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Climate Disclosure Expectations for Industry

J.S. Held’s Inaugural Global Risk Report Examines Potential Business Risks & Opportunities in 2024

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Introduction

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) provides 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:

  1. Recommendations on disclosing climate-related financial information;
  2. Guidance on how to implement the recommendations; and
  3. 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
Table 1 - Recommendations for Climate-Risk Disclosure

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 it's 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.

Acknowledgments

We would like to thank Steven Andersen for providing insights and expertise that greatly assisted this research.

Steven Andersen is a Senior Vice President in J.S. Held’s Environmental, Health, and Safety (EHS) practice. Steven has spent over 17 years in the EHS industry, with specific experience in air emissions management systems, information management systems, and data integration. He commonly fills the role of sponsor on large scale implementation projects, consults on Environmental, Social, and Governance (ESG) strategy and data management, and has performed the role of solution architect on many air emissions system implementations. As the founder and chief executive officer (CEO) of Frostbyte Consulting, Steven was responsible for strategy, partnerships, and business development. Under Steven’s leadership, Frostbyte grew into a company that delivers ESG and EHS advisory and information systems globally across all industry sectors.

Steven can be reached at [email protected] or +1 368 209 1012.

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This publication is for educational and general information purposes only. It may contain errors and is provided as is. It is not intended as specific advice, legal, or otherwise. Opinions and views are not necessarily those of J.S. Held or its affiliates and it should not be presumed that J.S. Held subscribes to any particular method, interpretation, or analysis merely because it appears in this publication. We disclaim any representation and/or warranty regarding the accuracy, timeliness, quality, or applicability of any of the contents. You should not act, or fail to act, in reliance on this publication and we disclaim all liability in respect to such actions or failure to act. We assume no responsibility for information contained in this publication and disclaim all liability and damages in respect to such information. This publication is not a substitute for competent legal advice. The content herein may be updated or otherwise modified without notice.

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