The document is a transcript from a webinar about implementing the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. It includes discussions on understanding the TCFD recommendations, what companies are currently doing with disclosure, tips for effective disclosure implementation, and a presentation from HSBC on how they are embedding sustainability into their strategy and disclosing climate-related financial risks. The webinar covered key elements of the TCFD framework like governance, strategy, risk management, and metrics and targets.
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TCFD risk management webinar
1. January 20 | Tweet @CDSBGlobal
TCFD implementation webinar:
How to improve your TCFD risk management
disclosures
Nontokozo Khumalo,
Corporate Engagement Manager, CDSB
Gemma Rastelli,
Senior Manager, Sustainable Finance, HSBC
Moderated by:
Lesley McKenna, Climate Disclosure Standards Board
2. January 20 | Tweet @CDSBGlobal
TCFD Implementation Webinar Series 2
3. January 20 | Tweet @CDSBGlobal
Q. How would you describe your
understanding of the TCFD recommendations?
I am an expert
I am confident, but need to understand some elements
I have some knowledge, but need support
I have little knowledge
TCFD Implementation Webinar Series
4. January 20 | Tweet @CDSBGlobal
To create the enabling conditions for material climate
change and natural capital information to be integrated
into mainstream reporting.
Climate Disclosure Standards Board
Board
Technical Working Group
5. January 20 | Tweet @CDSBGlobal
Climate Disclosure Standards Board 5
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
6. January 20 | Tweet @CDSBGlobal
Introduction
to the TCFD
7. January 20 | Tweet @CDSBGlobal
7
Why?
7
• Lack of disclosures on the financial
implications on the climate-related
aspects;
• Inconsistencies in disclosure practices;
• Lack of context for information;
• Use of boilerplate, and non-comparable
reporting; and
• Lack of consistent information hinders
investors and others from considering
climate-related issues in their asset
valuation and allocation processes.
TCFD Implementation Webinar Series
8. January 20 | Tweet @CDSBGlobal
8
TCFD recommendations
8
Overview
1. Voluntary
2. Report climate-related financial disclosures in
the annual financial filings (mainstream report)
3. Financial sector & high risk non-financial sectors
4. Transition risks & physical risks (and opportunities)
5. Scenario analysis & forward-looking information
6. Short-term, medium-term & long-term
7. Qualitative & quantitative disclosures
Governance
Strategy
Risk
Management
Metrics
and Targets
TCFD Implementation Webinar Series
9. January 20 | Tweet @CDSBGlobal
What are
companies
doing?
10. January 20 | Tweet @CDSBGlobal
TCFD Status Report 2019
10
Key Themes and Findings
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.
TCFD Implementation Webinar Series
11. January 20 | Tweet @CDSBGlobal
11TCFD Implementation Webinar Series
Recommendation
Recommended
Disclosure
Banking Energy
Materials &
Buildings
Transportation
Average
Disclosure
Europe Asia Pacific
Risk Management a. Risk ID &
Assessment
Processes
52% 38% 41% 23% 32% 45% 23%
b. Risk
Management
Processes
46% 42% 39% 17% 31% 41% 22%
c. Integration into
Overall Risk
Management
32% 21% 18% 11% 17% 24% 10%
Analysis of disclosure
12. January 20 | Tweet @CDSBGlobal
Core element:
Risk management
13. January 20 | Tweet @CDSBGlobal
13
Governance Strategy Metrics and Targets
Disclose the organization’s
governance around climate-
related risks and opportunities.
Disclose the actual and potential
impacts of climate-related risks
and opportunities on the
organization’s businesses,
strategy, and financial planning
where such information is
material.
Disclose the metrics and targets
used to assess and manage
relevant climate-related risks and
opportunities where such
information is material.
a) Describe the board’s oversight
of climate-related risks and
opportunities.
a) Describe the climate-related
risks and opportunities the
organization has identified over
the short, medium, and long term.
a) Disclose the metrics used by
the organization to assess climate-
related risks and opportunities in
line with its strategy and risk
management process.
b) Describe management’s role in
assessing and managing risks and
opportunities.
b) Describe the impact of climate-
related risks and opportunities on
the organization’s businesses,
strategy, and financial planning.
b) Disclose Scope 1, Scope 2,
and, if appropriate, Scope 3
greenhouse gas (GHG) emissions,
and the related risks.
