The Disclosure Working Group was established by the Climate Risk Forum in 2020 to advance the thinking with respect to the following recommendation in National Treasury’s Technical Paper “Financing a Sustainable Economy” (Draft published May 2020; finalised Oct 2021) :
“1.2 Regulators and industry to co-develop or adopt technical guidance, standards and norms for use across all financial sectors in identifying, monitoring and reporting and mitigating their environmental and social (E&S) risks, including climate-related risks, at portfolio and transaction level. These should include E&S risk management frameworks, the use of science-based methodologies, and the incorporation of the recommendations of the TCFD.”
On 6 December 2021, the Working Group published “Principles and Guidance for Minimum Disclosure of Climate Related Risks and Opportunities”
Acknowledgements: The Principles and Guidance have been completed with the help and support of the members of National Treasury’s Climate Risk Forum and Disclosure Working Group, as well as the ongoing support and assistance of the IFC ESRM Programme and members of the IFC and World Bank 30 by 30 Zero initiative, who provided comments and insights.
Objectives and approach
During the drafting of the National Treasury Technical Paper from 2017-2020, participating institutions and industry commentators indicated that clear guidance from regulators on what financial institutions should disclose in relation to ESG and climate change topics would be welcome. With that in mind, the Disclosure Working Group focused throughout 2021 on building capacity and developing a common understanding of the principles and challenges of disclosure across the financial sector, with the intention of more focused discussions on minimum disclosure expectations.
A sub-group also considered whether there were any statutory or financial reporting impediments in South Africa, particularly with regard to inclusion of climate-related risk into financial statements, and inclusion of the forward-looking nature of some climate-related disclosures. They found none of significance.
During 2021, international calls for mandatory disclosure built steadily. Several international regulators began setting mandatory requirements, such as the Bank of England and the European Union. Organisations such as the Network for Greening the Financial System (NGFS), the Basel Committee for Banking Supervision, and the international insurance regulators began preparing guidance for future regulation.
At COP26, the International Financial Reporting Standards (IFRS) Foundation launched the International Sustainability Standards Board, a collaboration of several ESG reporting standards setters, the Task Force on Climate-related Financial Disclosures (TCFD), and the IFRS. They issued a Carbon Disclosure Prototype, which will be adopted in 2022 following a comment period and review. It is based on, and consistent in all material aspects, with the TCFD framework. In addition, the Johannesburg Stock Exchange (JSE) issued draft guidance on ESG and Climate change disclosure, consistent with the Disclosure Working Group’s approach and based significantly on the TCFD framework.
Leading South African banks have already taken important voluntary steps with regard to climate-related risk disclosures, using the TCFD framework.
Future focus
In line with the National Treasury Technical Paper, the Disclosure Working Group will focus on the implementation of TCFD-aligned disclosure as well as future disclosure needs, such as those envisaged under the Taskforce on Nature-related Financial Disclosures, given the rising concerns about biodiversity loss and the potential economic impacts.
Working Group Members
The Working Group is co-chaired by the Financial Sector Conduct Authority (FSCA) and International Finance Corporation (IFC), and supported by Banking Association South Africa (BASA) as Secretariat of the Climate Risk Forum.
Members of the working group include:
- National Treasury
- Prudential Authority (PA)
- Banking Association South Africa (BASA)
- South African Insurance Association (SAIA)
- Association of Savings and Investment South Africa (ASISA)
- Johannesburg Stock Exchange (JSE)
- Development Bank of South Africa (DBSA)
- BASA members: Absa; African Bank; FirstRand; Investec; Nedbank; Land Bank; Standard Bank; Standard Chartered