Growing Support For Climate Financial Disclosure And Scenario Analysis

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has raised awareness of climate risks and opportunities to new levels. As a global, industry-led initiative formed by G20 nations, it has support from over 500 corporations and has led many other companies to consider its recommendations.

The TCFD’s 2017 final report provided 11 recommendations for all industries, covering climate governance, strategy, risk management, metrics and targets—as well as the crucial issue of scenario planning, asking companies to consider “a transition to a lower-carbon economy consistent with a 2°C or lower scenario.”

We’ve seen steady growth in the number of companies using the recommendations. The TCFD’s 2018 status report shows they have spurred action, but much work remains. For example, the report found that many companies disclose information about climate risks and opportunities, but few disclose any financial impacts. 

This global, industry-led initiative is pushing companies to reduce greenhouse gas emissions and transition to a low-carbon economy in an effort to fight #climatechange. @FSB_TCFD @CeresNews #ProxyPreview

Companies have included TCFD indexes in sustainability reports and some have produced standalone reports generally aligned with the TCFD’s recommendations. Investors have discussed the TCFD in dozens of resolutions, and this year they filed the first resolutions focused on the TCFD, at Southern Copper and Martin Marietta, strongly encouraging them to consider its recommendations in disclosures.

Yet on the issue of scenario planning, investors realize they must ask companies for more than the TCFD recommends. Over 300 institutions with $32 trillion in assets support the Climate Action 100+ initiative, seeking commitments from 160 of the highest emitting companies globally to reduce greenhouse gas emissions across their value chains consistent with a “well below 2 degrees Celsius” goal, a target informed by the recent IPCC call to limit warming to 1.5 degrees and a U.S. government report that emphasizes the need for accelerated action. 

Global power company AES recently released a Climate Scenarios Report in a meaningful response to investors using TCFD recommendations. It illustrates the company’s carbon transition away from coal towards clean energy and provides a transparent analysis of three future energy scenarios. The analysis is more useful than most because it discusses core assumptions, specific improvements needed in the scenarios used, and potential strengths and weaknesses in its portfolio and strategy.

A recent Moody’s report analyzed disclosure from four electric power companies, finding that each one loosely followed the TCFD recommendations, but none provided all of the recommended disclosures. It also found that two of the companies included disclosures on climate scenario analysis, “which we think is an important consideration when assessing and planning for carbon risk transition.”

Going forward, investors can continue working collectively to influence companies, such as through Climate Action 100+, and push companies to develop stronger responses to climate change consistent with the Paris Agreement.  The TCFD recommendations are a valuable resource for investors due to their breadth, specificity and backing from many influential organizations in the investment value chain.

Mark+Bateman.png

Jim Coburn
Senior Manager, Disclosure, Ceres