From the Tragedy of the Horizon to the Tragicomedy of Climate Disclosure
A decade ago, ahead of COP21 and the adoption of the Paris Agreement, Bank of England Governor Mark Carney delivered his celebrated “(Breaking the) Tragedy of the Horizon” speech (Carney, 2015). At the time, Carney was also Chair of the Financial Stability Board (FSB), the body tasked with safeguarding the resilience of the global financial system, and the speech marked a turning point in how central bankers and regulators approached climate change: no longer as an abstract environmental concern but as a systemic risk.
Credit is due, first to the foresight behind that speech and, above all, to the catalytic leadership displayed by both the FSB and Mr Carney. In that address, he supported the creation of an industry-led group on climate disclosure, a proposal that would materialise in the momentous decision by the FSB to establish the Task Force on Climate-related Financial Disclosures (TCFD). The remarkable work of the TCFD, embodied in its 2017 recommendations and subsequent guidance, defined a global benchmark for voluntary disclosure of climate-related risks, costs, and opportunities, and inspired the development of mandatory reporting regimes around the world.
Carney explained to an audience of insurers how climate-related risks would not only materialise through mounting insurance losses from the realisation of physical risks (from more frequent and severe weather events or gradual changes such as sea-level rise) and liability risks (for example, arising from legal claims over climate-related harm), but also through the repricing of assets held on balance sheets, as markets incorporate physical, liability, and transition risks into valuations. Transition risks, he explained, would arise primarily from policy changes, for example on carbon pricing or performance standards, and from technological shifts.
He warned that the “tragedy of the horizon” lay in the mismatch between the long timescales over which climate impacts unfold and the much shorter temporal frames for analysis, decision, and accountability within which those most able to act operate. Prudential authorities, i.e., financial-stability regulators and supervisors, think in terms of the credit cycle at best, politicians remain constrained by the electoral or five-year plan cycle, and corporate management often passes for long-term when planning around the business cycle. By the time climate change enters those frames, he cautioned, it may already be too late to avert catastrophe.
To “break” that tragedy, Carney proposed a response centred on disclosure. Better information, he argued, could start a positive feedback loop: investors pricing risks before they crystallised, policymakers being encouraged to support the transition more boldly, and innovators and businesses accelerating the development of new technologies and business models.
The TCFD – and the voluntary and mandatory reporting schemes it inspired – transformed climate-related information, not only by vastly increasing its availability but also by extending its scope and improving its consistency and comparability.
Preparatory work within the FSB had initially articulated a two-pillar approach: mobilising capital for green investment through changes in policy and regulatory frameworks, with disclosure and risk awareness as a supporting instrument. Carney’s speech brought these pillars together into a single disclosure-centred “virtuous circle”, placing transparency at the heart of the emerging financial-sector conception of climate finance.
But as we mark the anniversary of Carney’s address, we must confront an uncomfortable reality and apparent paradox: while the push for standardised disclosures delivered major advances in information, climate action over the past decade has been catastrophically insufficient. And the very emphasis on disclosure, both in Carney’s speech and in subsequent policy, is part of the reason why.
Carney never claimed that disclosure alone would solve the problem. He was explicit that better information could only catalyse change if combined with credible policy responses from governments and technological breakthroughs from the private sector. Yet the virtuous circle he envisioned never materialised. Governments largely confined themselves to legislating disclosure regimes – often targeting financial market participants before the real economy – while failing to match transition rhetoric with clear and stable policy signals. Fossil-fuel subsidies, both direct and implicit, remain pervasive. Carbon-pricing coverage has expanded but remains incomplete and inconsistent, and prevailing prices fall far short of the levels required to shift behaviour. Efficiency standards, industrial strategies, and infrastructure investment have advanced too slowly to reshape incentives at scale.
The progress achieved over the past decade, namely a relative decoupling in which greenhouse gas emissions have grown more slowly than economic output, owes more to technological development than to policy signals or disclosure frameworks. Efficiency gains have done the heavy lifting in slowing emissions growth, and mostly without the help of government incentives. Grid decarbonisation has contributed more modestly, spurred by steep declines in the cost of renewables and, in some jurisdictions, by supportive policies.
