What are climate disclosures?

21 April 2023

Climate disclosures are documents that organisations such as companies, banks and institutions like the ECB publish about the carbon footprint of their activities and their exposures to climate risks. They tell us how much an organisation’s activities affect, and are affected by, climate change.

For example, climate disclosures can show how much CO2 a company’s factories produce, the effect of extreme weather like floods or droughts on the business, or how green its investments are. And they can tell us what the organisation plans to do about this.

Climate disclosures can take many forms. They may be released as a report, a web page or another means of public communication.

How are climate disclosures helpful?

With the insights they bring, climate disclosures help us to make better-informed decisions. Just as nutrition labels on food help people make healthier choices, climate disclosures point us to greener options when we shop or invest. If we all base our decisions on them, more money will flow into activities and technologies that help our economy to become greener.

Climate disclosures also give people a better picture of the risks of doing business with certain companies or banks. For instance, a firm with high greenhouse gas emissions might run into difficulty if new climate policies force it to change its business practices.

The company could lose business or even have to close down, especially if it does not have a sound strategy to reduce its carbon emissions or cope with the impact of the changing climate. Anyone who owns shares in that company or has made loans to it could lose a lot of money. Some investors and banks may be able to bear such losses, but not all. So, climate risks can lead to problems and instability in the wider economy. 

As a central bank, it is our job to keep an eye on risks. We need to understand where climate risks come from, their potential impact and what will be done to address them. The information from climate disclosures can make our analyses more accurate and reliable. And on that basis, we can make the right decisions to help keep our currency and the financial system stable.

As a banking supervisor, we ask banks to stay aware of climate-related risks. And we insist they are transparent about their exposure to those risks, especially in carbon-intensive industries (such as construction or textiles) and areas prone to climate disasters.

For example, banks should collect and publish information about the emissions of the companies they lend to. They should also be open about the steps they are taking to green their business and, thus, to smooth the transition to a more sustainable economy.

All this new information will shed light on the hidden costs of climate risks.

Our own climate disclosures

The ECB and the central banks of the euro area (known collectively as the Eurosystem) also publish information on their carbon footprint and how they plan to reduce it. At the ECB, we show in our annual Environmental Statement how we are trying to make our business operations greener. For example, we are using less electricity and reducing emissions from business travel.

In March 2023 we published climate information about some of our asset holdings – including corporate bonds bought as part of our monetary policy – for the first time. And individual Eurosystem central banks also publish information about the carbon footprint of their other investments, such as pension funds.

Making climate disclosures comparable

The way we measure and disclose climate risks should follow a common set of rules.

For a clear picture, we need to be able to compare climate disclosures across different types of organisations, and ideally even across countries. And we have to be able to trust that the information is meaningful and reliable. Only then does it become useful, allowing us to make choices that help to better manage climate risks and green our economy.

Climate disclosures should therefore be legally required of all banks and companies. Some of these common standards exist already and will soon be binding, for example, the EU’s Corporate Sustainability Reporting Directive.

At the international level, the International Sustainability Standards Board is working on standards that would apply beyond Europe and make disclosures easier to compare across countries.