Is TCFD reporting on your agenda for the next annual report?
Climate change is no longer just a cause for passionate idealists. The transition to a low-emission society, is a major concern for the world economy. Many experts see it as a make-or-break issue for established businesses, who are under increasing scrutiny from investors, to define their subsequent strategy. If you thought the digital-era was disruptive, hold onto your hats.
Foreseeing the risk, Mark Carney (Governor of the Bank of England) and Michael Bloomberg (American business magnate), presented ‘The Task Force on Climate-related Financial Disclosures’ (TCFD), at the G20 Summit. The TCFD, is a universal set of disclosures, for businesses to present in their annual reporting. The disclosures help investors to assess climate-related risk in a better, more systematic way.
Climate change can affect the bottom line severely, but many businesses fail to anticipate the impact in their decision-making. Understandably, investors want to know whether companies understand the imminent changes.
How TCFD works
TCFD helps by providing climate-related information, to keep investors, banks, and other stakeholders updated. The guidelines offer more accessible and comparable information, making it easier for investors to determine the threat of climate change, and the risk to the valuation of a company. The recommendations are based on four areas, representing the core elements of how businesses operate:
Corporate governance
The organisation’s governance around climate-related risks and opportunities.
Strategy
The actual and potential impacts of climate-related risks and opportunities in the organisation’s businesses, strategy and financial planning.
Risk management
The processes used by the organisation to identify, assess and manage climate-related risks.
Metrics and targets
The metrics and targets used to asses and manage relevant climate-related risks and opportunities.
As more companies volunteer information, a system will build to provide investors with comparable data, providing insight on two fundamental issues, What’s the plan for reducing risk? And are there business opportunities that could occur as a result?
The pace of digital transformation has forced some investors, to make some ill-informed decisions. Evaluating climate-related risks will probably be even more challenging. Taking climate-related issues into mainstream annual reporting, will improve the quality of the data, and ultimately allow for better pricing of risks and allocation of capital to worthy businesses.
"TCFD helps by providing climate-related information, to keep investors, banks, and other stakeholders updated."
Consequences for Norwegian business
Looking at the largest 500 companies in Norway, many have a deep connection to climate issues. Equinor, Norsk Hydro, Aker to name a few. Clearly climate change presents a challenge.
Yara, who states in his purpose statement that they must show "responsibility when it comes to providing food to the world and protecting the planet", demonstrates its climate agenda. They are the type of company that will benefit from the openness that TCFD will bring, and will be able to reassure investors when it comes to the willingness to invest in this area.
Since 2016, DNB has measured the carbon footprint of equity funds, as part of their effort to reduce exposure to companies with high climate-risk. Last year, DNB became the twelfth leading bank to join the TCFD initiative, becoming part of a group representing over $7 trillion. The bank has begun to take its own medicine, their planned TCFD efforts include setting more specific goals for the group's work on climate risk measures.
Consumers like to hear about climate risk through the media. This summer's extreme heat across the globe has given us strong evidence that something is happening to the climate. David Attenborough's Blue Planet has made millions of people think through their use of disposable plastic. It is such reactions that force thousands of businesses to think about how they make their products so that they are not boycotted by vigilant consumers who make their choices with their wallets.
How can leaders benefit from TCFD?
TCFD is a voluntary act at the moment. But instead of viewing this as another inconvenient reporting task for the annual report, leaders should look at TCFD as an opportunity:
Taking this issue head-on, demonstrates the social consciousness of the business. But equally, it shows your ability to manage change, and adapt your business model accordingly.
Actively offering investors the data they need, to play their part in your partnership, can only improve your working relationship.
Staff on the frontlines of your operations, will be aware of your openness to climate risk and will look to you to provide leadership.
TCFD is an opportunity to raise concern’s with supplier’s practices, raise their game and fortify your readiness for an unpredictable future.
TCFD isn’t just about good corporate governance. It was set up to encourage sharing and learning. The more industries contribute, the more opportunities to learn form one another increase.
Climate change isn’t all doom and gloom. Traditionally, when radical change occurs, unforeseen business opportunities materialise.
Presenting TCFD in your annual report , shows you are connected to the bigger picture. It positions your brand to the financial markets as an proactive partner, who conscientiously manages risk. But many brands are taking the opportunity much further, making it a cornerstone of their brand communication. Equinor have their placed their environmental agenda front and centre taking a leading position, and inspiring confidence in their actions.
Big business touches all our lives somehow. The more the major brands actively demonstrate their awareness, and resilience to climate risk, the more confidence they instill in all of us, to lead us through. Visit TCFD's information hub to learn more about this topic .