $83 trillion in assets, to report various environmental, social, and governance (ESG) metrics on an annual basis. PRI currently requests voluntary reporting on four indicators of climate risks: governance, strategy, risk management, and metrics and targets. Beginning in 2020, as part of their efforts to improve ESG-related disclosure, PRI plans to make risk indicators on both climate-related governance and strategy mandatory to report but voluntary to disclose.
In 2018, over 480 investors representing over $42 trillion of assets opted to report on these indicators. The four indicators of climate-related risks were recommended by the Task Force on Climate-related Financial Disclosures (TCFD). PRI has stated that following these principles is a high priority, as they “provide a global framework for translating information about climate into financial metrics.” Governance reporting relates to an organization’s governance around climate-related risks and opportunities, such as whether a board is required to approve a company’s annual carbon footprint report. Strategy reporting refers to the potential impacts of climate-related risks on an organization’s business, strategy, and financial planning, such as how wildfires may affect the bottom line of a California-based business. PRI insists that more reporting of these indicators will become mandatory in the future, as climate change continues to pose a “mega risk” to investors.