Task Force on Climate-related Financial Disclosures Overview of Report and Implementation Guidance
B ACKGROUND The Financial Stability Board (FSB) Industry Led and Geographically Diverse established the Task Force on Climate- Task Force related Financial Disclosures (TCFD) on The Task Force’s 32 international members, led by Michael December 4, 2015 to develop Bloomberg, include providers of capital, insurers, large recommendations for more efficient and non-financial companies, accounting and consulting firms, and credit rating agencies. effective climate-related disclosures that: ‒ could “ promote more informed investment, credit, and insurance underwriting decisions ” and, ‒ in turn, “would enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate- related risks .” 2
T ASK F ORCE M EMBERS – INDUSTRY LED Koushik Chatterjee Eric Dugelay Giuseppe Ricci Martin Skancke Chair and Vice-Chairs Group Executive Global Leader, Sustainability Health, Safety, Environment Chair, Risk Committee Michael Bloomberg Director, Finance and Services and Quality Executive Vice Storebrand Chairman Corporate Deloitte President Founder and President Tata Group ENI . Bloomberg L.P Liliana Franco Udo Hartmann Andreas Spiegel Steve Waygood Yeo Lian Sim Denise Pavarina Director, Accounting Senior Manager, Group Head Group Sustainability Risk Chief Responsible Vice-Chair Vice-Chair Organization and Environmental Protection & Swiss Re Investment Officer Special Adviser Managing Officer Methods Energy Management Aviva Investors Singapore Exchange Banco Bradesco Air Liquide Group Daimler Graeme Pitkethly Christian Thimann Neil Hawkins Thomas Kusterer Vice-Chair Vice-Chair Deborah Winshel Corporate Vice Chief Financial Officer Fiona Wild Chief Financial Officer Group Head of Strategy, President and Chief EnBW Managing Director, Global Vice President, Unilever Sustainability and Public Head of Impact Investing Sustainability Officer Environment and Climate Affairs BlackRock The Dow Chemical Change AXA Company BHP Billiton Members Diane Larsen Stephanie Leaist Michael Wilkins Jane Ambachtsheer Audit Partner, Global Managing Director, Head of Jon Williams Matt Arnold Professional Practice Sustainable Investing Managing Director, Partner, Sustainability and Partner, Chair – Managing Director and Environmental Finance Responsible Investment EY Canada Pension Plan Climate Change Global Head of Sustainable S&P Global Ratings Mercer Investment Board PwC Finance JPMorgan Chase & Co. Mark Lewis Eloy Lindeijer Special Adviser Managing Director, Chief, Investment Wim Bartels Bruno Bertocci Russell Picot Head of European Management Global Head, Managing Director, Head of Chair, Audit and Risk Committee, LifeSight Utilities Equity PGGM Sustainability Reporting Sustainable Investors Former Group Chief Accounting Officer Research and Disclosures UBS Asset Management HSBC Barclays KPMG Ruixia Liu Masaaki Nagamura David Blood Richard Cantor General Manager, Risk Head, Corporate Social Senior Partner Chief Risk Officer Department Responsibility Generation Investment Moody’s Industrial and Tokio Marine Holdings Management Commercial Bank of China 3
T HREE P ROBLEMS : O NE S OLUTION In the current climate-related disclosure landscape, challenges are faced by: ‒ Issuers who generally have an obligation under existing law to disclose material risks, but lack a coherent framework to do so for climate-related risk, ‒ Lenders, insurers, and investors who need decision-useful climate-related risk information in order to make informed capital allocation and financial decisions, and ‒ Regulators who need to understand risks that may be building in the financial system The Task Force aims to provide the solution: a clear, efficient, and voluntary disclosure framework that improves the ease of both producing and using climate-related financial disclosures 4
K EY I NNOVATIONS The Task Force’s recommendations and guidance: ‒ Can apply to any company in the world and can be scaled to any level of sophistication ‒ Should be addressed in financial filings ‒ Are designed to solicit decision-useful information for investors and others ‒ Encourage forward-looking information through scenario analysis ‒ Provide additional guidance to sectors and industries most impacted by climate change ‒ Apply to organizations across the financial sector to address the full investment chain ‒ Place greater emphasis on risks and opportunities related to the transition to a lower-carbon economy ‒ Represent consensus of Task Force members, who come from the financial sector and various non-financial sectors 5
C LIMATE -R ELATED R ISKS AND O PPORTUNITIES Type Climate-Related Risks Type Climate-Related Opportunities Policy and Legal ‒ Use of more efficient modes of transport ‒ Increased pricing of GHG emissions Reso ‒ More efficient production and distribution processes ‒ urce Enhanced emissions-reporting obligations ‒ Use of recycling Effici ‒ Mandates on and regulation of existing products and services ‒ More efficient buildings ency ‒ Exposure to litigation ‒ Reduced water usage and consumption ‒ Technology Lower-emission sources of energy ‒ ‒ Ener Supportive policy incentives Substitution of existing products and services with lower emissions ‒ options gy Emergence of new technologies ‒ Sour ‒ Trans Unsuccessful investment in new technologies Participating in carbon market ce ‒ ition ‒ Upfront costs to transition to lower emissions technology Energy security and shift towards decentralization Risks Markets ‒ ‒ Develop and/or expand low emission goods and services Changing customer behavior Prod ‒ ‒ Climate adaptation and insurance risk solutions Uncertainty in market signals ucts ‒ ‒ R&D and innovation Increased cost of raw materials and ‒ Diversify business activities Servi Reputation ‒ Shifting consumer preferences ces ‒ Shift in consumer preferences ‒ Stigmatization of sector ‒ New markets ‒ Increased stakeholder concern or negative stakeholder feedback ‒ Public-sector incentives Mark Acute ‒ Community needs and initiatives ets ‒ ‒ Development banks Increased severity of extreme weather events such as cyclones and floods Physi ‒ Chronic Participate in renewable energy programs and adopt energy- cal efficiency measures ‒ Changes in precipitation patterns and extreme weather variability Resil Risks ‒ Resource substitutes/diversification ‒ Rising mean temperatures ience ‒ New assets and locations needing insurance coverage ‒ Rising sea levels 6
E VALUATING F INANCIAL I MPACT Climate-related risks and opportunities can impact organizations’ financial performance. 7
D ISCLOSURE R ECOMMENDATIONS The Task Force developed four widely-adoptable recommendations on climate- related financial disclosures that are applicable to organizations across sectors and jurisdictions. The recommendations are structured around four thematic areas that represent core elements of how organizations operate: Governance The organization’s governance around climate-related risks and Governance opportunities Strategy Strategy The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning Risk Management Risk Management The processes used by the organization to identify, assess, and manage climate-related risks Metrics and Metrics and Targets Targets The metrics and targets used to assess and manage relevant climate- related risks and opportunities 8
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