Review of TCFD 2019 Status Report Slides
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The document summarizes key findings from the 2019 Status Report of the Task Force on Climate-related Financial Disclosures (TCFD). It finds that while disclosure of climate-related financial information has increased, it remains insufficient and partial. More progress is needed to provide clear information on the potential financial impacts of climate change on companies. The report highlights challenges to implementation like lack of standardized metrics and calls for accelerated progress in climate risk reporting. It commits to further clarifying guidance and developing scenario analysis tools to support mainstreaming of climate-related financial disclosures.
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Review of TCFD 2019 Status Report Slides
- 1. July 19 | Tweet @CDSBGlobal Nadine Robinson, Technical Director, Climate Disclosure Standards Board (CDSB) Webinar: Review of TCFD 2019 Status Report Michael Zimonyi, Policy and External Affairs Manager, Climate Disclosure Standards Board (CDSB)
- 2. July 19 | Tweet @CDSBGlobal Board Technical Working Group (examples) To provide decision-useful environmental information to markets via the mainstream corporate report
- 3. July 19 | Tweet @CDSBGlobal An introduction to CDSB 3 Reporting Requirements REQ-01 Governance REQ-07 Organisational boundary REQ-02 Management’s environmental policies, strategy and targets REQ-08 Reporting policies REQ-03 Risks and opportunities REQ-09 Reporting period REQ-04 Sources of environmental impact REQ-10 Restatements REQ-05 Performance and comparative analysis REQ-11 Conformance REQ-06 Outlook REQ-12 Assurance cdsb.net/Framework The CDSB Framework
- 4. July 19 | Tweet @CDSBGlobal FSB Task Force on Climate-related Financial Disclosures TCFD 2019 Status Report 4 “Increasing transparency makes markets more efficient, and economies more stable and resilient.” — Michael R. Bloomberg, Chair, TCFD. “In the future, disclosure will move into the mainstream, and it is reasonable to expect that more authorities will mandate it.” — Mark Carney, Former Chair of FSB, Governor of the Bank of England. Mark Carney (L) and Michael Bloomberg (R) Image credit: Bloomberg
- 5. July 19 | Tweet @CDSBGlobal 2019 Status Report TCFD 2019 Status Report 5 792 supporters globally, with market capitalisation of more than $9 trillion.
- 6. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 6 What? Reports for over 1,100 large companies across multiple sectors and regions Companies’ efforts to implement the TCFD recommendations Users’ views on the usefulness of climate-related financial disclosures for decision- making
- 7. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 7 Why? Overview of current disclosure practices Key challenges associated with implementing the recommendations Efforts to help address some of the implementation challenges
- 8. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 8 Key Themes Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors. More clarity is needed on the potential financial impact of climate-related issues on companies. Of companies using scenarios, the majority do not disclose information on the resilience of their strategies. Mainstreaming climate- related issues requires the involvement of multiple functions.
- 9. July 19 | Tweet @CDSBGlobal What do the key themes tell us? 9TCFD 2019 Status Report We have this globally agreed framework, but companies not using it as intended – uptake at scale is urgently needed. Partial disclosures are the norm. More companies are reporting in the annual report which helps to make the crucial links between financial and non-financial information.
- 10. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 10 Overview of 2019 Status Report 1. Level of disclosure 2. Location of disclosure
- 11. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 11 Alignment with 11 recommended disclosures More progress needed • 78% aligned with at least 1 of the recommendations disclosures • 1 in 4 companies aligned with > 5 of the recommended disclosures • 4% of companies aligned with at least 10 of the recommended disclosures Disclosure is low • Number of disclosures increased by 0.8 • None of the recommended disclosures are over 50% even for governance and risk • 78% of companies made a least one recommended disclosure Resilience & scenario analysis • 9% of companies disclosed information on strategy resilience • Increase of 3% from 2016
- 12. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 12 Location of the 11 recommended disclosures The Task Force recommends that: • Disclosures should be made in the mainstream (i.e., public) annual financial fillings; • In most G20 jurisdictions, material information should be disclosed in financial fillings; • Disclosures should be made in accordance with national disclosure requirements; • Climate-related financial disclosures should be subject to appropriate internal governance processes; and • Asset managers and asset owners should use their existing means of financial reporting.
