Task Force on Climate-related Financial Disclosures (TCFD)
In December 2015, the Financial Stability Boards (FSB) established an international group called the Task Force on Climate-related Financial Disclosures (TCFD), whose mission is to create recommendations and frameworks for disclosing climate-change-related financial information. This increase in transparency has in turn increased market efficiency and made economies more stable and resilient.
Governance
- Companies are asked to disclose the extent of the board and management’s oversight of climate-related risks and opportunities.
- Investors are increasingly demanding “climate-competent” boards.
Key questions |
We can help |
Do board members have a clear picture of the company’s exposure to climate risks beyond physical impacts? |
Review existing governance structures and integrate climate issues, allowing appropriate oversight |
Does the board have access to current and relevant climate expertise? |
Support board and executive awareness and education on climate issues, including briefing papers and high-level analysis of business exposure |
Are the right governance structures in place to manage climate risks and capture opportunities? |
Conduct internal and external stakeholder engagement to assess views on climate risks and opportunities to guide management decisions |
Is the audit committee satisfied that the financial statements appropriately reflect material climate risks? |
Perform a targeted review of the disclosures related to climate change risks in the financial statements |
Strategy
- Companies are asked to disclose what climate-related risks and opportunities they are exposed to and how this will impact them, e.g. by affecting demand for their products and services or their supply chain - these could potentially impact the income statement and balance sheet.
- Shareholder requests for companies to publish their “2°C transition plan”, i.e. how the business plans to manoeuvre as the world transitions to a low-carbon economy, are increasing.
Key questions |
We can help |
Have you conducted a strategic review of how climate change could impact your business (and your funded pension schemes)? |
Conduct scenario analysis to assess the potential implications of a 2°C world vs. BAU |
| Does the executive team have an understanding of the potential impacts of future scenarios, including a 2°C world, on its business model in the next 3, 5, or 10 years? | Conduct market analysis to leverage your company’s strengths and prepare for market disruption |
| Does the company’s strategy today incorporate the implications of such scenario analyses? | Develop and test strategies that respond to the risks and opportunities presented by climate change |
Have you considered the opportunities presented by climate adaption and mitigation activities to your business model in different geographies? |
Support strategic planning including setting and evaluating goals and benchmarks Advice on managing your portfolio of assets and liabilities to ensure alignment with your climate strategy |
Risk management
- Companies are asked to disclose how they identify, assess and manage climate-related risks and, specifically, how the management of climate-related risks is integrated into existing risk management frameworks.
- Broadening understanding that climate change generates more than just physical impacts
Key questions |
We can help |
Do you have a clear picture of your company’s exposure to climate risk? |
Identify and assess the material climate risks facing your organisation overall or at the asset, business unit, or geographic levels |
Are there processes for prioritising climate risks and determining their relative materiality? |
Determine, on a qualitative or quantitative basis, the company’s exposure to climate risks to guide management decision-making |
Does your risk or investment committee have adequate oversight of climate risks? |
Design risk management processes to address climate risks and that can be integrated into overall enterprise risk management systems |
Are you able to explain these risks, and your management of them, to investors and regulators? |
Support awareness and education of risk managers on the risks posed by climate change and the company’s risk management processes |
Metrics and Targets
- Companies are expected to disclose metrics and set targets that are aligned with the risks and opportunities they have identified as material for their business.
- Guidance also specifically asks for companies to disclose their Scope 1 and 2 greenhouse gas emissions, and, if appropriate, Scope 3 as well.
- Companies are continuing to combine their financial and non-financial reporting into annual reports or self-declared integrated reports
Key questions |
We can help |
| Have you got the right data and systems in place to capture all the informationyou need to disclose? | Define reporting aims and target audiences |
| Are you confident that the data you are disclosing is complete and accurate anda true reflection of your business? | Identify suitable climate-related financial metrics and best practice |
| Would your systems and data hold up under scrutiny by an investor or other keyinterested stakeholder? | Quantify the carbon footprint at the product, process or organisational level |
Are you comfortable that your baseline targets are correct and an accurate measure on which to base future performance? |
Advise on the design and implementation of data gathering and reporting systems which are credible and auditable |
Have you identified metrics and targets that are genuinely material to your business and meaningful for your investors? |
Harmonise reporting practices for global organisations and reconcile multiple standards |
Why follow recommendations of TCFD
- TCFD is currently supported by 833 companies and organisations with a market capitalisation of over $9.4 trillion.
- Financial groups supporting TCFD manage assets valued at more than $118 trillion.
- Investors are becoming more active than ever in demanding that companies, particularly those heavily involved with fossil fuels, disclose the impacts of climate change on the resilience of their business strategies.
- Major asset managers have stated that they would be exercising their voting power to demand better disclosure on the financial impacts of climate change, to inform better investment decisions.
- The world’s most influential rating agencies have highlighted how climate change could affect credit ratings and are incorporating this into their analyses.
- There is also an expected increase in pressure of regulatory bodies of the EU and ČR on companies and organisations to follow the frameworks for financial disclosures related to climate change.
Past projects
- Conducting a climate scenario analysis for one of the world’s largest multinational consumer goods companies
- Assessing the impact of climate policy risk on the lending portfolio of a global investment and corporate bank
- Performing a “readiness assessment” on TCFD disclosure and identifying the next steps for a major international bank
Conducting a climate scenario analysis for one of the world’s largest multinational consumer goods companies
Our client engaged us to conduct a scenario analysis to identify the potential financial impacts on its business in 2030. We mapped out pathways for global warming of 2°C and 4°C from both transition and physical risk perspectives. We then applied these pathways across the client’s different business divisions and geographies. Our analysis identified potential impacts on demand for our client’s products, supply and production costs, resource availability and price volatility. Our client is now considering the implications for its business and how to incorporate these findings.
Assessing the impact of climate policy risk on the lending portfolio of a global investment and corporate bank
Our client sought to understand the implications of emerging climate policy globally on their energy lending portfolio given the emerging issue of “stranded assets”. This client engaged us to analyse their loan book for the energy sector and identify which countries, sectors and borrowers were most vulnerable to climate policy. We used multiple indicators to flag risk, including PwC’s Low Carbon Economy Index. Our results showed which parts of the client’s loan book were more exposed to climate policy risk and therefore needed managing. We are now exploring how to take this further by identifying credit impacts and integrating them within stress testing.
Performing a “readiness assessment” on TCFD disclosure and identifying the next steps for a major international bank
Recognising the benefits of taking a leadership position amongst banks, this client has decided to adopt the TCFD recommendations and has requested our support in helping them preparing for it. The first phase of our work involved an assessment of their readiness to report in line with the TCFD’s recommendations based on current public disclosure and interviews with key stakeholders. This client also requested that we conduct a review of their peers to gain an understanding of what “being a leader” looks like. Our findings will be used to help senior management make decisions on what actions they need to take next.
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