Yet what began as an effort to accelerate the transition increasingly served to defer it. The transparency that was meant to catalyse action became a substitute for it. Tragically, disclosure became the horizon of political and regulatory intervention.
Part of the appeal of this disclosure-first, and, in some jurisdictions, effectively disclosure-only, approach lay in what might be called a convenient belief, echoing the supply-side economics explicitly espoused by Carney in his speech, that better information would itself prompt capital markets to adjust: pricing risk in, redirecting investment toward the transition, and ultimately altering the climate trajectory – thereby reducing the need for, or at least easing, substantive policy intervention.
This leap of supply-side faith spared policymakers from having to confront established economic, fiscal, and social equilibria that together underpin the carbon order.
Phasing out fossil-fuel subsidies and raising carbon prices would have disrupted economies still dominated by fossil fuels for energy, with far-reaching effects on rent distribution, employment, and consumption structures. Mobilising large-scale public investment to transform the production and consumption infrastructure would have challenged public budgets already constrained by structural deficits driven by the decision to decouple tax revenues and government expenditures, and further strained by the legacy of the financial crisis and, later, the pandemic. Finally, exploring behavioural change would have required questioning the carbon-intensive lifestyles of those segments of the population that concentrate economic, social, and political power, and whose preferences largely shape what is perceived as politically acceptable given the existing power structures.
This reliance on disclosure as a substitute for action carried political costs of its own. Disclosure obligations expanded rapidly over the period, especially in Europe, but substantive climate action failed to follow. Having become the horizon of climate ambition, disclosure could just as well be denounced as a symbol of regulatory overreach and political futility, leaving disclosure regimes, and the climate agenda they were meant to serve, vulnerable to backlash.
By absorbing expectations it could not meet on its own, transparency became less a catalyst for the transition than one of its most politically exposed fault lines.
As investor-led climate initiatives gained visibility in 2020 and regulatory responses accelerated in 2021, the call for transparency began to threaten entrenched fossil-linked interests. Investor expectations evolved from a demand for comparable information into transition pressure on carbon-intensive firms, and the challenge to the fossil-fuel order grew more salient as regulators signalled their willingness to introduce mandatory reporting regimes.
This prompted groups defending the status quo to mount a powerful counterattack, one that found favourable terrain. With few clear transition winners yet emerging or identifiable, precisely because substantive action and strong policy signals were lacking, the balance of power remained firmly on the side of incumbents.
Overt and covert lobbying, the purchase of political influence, the funding of disinformation campaigns, and the threat of strategic litigation cowed regulators, prompting them to weaken draft measures.
In the US, climate disclosure became a political battleground: finalising federal regulation required three years of work marked by intense and unprecedented contestation. In March 2024, the U.S. Securities and Exchange Commission (SEC) adopted a rule after pre-emptively removing its most controversial provisions, despite their strong backing from institutional investors, in an effort to limit opposition and improve its chances of surviving legal challenge. Less than a month after promulgation, the rule was put on hold pending litigation.
In the EU, the disclosure agenda initially advanced swiftly: the framework Corporate Sustainability Reporting Directive (CSRD), proposed in 2021, was enacted at the end of 2022. Contestation focused on the technical standards. In July 2023, the Commission issued the first set of European Sustainability Reporting Standards (ESRS) and went even further than its expert group’s drastic simplification proposals for the overinflated April 2022 draft, materially weakening the regime. The resulting standards were so pared down that mandatory disclosures became insufficient to provide institutional investors with the data they require to meet their own reporting obligations.
Fossil-fuel interests subsequently gained influence through electoral victories by parties aligned with their agenda: first in the EU, with the June 2024 European Parliament elections, then in the US with Donald Trump’s victory in November 2024, and finally in Germany with the federal elections of February 2025, in which the far right achieved its strongest postwar result. In Europe, right-of-centre parties increasingly adopted the widely criticised strategy of accommodation, allowing the far right to set the agenda and co-opting parts of its rhetoric, including on sustainability. This reshaped legislative incentives both before and after elections, reinforcing pressures to delay, dilute, or roll back sustainability regulation.
