(1) TCFD Recommendations – More On Your Plate? Part One

Today’s Sustainability professionals are asked to do more with less. Their mandate is to cut expenses and eliminate resources, yet still deliver high-quality products that achieve big returns.

Teams deal with large variability in data types  (water, energy, governance, philanthropy, diversity and so on), and it can be difficult to consistently gather accurate data. Many have concerns about the accuracy of the data and sustainability teams are already having to contend with multiple framework requests and reporting requirements.   

This article aims to address the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and how Sustainability teams can easily and effectively deliver financially accurate sustainability data that can be signed off by the CFO with confidence.

Task Force on Climate-related Financial Disclosures (TCFD)

As the dust settles from annual reporting deadlines, the focus for reporting turns to CDP submissions in the summer. CDP have committed to fully adopt the TCFD recommendations over time within the disclosure process and have begun by flagging a connection between the TCFD recommendations and the CDP Climate Change questionnaire.  

The new CDP climate guidelines, following the TCFD framework, are set to “help firms understand what financial markets want from disclosure in order to measure and respond to climate change risks and encourage firms to align their disclosures with investors’ needs.”Whilst the headline issues raised by the TCFD recommendations are reasonably straightforward, this is a potentially complex and far reaching set of goals and challenges. For most organisations it may take some time to unravel where the relevant information and responsibilities lie within the organisation. It is likely to require discussing issues of climate change risk and opportunity with parts of the business that aren’t usually engaged on the subject, which can create it own set of challenges.

Though great work has been done by NGOs in this space, as an industry-led initiative, the TCFD represents an opportunity to bring climate-related financial reporting to a mainstream audience.

The TCFD engages extensively with key stakeholders to ensure that it builds on existing work and produces recommendations that can be used by the private sector, globally.

As CDP’s only Gold Partner for Climate Change, Forests and Water disclosure, and experts in financially accurate sustainability data, we have set out a brief overview to some of the considerations when starting to look at applying the TCFD’s recommendations to your organisation’s reporting.

“Increasing transparency makes markets more efficient, and economies more stable and resilient.”

—Michael R. Bloomberg, TCFD Chair

What do the TCFD Recommendations mean for your organisation?

Investors and other financial stakeholders are increasingly aware that environmental, social and governance (ESG) issues, previously considered “nonfinancial”, are relevant to the financial performance, long term value creation and sustainability of a business.  

The TCFD seeks to develop recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and provide decision-useful information to lenders, insurers, and investors.

Better access to data will enhance how climate-related risks are assessed, priced, and managed. Companies can more effectively measure and evaluate their own risks and those of their suppliers and competitors. Investors will make better informed decisions on where and how they want to allocate their capital. Lenders, insurers and underwriters will be better able to evaluate their risks and exposures over the short, medium, and long-term.

The recommendations focus on how an entity considers climate-change as part of its governance, strategy, risk management and, metrics and targets. It’s also important to note that much of what the TCFD are calling for is already in place, or in the process of being implemented, but is typically fragmented across different business functions, often without specific climate change knowledge.

On a more positive note it’s likely that you’re organisation is already meeting some of the requirements of the TCFD. For instance GHG accounting and disclosure is met via annual financial reports and CDP, and through setting targets, for instance Science Based Targets.  

The recommendations include sector-specific standard KPIs, e.g. requirements for Corporate Strategy and Risk Management in the area of Climate Change Mitigation / Adaptation. In this sense, they are somehow similar to GRI disclosures, or questions of CDP Climate Change, with the difference that they are specifically aimed at the financial sector.

Climate-related Risks, Opportunities, and Financial Impact:

What are the challenges the TCFD addresses?

• For issuers: A lack of coherent framework to disclose material risks
• For lenders, insurers, investors: a lack of proper information to make financial decisions
• For regulators: lack of visibility on some risks facing the financial system

“The Task Force aims to provide the solution: a clear, efficient, and voluntary disclosure framework that improves the ease of both producing and using climate-related financial disclosures”

Take a look at part two where we clarify the TCFD recommendations, and tell you how you can cope with the new requirements in a way that’s financially-accurate and sustainable.