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Climate change disclosure framework seen by Dec

Assets can be better priced with better information from companies on risks they face
Monday, April 18, 2016 - 05:50

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Ms Schapiro said "it will be left to companies to make a decision about what is relevant information to disclose".

Singapore

VOLUNTARY guidelines are expected by the end of the year on how companies should disclose financial information on their exposure to climate- related risks, says a member of the high-powered committee involved in drafting them.

Mary Schapiro, former chairwoman of the US Securities and Exchange Commission (SEC), said in a recent interview with BT that while companies are already obliged to disclose material information, there needs to be a coherent framework to help them disclose information more effectively.

"At the end of the day, it will be left to companies to make a decision about what is relevant information to disclose," she said.

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The aim is to create a framework that makes companies comparable across their industry peers. Data disclosed must be comparable, consistent and reliable, she said.

Ms Schapiro spoke to The Business Times when she was in Singapore last month for a meeting of a Financial Stability Board (FSB) task force on climate-related financial disclosure. She is the special adviser to task force chairman Michael Bloomberg, who founded the financial data company Bloomberg.

Ms Schapiro said that if companies can provide better information on the risks they face in climate change, assets can be better priced. Investors can also make better decisions, and banks will also have a better basis to lend to industries which are resource- intensive or which are dependent on greenhouse gases, she said.

In its first-phase report out on April 1, the task force formulated seven principles to guide climate-related risk disclosure (see box).

The report was written after preliminary research on existing disclosure regimes, the challenges faced by firms in applying them, and the needs of financial market participants.

The final report, targeted for release by end-2016, will identify leading practices and set out specific recommendations and guidelines.

The FSB is an international body established in the wake of the global financial crisis to monitor and make recommendations about the global financial system.

Asked about whether the global financial system is in better shape since 2009, Ms Schapiro said she does not know for sure, but much has been done.

"I think we responded to a number of issues. I think there's still work to do. I think anytime a regulator says 'we're done' is a problem."

Measures that have improved the system include putting in place more and higher-quality capital in the financial system, bringing transparency to over-the-counter derivatives markets and the activities of hedge funds and private equity funds, and better rules on asset-backed securities.

There is also more information sharing among regulators on large, systematically important financial institutions.

"There's . . . certainly a degree of weariness among financial institutions about the level of regulations but I think it would be hard to argue that the system is not stronger and more resilient," she said.

Gaps in regulation are in non-bank financial institutions, otherwise called shadow banks.

"Those aren't new issues. I was a big proponent of more rigorous regulation of money market funds - because they're treated by investors just like a bank deposit in many ways, and yet don't have the same regulatory construct around them," she said.

"We need to keep our eye on the non-regulated parts of the financial world - fintech among them."

Regulators should also be looking out for risks from cyber attacks on financial institutions, she said.

Ms Schapiro said she has always wanted to be in public service. Her career began when she was a staff lawyer for the US Commodity Futures Trading Association in the early 1980s.

She then became the general counsel at the Futures Industry Association, and spent some time at the SEC from 1988 to 1994. She then took on various other key roles in the industry, notably at the Financial Industry Regulatory Authority (Finra), before returning to the SEC in 2009 to take on the top job. In doing so, she became the SEC's first female chair.

Ms Schapiro joined at a low point in the agency, when the US was reeling from a credit crisis and former stockbroker Bernard Madoff had just been arrested for perpetuating a gigantic Ponzi scheme, which the SEC failed to pick up on.

"I am most proud of being able to help restore the credibility of the agency, to rebuild it," Ms Schapiro said. The SEC began bringing in expertise it did not have before, like exchange-traded fund (ETF) experts and quantitative analysts, and it invested in technology.

"We went from being on the chopping block to being given much greater authority," she said.

After leaving the SEC in 2012, Ms Schapiro spent a very brief stint as a consultant with strategy, risk management and compliance consultancy Promontory Financial Group. But she "very quickly gave it up", and became vice-chairman of Promontory's advisory board in 2013 instead.

"I have been a regulator my whole life, and was just not comfortable as a consultant. I prefer the policy and the governance issues to the nuts and bolts of bank operations. And I'm not a banking expert - I'm a capital markets regulator," she said.

Today, Ms Schapiro is also an independent director of General Electric and the London Stock Exchange Group.

Life is more relaxing now that she is out of the public eye and does not have to manage a large organisation, she said. "What I love about the climate task force is what I miss about government. And that is, doing something every day that you know is important, that matters and is consequential. And I feel the climate work is definitely all of those things."

READ MORE: Sustainability reporting: Going beyond compliance

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