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Harnessing the strategic value behind TCFD

By Ben Mayer
15th June 2022

Climate change risk is a relatively new concept and it brings a fresh lens to the way we think about an organisation and its resilience.

TCFD is not only about climate-related risk disclosures, but is an opportunity to use scenario analysis to fine tune, pivot or even reset business strategy for economic success in the context of climate change and the transition to net zero. TCFD goes beyond reporting, its drives whole business transformation. 

There is an opportunity to protect and create value through reflection on the organisation’s resilience to the uncertainties presented by climate change. When embedded properly into an organisation, it is a strategic planning tool designed to drive internal change and allow better decision making in the context of climate risk scenarios and the transition to net-zero.

 

What are the TCFD recommendations?

The Taskforce was established by the Financial Stability Board after the global financial crisis with an objective to promote international financial stability and better understand the impact of the global climate on business and the financial system.

The purpose of the TCFD recommendations is to improve financial disclosure on climate-related risk and opportunities so investors can make better-informed decisions on where to deploy their capital as we transition to a low-carbon economy.

The recommendations framework consists of four pillars; governance, strategy, risk management and metrics & targets. 

 

Going from compliance to business value add

We worked with the WBCSD to define  6 core elements required for being a business fit to navigate the net zero transition: Direction, Governance, Data, Engagement, Performance and Reporting. Going through TCFD can enhance the 6 dimensions of a carbon intelligent business.

Direction
An opportunity to to reflect on whether your current strategy is fit for the future. 

Will there be a need for your current product or service in 2040? How will physical and transition risk impact your business model overtime? Is your strategy dependent on a key factor outside of your control?

For example if you’re an automobile business and your strategy is heavily focused on electric vehicles there is dependency risk based on whether the  infrastructure developments from governments and their respective markets needed to transition come through in time.

Should you consider alternatives in your procurement strategy due to parts of the supply chain being in water stressed areas? Explore ways to build flexibility into your long term strategy to build business resilience. 

 

Governance: An opportunity to improve the climate literacy of senior leadership

The upskilling and education of senior stakeholders throughout the TCFD process will allow for more informed, effective decision making in this complex area. Action on sustainability is increasingly part of the director’s duties to preserve and improve the economic stability of a company for its shareholders. 

Board directors should be calling out for extra training and information in order to make credible decisions about the future of their business in regards to climate change. 

 

Performance: A prioritised roadmap of measures to improve business resilience. 

Scenario analysis with its forward looking assumptions will clearly signal the business impact of climate change both in the short term and long term and will bolster the business case for immediate investment in net zero action. An added benefit is that scenario analysis can move the conversation away from pure carbon emissions to avoided costs if an investment is made. 

 

Reporting: Elevate ESG reporting from a standalone report to be fully integrated into annual reporting 

Due to the requirements to meet the regulations within the bounds of the Strategic Report for companies in scope, there is an opportunity to elevate content from a website or ESG that may have been excluded in previous years. Do you have case studies of new innovative sustainability initiatives? Link these to performance of your carbon targets or as a demonstration of mitigations in place to climate risks identified to develop a coherent narrative about your companies management of climate-related risks. 

 

Engagement: Get climate risk on everyone’s radar 

The process of TCFD requires cross functional collaboration and some of our clients have found that the process actually helps break down existing silos and improves internal channels of communication beyond the reporting process. 

 

Data: 

Review what relevant data you have offhand before you begin the process to set realistic expectations about the depth of outputs within your scenario analysis. Some questions you could ask internally include:

  • Do you have a concise list of all your asset locations to support physical risk modelling?
  •  Do you have a scope 3 footprint that can be leveraged to understand emissions hotspots that could result in cost pass ons with more aggressive decarbonisation policies?
  •  Do you hold data on your consumers/clients/customers attitude towards low carbon products? 

 

Where to next with TCFD?

Climate risk disclosure will be an iterative process. Climate science will continue to develop, data and methods will improve and policy will change. In amongst the complexity and nuances of disclosure – keep coming back to answering one overarching question ‘is my business resilient to the future impact of climate change?’ and use this to frame the conversations you have as a result of this process. 

TCFD will illuminate where you don’t have visibility or control over risks. A priority should be building a better picture of your Scope 3 emissions and improving data quality and coverage. This will flesh out the map of your inter-dependencies and where you should focus efforts in your supply chain. 

We’re headed towards transition plan disclosure. Thousands of companies have set science-based targets and the conversation is moving on from what is your target or what are your risks to ‘what is your timed and costed implementation plan to manage those risks and achieve that target’. 

 

We are here to help

Our team is helping large, complex organisations like Britvic, Vodafone, Senior Plc and DLA Piper embed TCFD disclosures into their wider strategy, planning and reporting. Our programmes are designed to suit companies wherever they are on their journey, let us take you one step closer to climate resilience. Contact us today

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