Toward Mandatory “TCFD” Reporting? The New Corporate Climate Reporting Framework Is Gaining Momentum

The signs are clear: the climate reporting framework published by the Task Force on Climate-related Financial Disclosures (TCFD) is evolving from a set of recommendations to soft law—and perhaps even hard law.   This evolution regarding the TCFD calls for (accelerated?) preparation by companies and their management teams for this new framework, which places climate risks and opportunities at the heart of strategy.

If you missed an episode… the TCFD in a nutshell

The TCFD was established by the G20 during COP21 to develop recommendations regarding corporate financial transparency on climate issues. Chaired by Michael Bloomberg, its final report, published in June 2017, specifies the climate reporting elements expected in companies’ disclosure documents across four pillars: governance, strategy, risk management, and the indicators and metrics used (see Carbone 4’s summary of the TCFD’s final report here).

Taking the TCFD's Recommendations Seriously

There are many signs that various stakeholders are genuinely taking the TCFD’s recommendations into account:

• The resolution adopted by Exxon Mobil's shareholders in 2017 follows the TCFD's exact recommendations[1]
• In July 2017, 100 business leaders and 15 prudential regulators, including the ACPR, have officially endorsed the TCFD's recommendations
• In September 2017, as part of the “Mission 2020” initiative[2], 10 companies[3] commit to following the TCFD's recommendations within the next 3 years
• Last but not least, in September 2017, Secretary of State Brune Poirson announced during a visit to New York that the France “will push to make the recommendations of the TCFD climate reporting task force binding” (Source: AEF)

TCFD: How to Prepare?

Climate reporting in the future will either be strategic or it won't be at all. And for good reason: the financial risks and opportunities associated with the energy transition and climate change are significant[4]. Companies therefore need to prepare for this, as there are still significant discrepancies between the TCFD’s recommendations and companies’ management reports (see Carbone 4’s analysis of TCFD compliance among CAC 40 companies here).

Here is a list of questions to guide your thinking and help you fully understand all the climate issues:

• Governance : Have the members of your board of directors and your company’s executives fully grasped the energy and climate challenges—and the profound changes they will inevitably bring about in one way or another?
• Governance : Is climate change a central part of your company's high-level strategic dialogue?
• Strategy : Do you use scenario analysis tools to assess your business’s resilience in various possible futures, including a pathway toward decarbonizing the economy?
• Risk Management : Are the physical and transition risks associated with climate change clearly identified within your company?
• Indicators and Metrics : Do you have the tools you need to implement and monitor the rollout of a comprehensive low-carbon strategy across your organization?
• Transparency : Are you properly highlighting the “TCFD-compliant” elements in your management report?

Carbone 4 is a leader in providing support to major corporations on these issues

• Analysis of the extent to which the TCFD recommendations and regulations are addressed in the management report;
• Supporting teams with robust tools and innovative methodologies that align with these requirements.

[1] Excerpt from the resolution “Starting in 2018, ExxonMobil has been publishing an annual assessment of the impacts of technological advances and global climate change policies on its long-term business portfolio […] This report will assess the resilience of the company’s entire scope of operations through 2040 and beyond, and examine the financial risks associated with such a scenario.” Source: https://tools.ceres.org/resources/tools/resolutions/exxon-2-degrees-scenario-analysis-2017/@@s3_view[2]http://www.mission2020.global/milestones/finance/[3]List of signatory companies:Aviva, Royal DSM, Enagás, Ferrovial, Iberdrola, Marks & Spencer, Philips Lighting, Wipro Ltd, WPP, and the French company Sopra Steria.[4] The damage covered by the CatNat program is estimated to be around 1.2 billion euros for Hurricane Irma.

Learn more at http://www.lemonde.fr/les-decodeurs/article/2017/09/15/how-to-measure-the-cost-of-a-natural-disaster-like-irma_5186422_4355770.html#EbzVb4HjpSuBtp2J.99

Article written by Juliette DECQ – juliette.decq@carbone4.com