The New York State Public Service Commission, in an Oct. 15 order, said that it is establishing a proceeding to consider adoption of recommendations made by the Task Force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB), or an alternative approach, for climate-related financial disclosure at the utility operating company level.
The threat of climate change and its potential impacts on all aspects of the economy are broadly recognized, the commission said, adding that the TCFD of the FSB — which is an international organization that monitors and makes recommendations about the global financial system — in 2017 released its recommendations for a uniform set of corporate climate-related financial disclosures.
Those disclosures are intended to promote more informed investment decisions that will, in turn, enable investors to better understand the financial system’s exposure to climate-related risks, the commission said.
The TCFD’s recommended disclosures fall into four areas: governance, strategy, risk management, as well as metrics and targets. For instance, the commission added, the purpose of the strategy financial disclosures is to disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, as well as strategy and financial planning where such information is material. The three strategy related recommended disclosures are:
- Describing the climate-related risks and opportunities the organization has identified over the short-, medium-, and long-term
- Describing the impact of those risks and opportunities on the organization’s business, strategy, and financial planning
- Describing the resilience of the organization’s strategy taking into consideration different climate-related scenarios, such as a scenario constraining average temperature changes to 2˚ Celsius or lower
The commission also noted that for public utilities, with significant assets and changing physical infrastructure needs, increased transparency of climate-related financial risks would allow better planning and investment consistent with New York’s climate goal of a carbon neutral economy by 2050.
Currently, the commission said, several of the parent holding companies of New York’s 11 major electric and gas utilities are signatories to the TCFD and have committed to fully adopting its recommendations in their disclosures to their shareholders. The current reporting focuses solely on data aggregated at the holding-company level and is not utility specific, the commission said, adding that the Commodity Futures Trading Commission in September issued a report that stated that by building on the firm-level disclosures provided by issuers, U.S. financial regulators would be better able to understand the impacts of climate change on financial markets, with that greater understanding allowing them to issue relevant guidance or regulation needed to improve the resilience of financial markets in the face of risk and uncertainty.
The commission noted that in total, New York’s largest electric and gas utilities have more than $52bn in capital, and that in the past year, the state’s utilities have raised $6.2bn in capital through debt issuances, with most of those issuances occurring at the operating company. New York utilities also obtain equity capital through their parent holding companies, the commission noted.
Given the potential impacts of climate change on the provision of utility services, it is necessary for utilities to earnestly incorporate those impacts into all of their future decision-making, and to robustly and consistently report those impacts to potential investors, so that the market can operate efficiently with maximum information, the commission said. Also, given the issuance of debt at the operating company level, and to focus management and investor attention on climate-related risks in the state, the commission said that it believes that climate-related risk disclosures should be issued specific to the operating companies in New York.
The commission said that it solicits comments on these questions:
- What are the pros/cons and costs/benefits of providing climate-related risk disclosure?
- Should utility operating companies in New York be required to make climate risk disclosure in annual financial statements, sustainability reports, or other public filings?
- Should utility operating companies in New York be required to use the same approach to climate risk disclosure? * Which framework for such climate risk disclosure should utility operating companies in New York be required to adopt, whether TCFD’s recommended disclosures or other, and why?
Comments may be filed within 30 days of issuance of the order, the commission said.