Last reviewed 7 June 2021

G7 Finance Ministers have taken “historic steps” towards mandatory climate-related financial disclosures for firms to report the climate impact of their investment decisions.

The agreement means companies operating across the world will have to provide consistent information about the climate-related impacts of their activities, processes and operations.

The move is designed to help investors, shareholders and other market participants better understand how firms are managing climate risks and decide whether or not to allocate finance.

For the first time companies will need to properly embed climate change and biodiversity loss considerations into economic and financial decision-making, which the Government says is a “major step towards ensuring the global financial system plays its part transition to net zero”.

The G7 communique said mandatory climate-related financial disclosures for market participants should be based on the Task Force on Climate-related Financial Disclosures (TCFD) framework and a baseline global reporting standard for sustainability, which jurisdictions can further supplement. 

Climate-related data are often collected on a voluntary basis by some companies, although some jurisdictions, such as the UK and France have already made such reporting mandatory.

Banks and financial regulators will welcome the move to a global TCFD framework, following concerns that under the current disclosure system there is a lack of reliable data about how exposed businesses are to climate risk, and how environmentally friendly or otherwise their activities are.

G7 Finance Ministers also welcomed the imminent launch of a new international taskforce on nature-related financial disclosures (TNFD). The aim of TNFD is to deliver a framework for organisations to report and act on nature-related risks, similar to the TCDF, and align corporate reporting and financial spending to alleviate those risks.

The G7 agreement will be discussed by the wider group of G20 nations. If there is general agreement there, there is a strong likelihood that an international agreement could be reached prior to the U.N. Climate Change Conference in Glasgow in November.