- 13. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 13 Location of the 11 recommended disclosures
- 14. July 19 | Tweet @CDSBGlobal So, what do the findings mean? What do the findings mean?
- 15. July 19 | Tweet @CDSBGlobal “... progress must be accelerated. Today’s disclosures remain far from the scale the markets need to channel investment to sustainable and resilient solutions, opportunities, and business models. I believe in the power of transparency to spur action on climate change through market forces.” Michael Bloomberg, Chair, TCFD
- 16. July 19 | Tweet @CDSBGlobal Challenges to implementation • Lack of standardised industry metrics to support implementation; • Concerns about revealing confidential business information; • More clarity on the financial impact of climate-related issues; and • Challenges in adopting scenario analysis include: – need for further tools; – business-relevant data; – industry- and sector-specific methodologies; – business-relevant climate-related scenarios, and – methods to quantify financial impacts. TCFD 2019 Status Report 16 The report highlights:
- 17. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 17 Resources www.tcfdhub.orgCDP helps companies collect, report and structure their data. SASB will help companies understand what is material to their organisation. CDSB helps companies integrate the financially material information into their annual reports.
- 18. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 18 Commitment from the TCFD The Task Force is also considering additional work in the following areas: • Clarifying elements of the Task Force’s supplemental guidance contained in the annex to its 2017 report (Implementing the Recommendations of the TCFD); • Developing process guidance around how to introduce and conduct climate-related scenario analysis; and • Identifying business-relevant and accessible climate-related scenarios. The Task Force will continue to promote and monitor adoption of its recommendations and will prepare another status report for the Financial Stability Board in September 2020.
- 19. July 19 | Tweet @CDSBGlobal TCFD 2019 Status Report 19 Don’t let the perfect be the enemy of the good.
- 20. July 19 | Tweet @CDSBGlobal Questions? Nadine.Robinson@cdsb.net Technical Director Michael.Zimonyi@cdsb.net Policy & External Affairs Manager @CDSBGlobal cdsb.net
Notes de l'éditeur
- Mike: The Climate Disclosure Standards Board is a consortium of 9 environmental and business NGOs. We were set up in Davos in 2007 with a mission to create the enabling conditions for material climate change and natural capital information to be integrated into the mainstream report. We achieve our mission by offering a framework for reporting environmental and climate information.
- Nadine The 7 principles and 12 requirements of the CDSB Framework 7 guiding principles 12 reporting requirements Fully aligned with the TCFD recommendations Complementary to existing reporting provisions (CDP, GRI, SASB) and existing regulations Referenced in the EU NFRD guidance and stock exchange guidance globally
- Nadine To get started we thought it might be useful for those new to TCFD and to recap for others how the TCFD came about and what it aims to achieve. -How TCFD came about – origins in the G20’s Financial Stability Board, established in December 2015. They have produced two status reports highlighting implementation to date and today’s webinar will focus on the results of the second report which was released in June. -The TCFD acknowledges that in most G20 jurisdictions there are existing legal obligations to disclose material risks in financial reports, including climate-related risks -The TCFD has built on existing frameworks and standards and other requirements – seen as a unifier, and for many the gold standard for making universally applicable climate-related disclosures -TCFD has helped to galvanise political will and to bring climate-related disclosures into the mainstream and into the board room.
- Nadine With the release of the second status report, the TCFD had over 785 supporters globally with a market capitalisation of over $9.3 trillion. In the list of supporters, the financial sector leads the way with 392 supporters, followed by the “non-financial” sector at 297 and finally “other”, such as governments and business associations, at 114. The map shows the geographic distribution of survey respondents with Europe leading the way at 45%. Despite this, it is interesting to note that the United States ranks number 1 in terms of country respondents following by the UK and then Japan.
