Navigating the Task Force on Climate-Related Financial Disclosures (TCFD)

Sustainability

Navigating the Task Force on Climate-Related Financial Disclosures (TCFD): A Route Map for Action

  • Navigating the Task Force on Climate-Related Financial Disclosures (TCFD): A Route Map for Action A practical guide to help companies understand the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
  • Date: Dec 31, 2018
  • Category: Sustainability
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Background

The Taskforce for Climate-related Financial Disclosures (TCFD) is a market-driven initiative set up by the G20 Financial Stability Board and led by Mark Carney and Michael Bloomberg. It was established in response to growing concerns that climate change is not being adequately priced into financial markets, particularly given global commitments to transition to a drastically lower-carbon economy.

The recommendations of the TCFD (TCFD recommendations) aim to drive better, more consistent disclosures on climate risks and opportunities by organisations in the financial and non-financial sectors alike. There has been widespread recognition and uptake of the Recommendations with more than 500 public and private sector organisations to date expressing their support, including Bursa Malaysia.

“Climate change and environmental degradation can negatively impact the way markets perform and operate, leading to economic and financial instability. Our support of the TCFD Recommendations sets us on the right path in bridging the information gaps between our listed issuers and providers of financial capital in relation to climate change, creating a well-functioning and efficient capital market.” - Datuk Seri Tajuddin Atan, Chief Executive Officer of Bursa Malaysia

Why disclose your climate-related risks in line with TCFD?

Whereas most sustainability reporting frameworks seek to understand a company’s impact on the environment, the TCFD focuses on how climate change may impact a company’s bottom line.

The TCFD recommendations provide an opportunity for organisations to engage with investors, lenders, insurers, and other stakeholders, on how they are managing climate-related risks and opportunities. This in turn drives improved internal awareness and understanding of climate change, ensuring better management of potentially material risks and more informed strategic planning.

Adopting the recommendations early is also beneficial as many organisations are just starting out. This means that there is time to improve as expectations on the disclosures mature, rather than scramble when reporting on it becomes the norm.

Internationally-recognised sustainability ratings and indices including CDP (formerly Carbon Disclosure Project) and the Dow Jones Sustainability Indices (DJSI) have also revised their assessments to be aligned with the TCFD recommendations. Implementing the recommendations can therefore help a company to perform better on climate-related aspects.

Who should disclose?

The TCFD recommends initially that all financial and non-financial organisations with public debt or equity to implement its recommendations. Specific guidance has been developed for carbon intensive sectors (energy, transport, buildings, and agriculture, food and forest) as well as banks, insurers, and asset managers and owners.

As a supporter of the TCFD, Bursa Malaysia strongly encourages listed issuers to disclose material climate-related information in their annual reporting in line with the TCFD recommendations.

Where to disclose?

Climate-related financial disclosures should be reported in mainstream financial filings to help investors, lenders, and insurance underwriters better understand how companies oversee and manage climate-related risks and opportunities as well as the material risks and opportunities to which companies are exposed to.

What to disclose?

At its core, the TCFD requires organisations to assess the implications of climate change on their strategy and finances into the medium and long-term, and to disclose this in a transparent way to investors and wider stakeholders.

The TCFD recommendations

In line with normal business management, recommended disclosures cover 4 areas:

Disclose the degree of Board-level oversight of climate-related issues, and how climate-related responsibilities are assigned to management positions and committees

Use climate-related scenarios (2°C or lower) to test the resilience of an organisation’s strategy to physical and transition risks over the short, medium and long-term

Describe how climate-related risks are identified, assessed and managed – and how this is integrated into overall corporate risk management processes

Three Year Route-map for Action

Year 1 Set the Foundation

Year 2 Build and Engage

Year 3 Accelerate Action

  1. Conduct a baseline review and gap analysis against the disclosures
  2. Determine and assign internal roles and responsibilities
  3. Conduct internal and external engagement to ensure alignment with business and stakeholder expectations
  4. Publicly commit to disclosing in line with the TCFD’s recommendations
  5. Collect data and report on GHG emissions and intensity
  1. Assess your climate-related risks and opportunities in the short, medium and long term (climate-related materiality assessment
  2. Conduct high-level scenario analysis (example: 2 degrees scenario impact)
  3. Determine business strategies to address the identified climate-related risk and opportunities
  4. Develop/expand on company-specific climate metrics and targets (e.g. use of Science-based targets)
  5. Disclose progress against the recommendations within sustainability report
  1. Integrate climate-related risks & opportunities into internal risk and decision making processes
  2. Disclose against the recommendations in mainstream financial filings
  3. Evaluate progress, benchmark peers and plan for future actions

Author

Corporate Citizenship

  • Tags : TCFD, Environment, Climate Change.

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