TCFD: Start Disclosing Before It Becomes Regulation

The Taskforce on Climate-Related Financial Disclosures (TCFD) details 11 recommended climate-related disclosures

The TCFD recommendations apply to all sectors and are designed to reveal the possible financial impacts of climate-related changes to businesses in a comparable and consistent way. The recommendations are grouped under four overarching categories: Governance, Strategy, Risk Management and Metrics & Targets.

Governments are planning for TCFD aligned disclosures across their national economies

Government entities across 27 countries including the US, the UK and Canada, have already expressed support for the TCFD. Recent political events reveal a trend towards government mandated TCFD disclosures, exemplified by Canada’s requirement for Covid-19 support, New Zealand announcing TCFD coverage of 90% of AuM, and the release of the UK’s TCFD implementation roadmap. Most recently, Michael R. Bloomberg publicly called for president-elect Joe Biden to endorse mandatory climate risk reporting on his first day in office.  

Many companies are already implementing the TCFD recommendations to meet growing stakeholder and investor demands

The collection of entities expressing support for TCFD disclosures now covers market cap over $12.6 trillion, and investors with assets over $150 trillion. As of December 2020, 60% of the world’s 100 largest public companies support the TCFD, and these numbers continue to grow.

The rapid rise of voluntary TCFD disclosures, and the trend towards government mandates reflect the growing awareness that corporate and national stability depend upon financial resilience against climate risks.

Rapid implementation of TCFD reporting is possible

Agendi has developed a streamlined approach to enable businesses to confidently disclose on their climate progress. Our process covers 6 key steps to ensure relevant stakeholders are engaged and final reporting meets the objectives of the TCFD.  

Aligning your reporting to the TCFD can be achieved in 6 steps:

Gap analysis identifies current climate management and priority action areas

The trend towards integration of various reporting frameworks means many businesses are already well underway on their progress towards TCFD implementation. A gap analysis identifies the current status of your climate-related considerations, and priority elements required to address the TCFD recommendations.    

Stakeholder engagement enables coordination of risk management processes and successful harnessing of opportunities

Collaboration across business units and key roles is crucial for TCFD implementation. While the focus is often directed towards climate risk, the low carbon transition presents immense opportunities. Stakeholder engagement can serve to unlock these opportunities, ensuring they are enacted to their full potential.

Climate scenario analysis identifies exposure to risks under different future states of the world

The future state of the world we will experience depends on the level of coordinated global action to reduce emissions. There are many plausible future pathways and the inherent uncertainty of how the future will unfold forms the rationale for conducting climate scenario analysis. The process ultimately aims to reveal the possible financial impacts of climate-related risks under different plausible states of the world. It poses questions such as “under low versus high emissions scenarios, to what degree is a business exposed to physical hazards, for example floods or sea level rise, and transition hazards such as carbon pricing?” Mapping of these impacts informs strategy and risk management plans to build business resiliency.

Although often perceived as a challenging aspect for companies new to the TCFD, improved data tools are rapidly simplifying the scenario analysis process. The scope of a company’s analysis can also be expanded over time – the TCFD acknowledge it is an iterative process. Companies can initially focus on key aspects of their value chain, such as direct operations, or critical sites, and extend coverage in future iterations. A robust scenario analysis program should be based on transparent data sources and easy-to-understand exposure results to facilitate exploration of financial impacts.

Understanding business vulnerability to hazards allows for mapping of possible financial impacts

The financial impacts of climate risks are unique to every company, as they depend on the vulnerability of the value chain in relation to the hazards they are exposed to. Results from scenario analysis serve as direct inputs for determining possible financial impacts, and for development of metrics that can be used to track and manage risk mitigation.

Management of climate risks is enabled by clear understanding of the financial risks

Current risk management systems and processes can be adapted to incorporate climate issues. Devising relevant KPI’s and metrics is essential to tracking your progress on climate risk mitigation.

Public reporting is the final step of implementing the TCFD recommendations

After generating the information required to disclose in accordance with the TCFD, you are ready to start reporting in a way that suits your company. Companies may publish a stand-alone TCFD report, or they may wish to integrate disclosures within mainstream reporting. Since the TCFD spans a variety of themes, many companies choose to include an index table cross-referencing each TCFD recommendation to the relevant section within their suite of public reports. Understanding the options available for TCFD reporting ensures that from outset you approach the process making the most efficient use of your resources.

Agendi has led the reporting process to deliver leading TCFD reporting for global companies

Our team of experts works with business across all sectors to produce the highest quality TCFD reports, enabling you to confidently disclose on climate progress and join the ranks of corporate TCFD leaders.