- Nadine What was reviewed? To better understand current climate-related financial disclosure practices and how they have evolved, the Task Force reviewed—using artificial intelligence technology—reports for over 1,100 large companies in 142 countries in eight industries over a three-year period (2016,2017,2018). In addition, the Task Force conducted a survey on companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of climate-related financial disclosures for decision-making.
- Nadine The Task Force specified the following three reasons for the preparation and release of the second report. The objective of the report is to: - provide an overview of current disclosure practices as they relate to the Task Force’s recommendations, highlight key challenges and assess the state of play and outline some of the efforts the Task Force will consider undertaking in coming months to help address some of the implementation challenges.
- Mike Now before we dive into the details, let’s take a look at the four key themes and findings that emerged from the report. The 2019 Status report tells us that, despite support for the TCFD rising by more than half since last September, companies are still finding it a challenge to implement the recommendations resulting in insufficient disclosure for investors. More clarity is needed on the potential financial impact of climate-related issues, the majority of companies do not disclose information on resilience and, finally, mainstreaming climate-related issues requires the involvement of multiple functions. Given the urgency of the situation and the scale of the challenge, these findings are concerning. The financial risks that climate change presents to the global economy are enormous. In fact, the United Nations states that delays in tackling this issue could cost companies nearly $1.2 trillion over the next 15 years. In the upcoming slides, we’ll explore these key themes in more detail, discuss some of the most significant statistics from the report and action needed moving forward.
- Mike From this we can conclude that we have a globally agreed framework but companies are not using it, partial disclosures are the norm and more companies are reporting in the annual report.
- Nadine For the purpose of this presentation we have divided the findings of the report into two sections: Firstly, we’ll look at the level of disclosures Secondly, we’ll look at the location of the disclosures Finally, we’ll wrap up by analysing what this means for reporting moving forward and the commitment from the Task Force in helping to overcome these challenges.
- Nadine Some of the most concerning takeaways from the report show the while the percentage of companies disclosing climate-related information has increased, overall it is low, more progress is needed in disclosure with the lowest percentage of disclosure relating to strategy and scenario analysis. Let’s look at statistics on progress. The report shows that 78% of companies disclosed information aligned with at least one recommendation and only around 25% aligned with more than five. Only 4% of companies disclosed information aligned with at least 10 of the recommended disclosures so very few companies globally are adhering to the TCFD framework. The AI review found that the number of the 11 recommended disclosures only grew by an average of 0.8 from 2.8 in 2016, to 3.1 in 2017, and to 3.6 in 2018. None of the recommended disclosures are over 50% even for governance and risk. This is both significant and disappointing given that the Task Force recommends all companies disclose governance and risk management even if they don’t deem climate-related information to be material. In fact, the recommended disclosures related to governance and risk management have the lowest percentages of disclosure with the exception of Strategy c) for resilience of strategy. So, what’s causing this? Well, some preparers who took part in the survey noted challenges disclosing information related to these recommendations because climate-related issues are integrated into company-wide governance and risk management processes, making separate disclosure unnecessary. Integrating climate risk management into business processes including ERM is crucial. Now let’s explore the findings on resilience & scenario analysis. The AI review found the lowest percentage of disclosure aligned with Strategy c), which relates to the resilience of the company’s strategy taking into consideration different climate-related scenarios, in all three years reviewed. While the percentage of companies disclosing increased between 2016 and 2018, 9% of companies in 2018 disclosed information on strategy resilience. This is only a 3% increase from 2016. As noted in the responses to the 2018 TCFD survey, companies have found this recommended disclosure to be one of the most challenging to implement.