These political shifts quickly translated into regulatory retrenchment on both sides of the Atlantic. In early 2025, under new leadership, the SEC announced that it would no longer defend its climate disclosure rule in court. In Europe, EU institutions came under mounting pressure from major oil companies, sectoral lobbies and mainstream business federations, from powerful member states anxious about the rise of far-right parties, and from fossil-fuel states, first and foremost the US. By the end of 2025, EU lawmakers had converged on a dramatic reduction in the number of companies within the scope of the CSRD, alongside a substantial scaling back of the ESRS and the abandonment of scheduled sectoral extensions, all under the guise of ‘administrative burden reduction’ and the pursuit of ‘competitiveness’.
These sustained assaults have not only stalled progress but are now fuelling regression and shifting the ideological and geopolitical battle lines, from debates over the essence of sustainability reporting to a direct challenge to its very existence.
Until recently, the contest was over the scope and purpose of reporting, pitting narrow conceptions focused on financial materiality and corporate risk against broader frameworks recognising corporate impacts on the environment and society.
On that front, the EU championed a “double materiality” approach, combining the outside-in (financial) perspective focused on the risks, costs, and opportunities that climate change poses to the reporting entity, with the inside-out (impact) perspective considering the reporting entity’s contribution to climate change. Beyond a reporting distinction, double materiality encoded a governance choice, anchoring corporate accountability not only in financial risk to investors but also in firms’ impacts on society and the environment.
Incorporating both financial materiality and impact materiality, this stakeholder model has been opposed overtly by the International Sustainability Standards Board (ISSB), which upholds an investor model based on single materiality. As an emanation of the International Financial Reporting Standards (IFRS) Foundation, the leading independent body for global financial reporting, the ISSB aims to develop a baseline of sustainability disclosures grounded in financial materiality, starting with climate, that can be adopted by domestic regulators worldwide.
Vying for global influence, the ISSB actively sought to have the EU adopt its single, financial-materiality focus, including through high-profile public interventions that critics have described as conceptually weak and misleading rather than grounded in rigorous argument.
Business federations and groups closely linked to fossil fuel value chains and their political appointees, both within the EU and from across the Atlantic, aligned with the ISSB and amplified narratives portraying impact reporting as an unnecessary burden, a threat to competitiveness, or an impediment to trade.
Under mounting pressure, in July 2023, the European Commission engineered a dramatic reduction in the bloc’s sustainability disclosure requirements, but nevertheless reaffirmed its attachment to double materiality, suggesting that political resolve, while fragile, persisted. As political headwinds intensified thereafter, the Commission championed further retreat, packaging it as administrative relief and citing the ‘competitiveness’ agenda outlined in the report delivered by former European Central Bank President Mario Draghi in September 2024 as justification, even though that report did not call for deregulation. In this new environment, the ISSB has shifted tactics, calling on the bloc to adopt its standards as a core baseline while keeping impact materiality as a regional add-on.
Meanwhile, some of the ISSB’s erstwhile allies in the campaign against double materiality, emboldened by their successes, have gone further, calling for the outright dismantling of sustainability reporting itself. The ISSB, in turn, has become a target. The Chair of the SEC has warned that the US could reconsider its decision to allow foreign companies to file financial statements prepared under IFRS without reconciling them to US accounting principles, citing purported concerns over the IFRS Foundation’s ability to fund both financial reporting and sustainability standard-setting. Faced with such a threat to the currency of the IFRS framework as a global accounting standard, the IFRS Foundation could be tempted to deprioritise the work of ISSB or compromise on that body’s independence. Either way, the global appeal of the body entrusted as steward of the TCFD recommendations would be at risk, if not its very existence.
The attack on sustainability disclosures has thus moved beyond the conceptual and institutional arena. What began as an ideological struggle over reporting principles has morphed into a systematic effort to weaken, delay, or dismantle the very regulatory architecture those standards were meant to inform.
