Image: H&M

BlackRock CEO Larry Fink released his annual letter to CEOs this week, asking recipients to tailor their environmental, social and governance (“ESG”) reports to ensure that they are “consistent with the Task Force on Climate-related Financial Disclosures” (“TCFD”), a framework that aims to help public companies and other organizations disclose climate-related risks and opportunities. As part of the company’s focus on “sustainability,” Fink says that BlackRock is “asking companies to set short-, medium-, and long-term targets for GHG reductions,” and to ensure that corresponding reports are in line with the TCFD, as the firm “believes these are essential tools for understanding a company’s ability to adapt for the future.” 

Fink’s call on companies to utilize uniform ESG disclosures for the benefit of investors “reflects a growing consensus among both prominent businesses (e.g., State Street) and regulators (e.g., U.S. Securities and Exchange Commission Chairman Gensler) that the disclosure framework outlined by the Financial Stability Board-created TCFD is the appropriate model to adopt,” says Mintz attorney Jacob Hupart. Given his position at the top of the world’s largest asset management firm, Fink and other powerful investors’ pushes for uniform disclosures are expected to impact “the reasoning and eventual implementation decision by regulators,” such as the SEC, which has not yet issued its rules on climate-related disclosures.

Among those that have moved to mandate the TCFD framework, the UK’s Financial Conduct Authority published a Policy Statement – and final rules and guidance – on climate-related financial disclosures for publicly-listed companies, which mandate that standard listed companies are required to include a statement in their annual financial report that sets out whether their disclosures are consistent with the TCFD, and if not, to explain why, beginning on or after January 1, 2022. The aim, according to the UK government: to ensure that companies “consider the risks and opportunities they face as a result of climate change.” 

Enduring calls for uniform reporting and looming crackdowns by regulators come as the amount of ESG disclosures included in SEC filings, for instance, has significantly increased in recent years. “This trend will no doubt continue once the SEC introduces its climate change rules,” according to Bass, Berry & Sims attorney Kevin Douglas. Additionally, he notes that “there has been a significant expansion in the scope of ESG disclosures being provided by many public companies (particularly large-cap companies) outside of SEC filings, including via corporate social responsibility or similar reports, and company website disclosures” – with such efforts being seen in the fashion industry, as brands seek to cater to rising consumer and investor interests. 

In fact, a number of notable fashion brands and groups – including Burberry, Kering, LVMH, H&M, Uniqlo-owner Fast Retailing, Hermès, Zara-owner Inditex, Richemont, and Tapestry – have voluntarily adopted the TCFD reporting guidelines in recent years, presumably due, at least in part, to pushes from shareholders to where to an accepted framework as part of their duty to such parties. Within the fashion space, Gucci owner Kering was a first-mover, along with ASICS Corp., both of which adopted the TCFD in June 2017, closely followed by Burberry and Marks & Spencer that same year. Luxury powerhouses LVMH, Hermès, and Richemont joined in December 2020. And more recently, Coach’s parent Tapestry, Inc. adopted TCPD standards in July 2021.

While the lineup of fashion-focused supporters of the TCFD includes some of the biggest names in the industry, it is, nonetheless, a very short list – making up roughly 1 percent of the nearly 2,000 companies that use the TCFD framework. Missing from this list are, of course, some of the biggest names in sportswear/activewear, as well as nearly all of the big-name Western retailers, among others, raising questions about why more brands have not opted to adopt the voluntary framework, and whether more will follow suit going forward amid pushes from influential investors and ahead of further regulatory action on the ESG reporting front.

Ultimately, if companies “already feel compelled by investor demands to issue TCFD disclosures,” Hupart asserts that “the imposition of similar regulatory requirements may not inspire as much resistance as would be provoked by other types of climate disclosures.”