- Nadine Before we dive into the location of the disclosures, it’s important to remind ourselves of where the Task Force recommends these disclosures should be made. The Task Force recommends that preparers of climate-related financial disclosures provide such disclosures in their mainstream (i.e., public) annual financial filings. In most G20 jurisdictions, companies with public debt or equity have a legal obligation to disclose material information in their financial filings—including material climate-related information. The Task Force believes climate-related issues are or could be material for many companies. Next, the Task Force recommends that companies should make financial disclosures in accordance with their national disclosure requirements. In the event that this is not possible for example in Japan the Yuka Shoken Hokokusho is the mandatory mainstream financial report that has a structured format, the Task Force encourages companies to disclose those elements in other official company reports that are issued at least annually, widely distributed and available to investors and others, and subject to internal governance processes that are the same or substantially similar to those used for financial reporting. This leads us to the next point that climate-related financial disclosures should be subject to appropriate internal governance processes. Since these disclosures should be included in annual financial filings, the governance processes should be similar to those used for existing financial reporting and would likely involve review by the chief financial officer and audit committee, as appropriate. Finally, asset managers and asset owners should use their existing means of financial reporting to their clients and beneficiaries where relevant and where feasible.
- Nadine Sustainability reports continue to be the dominant location of climate-related financial disclosures; however, preparers increasingly include such information in their financial filings, annual reports, and integrated reports. This is a very positive trend. To ensure the availability of transparent, consistent and decision-useful information it is imperative that disclosures are made in the mainstream financial filings – something which CDSB have been advocating for over 10 years. What’s most interesting about this is that when the Task Force asked respondents to identify why they were implementing the recommendations, the second most common reason cited was requests from investors for this information. As primary users of the financial report, this further demonstrates the need to integrate climate-related financial information into the annual report. However the good news is that disclosure in the financial filings or annual reports is on the up, increasing by almost by almost 50% over the last three years compared to an increase of about 30% in sustainability reports.
- Nadine
- Mike As Michael Bloomberg so succinctly put it: “... progress must be accelerated. Today’s disclosures remain far from the scale the markets need to channel investment to sustainable and resilient solutions, opportunities, and business models. I believe in the power of transparency to spur action on climate change through market forces.” This is no doubt that we need to accelerate the adoption of the TCFD recommendations globally and unprecedented changes are needed to meet the goals of the Paris Agreement. Given the complex nature of climate change, companies need to consider the financial risk and opportunities that climate change poses to their activities, strategy and business. Similarly, investors need decision-useful information on how companies are prepared so that they can better understand their exposure to these risks and allocate capital accordingly to support long-term sustainable, economic systems aligned with a 1.5 degrees pathway. Nonetheless, the report finds that the majority of respondents (67%) plan to complete implementation of the TCFD recommendations in the next two to three years. However, there are issues in the implementation. In the following slides we will present the key challenges highlighted by survey respondents, along with the commitment from the TCFD and resources available to help overcome challenges.
- Mike Here you can see the challenges to the TCFD implementation as highlighted by the report. Lack of standardised industry metrics, concerns about revealing confidential business information, more clarity and challenges in adopting scenario analysis.
- Mike However these challenges shouldn’t be viewed as obstacles or barriers to implementation. In fact, the market has already identified most of the challenges and is actively working to support and enhance adoption of the recommendations with initiatives and resources to help you on your journey. One such initiative to align industry metrics is the Corporate Reporting Dialogue that aims to promote greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements. The slide here is just a small snapshot of some of the resources and initiatives supporting the TCFD and adoption of its recommendations worldwide including: The World Economic Forum’s climate governance principles, the recently updated EU guidelines for reporting climate-related information, the TCFD Implementation Guide developed by CDSB and SASB to meet market demand for “how-to” guidance on how to disclose in line with the recommendations, and the TCFD Knowledge Hub which is an online aggregator for publicly available resources, events, and case studies relating to the TCFD. E-learning courses are currently in development.
- Mike The Task Force has also committed to continued efforts to support adoption and will prepare another status report in Sept 2020. It is also considering work around clarifying elements, developing guidance for scenario analysis and identifying climate-related scenarios.
- Our advice? Just get started. Through our corporate engagement efforts speaking with companies and investors, one clear theme has emerged. Companies need to just get started on disclosing climate-related information aligned with the TCFD recommendations. No matter if you are already taking a sophisticated approach to corporate reporting or just testing the waters, there are ample resources widely available to help you to improve and enhance the quality, usefulness and consistency of your disclosures. Bear in mind that the direction of travel is clear and the move to mandatory is highly likely. So why wait? Companies can and should start preparing now.