The successful backlash against sustainability disclosure has become a lever for a broader offensive, one targeting not only transparency but also the mechanisms of accountability and transition.
In the US, recent administrative measures have not only reduced the incentives but also the ability of investors and financial institutions to integrate sustainability considerations into risk management, investment, and stewardship. Federal agencies, meanwhile, have been loosening pollution standards and dismantling key environmental monitoring and disclosure frameworks, signalling comfort with environmental regression no longer constrained by transparency. Most consequentially, the administration has moved to dismantle the legal foundations of US climate regulation by pursuing the rescission of the 2009 Endangerment Finding, the determination by the U.S. Environmental Protection Agency (EPA) that greenhouse gases endanger public health and welfare and therefore enable federal climate regulation, signalling a reversal not only of transparency but of the transition itself. The administration has also signalled receptiveness to calls for shielding fossil-fuel companies from climate-related litigation, a move that would further erode corporate accountability for environmental impact and weaken the financial justification for climate stewardship by investors.
In the EU, the deregulatory drive has been marketed as a technical exercise to streamline EU law, reduce administrative burdens, and foster competitiveness. As in the US, pushback campaigns have expanded beyond slowing the progress of disclosure to targeting Europe’s substantive climate measures, including requirements relating to corporate transition planning, deforestation-free supply chains, and the reduction of methane emissions in the energy sector. Most notably, lobbying efforts have already led to a political agreement to remove the requirement for corporate transition plans from the Corporate Sustainability Due Diligence Directive (CSDDD), to dramatically narrow its scope, and to do away with its uniform liability regime. Given this momentum, the next rounds of “simplification” under the rolling Omnibus Simplification Package may include further regulatory rollbacks.
With the climate tragedy unfolding under our very own eyes and transparency, accountability, and substantive climate action under siege, the question becomes how to restore a horizon for transformative climate action.
Paradoxically, the existential threats now facing sustainability disclosures and climate action arise just as the very tools needed to confront the challenges Carney identified reach maturity.
Stress testing and scenario analysis, which have become central to the prudential response Carney helped to inspire, are now far more sophisticated. They allow central banks and supervisors to assess the resilience of financial institutions to climate shocks, and to explore how different policy or technology pathways could affect asset valuations and credit risks over time.
A new generation of probabilistic climate scenarios, assigning likelihoods to alternative transition and physical risk pathways, now enables more credible pricing of climate risks across asset classes and more realistic assessments of the costs of delayed action (see Rebonato et al., 2025); meanwhile, advances in climate impact modelling, rooted in geospatial projections, are increasingly being translated into firm-level cash-flow impacts within standard discounted-cash-flow valuation frameworks (see Bouchet and Schneider, 2026).
Yet, just as these advances make it technically feasible to integrate climate risks into financial decision-making, the continuity of the very data on which they depend, from corporate disclosures to the satellite observations underpinning weather and climate models, has become uncertain, not for technical reasons but as a result of political choices.
Without reliable, high-resolution data, even the best analytical models risk falling short of their full promise. The coming decade must therefore become the decade of action.
Carney’s speech ended with the claim that “better information” could form the foundation of a virtuous circle, enabling better understanding of tomorrow’s risks, better pricing by investors, better decisions by policymakers, and a smoother transition to a low-carbon economy.
Better measurement can indeed lead to better management, but only if the right incentives and policies are in place.
If the next decade is to look different from the last, we must preserve and strengthen sustainability reporting rather than dismantle it. We must continue to invest in research, development and innovation to improve climate-aware risk management and asset pricing.
But breaking the tragedy of the horizon will require more than better information and models. It will require decisive action to alter incentives and to redirect production and consumption.
Regulators must adjust prudential and supervisory frameworks so that financial institutions are incentivised to manage climate risks and finance transition and adaptation, rather than being penalised for doing so. Above all, governments must deliver clear, credible and durable policy signals to the real economy, through regulation, taxation, public spending and investment, to complete the virtuous circle Carney envisaged. Without such choices, neither markets nor societies will achieve the speed and scale of transition that the climate crisis demands.