Climate Disclosure Expectations for Industry

Written by Frostbyte Consulting | November 15, 2022

Asset managers need companies to provide climate risk disclosure that is clear, precise, and tailored to specific sustainability guidelines. While there are numerous third-party frameworks that asset managers are using, the Task Force on Climate-Related Financial Disclosures (TCFD) is the most widely endorsed climate change reporting framework. Company disclosure in line with the TCFD framework is becoming a requirement by shareholders. Sustainability managers can begin preparing today by understanding the disclosure requirements and building their climate data management systems.

What is the TCFD?

In 2016, the G20 Finance Ministers and Central Bank Governors became concerned that climate change was a risk that could potentially lead to financial instability. They were also concerned there was inadequate and inconsistent disclosure standards. Given these concerns, the Financial Stability Board’s (FSB) chair Mark Carney was tasked with reviewing how the financial sector can better account for climate-related issues. The Task Force, chaired by Michael Bloomberg, was asked to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material climate-related risks. Following a public comment period in 2017, the TCFD released its final recommendations report and supplemental materials including:

Recommendations on disclosing climate-related financial information;
Guidance on how to implement the recommendations; and
A technical supplement for developing scenario analysis.

What Does the TCFD Recommend?

The Task Force structures its recommendations around four key areas (see Table 1).

Table 1 - Recommendations for Climate-Risk Disclosure

Governance - The organization’s governance around climate-related risks and opportunities	Strategy - The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material	Risk Management - The processes used by the organization to identify, assess, and manage climate-related risks	Metrics and Targets - The metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material
Describe the board’s oversight of climate-related risks and opportunities.	Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.	Describe the organization’s processes for identifying and assessing climate-related risks.	Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
Describe management’s role in assessing and managing climate-related risks and opportunities.	Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.	Describe the organization’s processes for managing climate-related risks.	Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
	Describe the resilience of the organization’s strategy, taking into consideration different scenarios, including a 2°C scenario.	Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.	Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

What Does My Company Need to Do?

Companies are unlikely to face divestment or dissenting shareholders immediately, but TCFD disclosure for all intents and purposes is no-longer optional. There will be time for companies to fall in line with reporting expectations, and this is more likely to be driven by regulators than investors.

Companies should start now before full compliance with sustainability disclosure standards is required. This is an iterative process. Starting now with an imperfect disclosure is better than waiting until the internal practices and procedures are in place.

Sustainability managers should consider taking the following steps:

Ensure your organization has the proper risk management and governance processes in place. Climate-related risk is not unlike the other diverse risks your business faces. Seek to integrate sustainability into your company’s existing risk management framework.
Get familiar with the standards. Make sure you understand the sections of the framework that are applicable to your organization. It is good to have the end in mind from the outset.
If you are using other sustainability standards in your corporate disclosure, now is the time to think about migration to TCFD. Historically, lack of standardization in sustainability disclosure has been a huge issue and it now seems like there is coalescence around TCFD. Use this insight to your advantage.
Sustainability is about more than just disclosure. Going through the TCFD scenario analysis could reveal significant gaps in risk management processes or business strategy. Your organization needs to make investment decisions that are resilient in a low-carbon future.
Robust disclosure requires good data. Have the right tools in place to measure and track performance on key climate-related metrics. This includes tracking operational performance, but also GHG project evaluations and target tracking.
Disclosure is only the first part of building a climate-resilient business. Asset managers have signaled its not just about disclosure but also the underlying business practices. Once investors are satisfied with corporate disclosure, their attention will quickly turn to climate performance metrics. Think about how to improve performance now and be an early mover in the space.

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Frostbyte's sustainability services are cost effective and the broadest in the industry. Whether you require regulatory and risk consulting, data and information technology solutions, or reporting preparation services, Frostbyte can provide the solution for your needs. We’ve worked with countless businesses around the world, including those in the energy, mining, chemical, and construction sectors. Our philosophy is that environmental management is the day-to-day work, while sustainability management is the message behind the work. Ultimately, our goal is to ensure that your organization meets the latest standards in Environmental, Social & Governance ratings while also balancing the needs of people, the planet and your profits.

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