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Laying the groundwork for effective TCFD aligned disclosures

Since I started working at the Climate Disclosure Standards Board (CDSB) there has been a huge shift in the amount of activity in the Sustainable Finance space. Increasing numbers of initiatives and organisations are looking at how companies can align with the ambitious goals of the Paris Agreement and SDGs, but also how to mitigate risks and capitalise on the opportunities associated with climate change.

The Task Force on Climate-related Financial Disclosures (TCFD) has been instrumental in driving forward much of these discussions and raising the issue of climate change to boardrooms globally. Climate change is now understood to be a foreseeable – moreover material – risk to corporations in many sectors, within mainstream planning and investment horizons. With a solidification of the relevant science, the attention of capital markets has increasingly turned to the material financial issues associated with both the physical impacts of climate change, and the market risks associated with the economic transition to a low-carbon economy, which include physical, economic and legal/litigation risks.

To finance such a transition, effective disclosure of climate-related financial information will play a key role in ensuring that investors are equipped with the decision-useful information they need to allocate capital and assess and price risk accordingly. However, the current state of disclosure remains far from the scale the market needs and are insufficient for investors. To facilitate meaningful, consistent and high-quality climate-related disclosures, we need to see a shift from voluntary adoption of the TCFD recommendations to mandatory climate-related disclosure across multiple jurisdictions with climate-related information incorporated into the mainstream reports. We have already seen movements in this space – most recently, the UK’s Green Finance Strategy noted that the Government is setting out its expectation for all listed companies and large asset owners to disclose in line with the TCFD recommendations by 2022.
As a result, companies are going to have to go beyond business as usual and embed climate-related financial disclosure into their everyday business decisions and financial planning. While this may seem like a daunting task, sometimes the most difficult step to take is the first. CDSB has published a range of resources and guidance to help you get started, including the TCFD checklist outlining the 11 steps that you can take to start integrating the TCFD recommendations into your standard business processes.

One of the most common questions we field at CDSB is what should I do first on my TCFD reporting journey? We encourage reporter preparers to secure the support of the Board of Directors and executive leadership team. A good way to do this is to identify a champion who can drive forward and have oversight of the integration of climate change into key governance processes. It is important for those leading these discussions to have the right business case – demonstrating the value and importance of integrating climate change into financial planning and strategic decision-making. The finance professional who sits at the heart of all the business operations can make an excellent champion.

You should also look to get the risk committee involved in your discussions as their role already considers the financial impacts of external risks on the business. Helping them understand how climate change may potentially pose a threat to the business is an important step.

In the same way, consider how to bring together colleagues from other functions within the organisation. Improving the communication between teams, in addition to sharing expertise and experiences, will set the path for better integration of climate-related issues into internal management processes, and ultimately in your disclosures.

Explore the processes you already have in place. There are already things in your toolbox that you can use – you don’t need to start from scratch. For example, your organisation will already have existing systems and processes in place to collect and manage financial data which can be used for climate-related information.

Many organisations also already disclose relevant information using existing reporting standards and frameworks, for example to CDP. Conduct a gap analysis to understand where there are gaps in your current disclosure, which will also provide an excellent evidence-based starting point for practical next steps.

You can also consider how to repurpose the information you already disclose in your mainstream annual report. By including material information in the mainstream report, climate-related information can be better connected to financial information.
Integration and connectivity of information is key, and your mainstream report should tell a clear story, joining the dots between all the relevant information. This will help achieve the intended outcome of providing decision-useful information to enable the investment community to make better informed decisions on where and how they want to allocate their capital to support the transition to a low carbon, sustainable future.

The scale of the issue at hand might be overwhelming, but there is already a wealth of resources out there to help you get started. The TCFD Implementation Guide and TCFD Good Practice Handbook are available on the CDSB website. The TCFD Knowledge Hub has recently launched e-Learning modules designed for finance professionals, with a specific module targeted at accountants on climate related reporting and the TCFD. Don’t delay – the time to take action is now.

Mardi McBrien, Managing Director, CDSB