right.questions | Caryl Walter, Freshfields Bruckhaus Deringer

The regulatory nudge towards transparency in climate risk

Within our new interview series "right. questions" right. based on science asked Environmental Regulatory Lawyer Caryl Walter from Freshfields Bruckhaus Deringer to share her views on tightening climate disclosures. We were honored to count with the presence of Caryl Walter in our recent XDC Frühstück Event sharing an objective and legal view on current and expected regulation for corporations in regards to climate considerations. In order to delve deeper into this issue, right. based on science's Legal Analyst Marcela Scarpellini interviewed Ms. Walter.


What is your view/understanding of the regulatory push for better climate related disclosures?


It seems to me that there is currently a concerted effort particularly at the European level to integrate a degree of “climate-transparency” into a number of corporate regulatory regimes. Clearly there is also a reluctance to be too prescriptive, so that there is currently no hard law requirement to change established practices. But the language of the Commission’s recent communications on this does suggest that the aim ultimately is to converge on a more standardized metric or metrics that will be meaningful to stakeholders.


Do you see the Task Force on Climate-related Financial Disclosure ("TCFD") as a preparatory voluntary scheme which might eventually design and guide the way for regulation?


If its recommendations are widely adopted and there’s a broad consensus that they add useful information for investors, this is the kind of thing that can serve as a blue print, sure. The UK Government’s Green Finance Task Force has, for example, recommended that the TCFD guidelines be integrated into the domestic corporate governance and reporting framework. In terms of the corporate perspective, multinationals in particular are keen for any obligations to be as consistent as possible across jurisdictions, so that they don’t have a multitude of different (and possibly conflicting) compliance regimes to deal with. So it’s imaginable that companies would also get behind such an (in any event industry-lead) initiative, especially if they felt that requirements were in the pipeline one way or another.

"So that’s how we end up with a lot disclosure that is not particularly comparable,

that is more likely to highlight progress than remaining risks."

Do you understand long-term considerations of financial returns and investments to be part of an investor´s fiduciary duty?


The legal concept of fiduciary duty is very old, and described along similar lines in different jurisdictions. In essence, it is the requirement for a fiduciary to act in the best interests of another in good faith. So of course both short-term and long-term considerations play into this, they always have. Your question is aimed at climate considerations – and arguably yes, if a climate-related risk is going to materially affect an asset’s performance, then it has to be taken into account. The ongoing discussion is about which climate risks should in fact be considered material in which contexts, because there always has to be an element of business judgment involved in weighing up different risks and opportunities. The legal principle is well-established, but whether shareholders or plan beneficiaries have an “inherent” interest in detailed climate-related information is hotly debated – clearly, many companies don’t see it that way.


Do you see any place for climate metrics aiding in climate related disclosures? If yes, in what way?


Of course metrics as a basis for a detailed disclosure must play some role. I don’t see how the EU’s “taxonomy of sustainable industry” can do without metrics. The data has to be checkable and comparable. That said, it’s the contextual information that may be the most important, and the most contested – i.e., how good is a Company compared to others in its sector, how do you define the sector?

When it comes to precision in disclosure, do you consider the main hurdle as of reluctance to information required or do you see it the hurdle in actually generating the information?


Many companies simply do not measure this data, they don’t think of their supply chains this way – so for these companies, that is the main hurdle. It’s a lot of work and takes resources to do this in a methodical and comprehensive way. When it comes to disclosing the data that is measured, companies are naturally keen to put it into context – the context of a particular mitigation project, a sector comparison etc. Just putting raw data out there is usually not particularly helpful to tell the story, especially when there’s no agreed format for such data. So that’s how we end up with a lot disclosure that is not particularly comparable, that is more likely to highlight progress than remaining risks. So to sum it up – is the regulatory nudge towards transparency in climate risk (and ESG matters generally) gaining momentum at the moment? Yes, it certainly is. Would I advise a company who had decided to disclose such information to check and be sure they were doing so on a really defensible methodological basis? Of Course. Similarly, as the pressure to consider these issues and be transparent about them increases, so it is increasingly prudent to establish clear and defensible criteria for deciding when they do not merit further consideration or reporting. Either way, it’s a good moment to think about what you report, and really test why and how something makes it into the non-financial Information that gets published – or doesn’t.



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#ClimateChangeLiability Increasing regulatory pressures to address climate-related risks. Demand for science-based climate metrics is rising. Are you ready?


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Marcela Scarpellini studied law at the Universidad Católica Andrés Bello in Caracas (Venezuela) and studied with an LL.M. at the University of Stockholm (Sweden) in the field of environmental law. Marcela is in charge of the legal aspects regarding 2°C-compatibility within right.


#GLSNBA18 - GLS Bank is looking for the Sustainability Blog 2018. Take a #glimpseintoright - our blog series - is among the nominees. You can vote here.

Caryl Walter is a Foreign Qualified Lawyer (England & Wales) and Principal Associate at Freshfields Bruckhaus Deringer, Berlin.


Caryl Walter gave a speach on the legal need for new climate metrics at the launch of right. based on science's X-Degree Compatibility ("XDC").


To the impressions of the XDC Frühstück