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

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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BRIEFING NOTE

Navigating the Taskforce on Climate-
related Financial Disclosures (TCFD)

A Beginner’s Guide to Reporting in line with the Recommendations

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 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 wellfunctioning and efficient capital market.”

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

Develop company-specific metrics and targets to assess, manage and disclose climate-related risks

All four elements need to be disclosed in financial reporting for investors

Three- Year Routemap for Action


Graph

SET THE FOUNDATION

Conduct a baseline review and gap analysis against the disclosures

Determine and assign internal roles and responsibilities

Conduct internal and external engagement to ensure alignment with business and stakeholder expectations

Publicly commit to disclosing in line with the TCFD’s recommendations

Collect data and report on GHG emissions and intensity

BUILD AND ENGAGE

Assess your climate-related risks and opportunities in the short, medium and long term (climate-related materiality assessment)

Conduct high-level scenario analysis (example: 2 degrees scenario impact)

Determine business strategies to address the identified climate-related risk and opportunities

Develop/expand on companyspecific climate metrics and targets (e.g. use of Science based targets)

Disclose progress against the recommendations within sustainability report

ACCELERATE ACTION

Integrate climate-related risks & opportunities into internal risk and decision making processes

Disclose against the recommendations in mainstream financial filings

Evaluate progress, benchmark peers and plan for future actions

Principles for implementing the TCFD Recommendations


  1. DO have a pragmatic approach to TCFD. Businesses should identify priorities and map concrete and achievable steps over a (e.g.) 3-year timescale.
  2. DO plan and undertake meaningful engagement, internally (across business functions) and externally (with key stakeholders and investors) to ensure climate change considerations are aligned with the business and integrated into decision making processes. This should not be a tick-box exercise.
  3. DO ensure that reporting is fit for purpose and avoid boilerplate disclosures.
  4. DON’T start from scratch. Seek to build on work that’s already been done – look at what the company is already reporting on and reference existing scenarios, tools, and best practices.

The TCFD Knowledge Hub provides resources on understanding and implementing the recommendations.

Examples of companies reporting on the TCFD recommendations


Listed below are best practices of companies who have publicly supported the TCFD and are reporting based on the recommendations.

Singtel (Singapore)

Developed carbon reduction targets approved by the Science-Based Targets Initiative (SBTI)

  1. Conducted a formal climate adaptation and resilience study in 2016 to understand the various models and assumptions of climate change patterns for its Singapore and Australian operations.
  2. Publicly committed to supporting the TCFD recommendations in 2017.
  3. In FY2018, the Singtel Group conducted a review and modelling of their carbon footprint and carbon targets to achieve a less than 2°C temperature rise scenario.
  4. Developed SBTI approved carbon reduction targets for 2030 for Scope 1, 2 and 3.
  5. Reported on the four areas of disclosures within their 2018 Sustainability Report.

AXA (France)

Published a comprehensive TCFD climate-related investment and insurance report

  1. Supported the TCFD in 2017, along with new climate commitments.
  2. Conducted a 2-degree portfolio alignment analysis by testing the “warming potential” of corporate bonds and equities, accounting for 45% of AXA’s General Account to better understand climate-related risks for financial assets.
  3. The company implemented reporting on the TCFD recommendations in its 2017 Registration Document.
  4. Released a Climate-related investment &
    insurance report
    providing a detailed description on how AXA is responding to each of the four areas of the recommendations, including calculation methodologies.
  5. The company also shared preliminary results of its climate “Value-at-Risk”, which is used to access future portfolio level impacts from climate change, including monetary risks.

Cathay Financial Holdings (Taiwan)

Conducted a climate-related risk and opportunities assessment

  1. Cathay Financial Holding’s 2017 Corporate Sustainability Report includes disclosures around the four key areas of governance, strategy, management, and metrics and targets.
  2. The report also includes the results in the form of a matrix from the company’s climate-related risk and opportunities assessment which is used as a basis for scenario analysis and improving climate strategies.

How Corporate Citizenship can help

We’re a global consultancy that starts with the very simple premise that just as individual citizens have rights, responsibilities and aspirations, so do companies. For more than 20 years we’ve helped businesses find their place in the world. Working as critical friends, we ask the sometimes difficult questions, that challenge our clients to fulfil their responsibilities and ambitions through practical action. What kind of corporate citizen do you want to be?

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  • Tags : TCFD, Environment, Climate Change.

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