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-
related scenarios, including a 2°C
or lower scenario.
c) Describe the targets used by
the organization to manage
climate-related risks and
opportunities and performance
against targets.
Risk Management
Disclose how the
organization identifies,
assesses, and manages
climate-related risks.
a) Describe the organization’s
processes for identifying and
assessing climate-related risks.
b) Describe the organization’s
processes for managing climate-
related risks.
c) Describe how processes for
identifying, assessing, and
managing climate-related risks are
integrated into the organization’s
overall risk management.
TCFD Implementation Webinar Series
14. January 20 | Tweet @CDSBGlobal
Types of risk
Transition risk
• Policy and Legal
e.g.: Exposure to litigation, carbon pricing
• Technology
e.g.: Substitution of existing products and
services with lower emissions options
• Market
e.g.: Increased cost of raw materials
• Reputation
e.g.: Shifts in consumer preferences
14
Physical risk
• Acute
e.g.: Increased severity of extreme
weather events such as cyclones
and floods
• Chronic
e.g.: Changes in precipitation patterns and
extreme variability in weather patterns
TCFD Implementation Webinar Series
15. January 20 | Tweet @CDSBGlobal
Risk management
15
Describe the organization’s processes for identifying and assessing
climate-related risks.
Consider including a discussion of:
• How do you determine the relative significance of
climate-related risks vs other risks?
• Do you consider existing and emerging regulatory
requirements related to climate change?
• Existing risk classification frameworks used?
TCFD Implementation Webinar Series
16. January 20 | Tweet @CDSBGlobal
Risk management
16
Describe the organization’s processes for managing climate-related
risks.
Consider including a discussion of:
• How do you make decisions to mitigate, transfer, accept, or control those risks?
• How do you prioritise climate-related risks?
• How are materiality determinations made within your organisation?
TCFD Implementation Webinar Series
17. January 20 | Tweet @CDSBGlobal
Risk management
17
Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organization’s overall risk
management.
TCFD Implementation Webinar Series
18. January 20 | Tweet @CDSBGlobal
Risk management
18
What do investors want to know?
Survey respondents identified the value of:
• Having clear definitions of the categories and specific channels of risk the companies
identified in the example as material.
• Greater clarity around the process by which companies prioritized risks, and how this
prioritization may change over time in response to actions taken by the company to
mitigate these risks.
• More information about how a company’s risk management process informed the
board’s decisions around strategic resilience.
TCFD Implementation Webinar Series
20. 20
Increasing expectations from across stakeholder groups
PUBLIC
Embedding Sustainability into Strategy
.
1
Investors Consumers
Other stakeholders
Long-term
corporate performance
21. 21
How does HSBC think about sustainability?
PUBLIC
Embedding Sustainability into Strategy
GovernanceEnvironmental Social
Low carbon transition
Gender
Mental
health
Cyber security
Financial Crime
Compliance
Our operational
sustainability
2
ESG rating:
‘Outperformer’
US$100bn
sustainable finance target
Improve customer satisfaction
in eight scale markets
Improved employee engagement
Our
customers
Our
people
22. 22
Environmental: Supporting the global transition to the low-carbon economy
PUBLIC
Embedding Sustainability into Strategy
3
Source: HSBC ESG Update – published 8 April. www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies
Task Force on Climate-related Financial
Disclosure (‘TCFD’)
Sustainable Finance
• Target: $100 billion of sustainable
financing and investment to be provided and
facilitated by 2025
• Progress: $28.5 billion
cumulative progress since 2017
Sector
% of total wholesale
loans and advances to
customers and banks
in 2018
Oil & Gas ≤ 3.9%
Building & Construction ≤ 3.8%
Chemicals ≤ 3.9%
Automotive ≤ 3.4%
Power & Utilities ≤ 3.0%
Metals & Mining ≤ 2.8%
Total ≤ 20.8%
Sustainable Operations
• Target: 100% of our electricity will be
from renewable sources by 2030
• Progress: 29% signed renewable
electricity from power purchase agreements
23. 23
Climate Risk disclosure – year end 2018
PUBLIC
Embedding Sustainability into Strategy
4
Source: HSBC ESG Update – published 8 April. www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies
24. 24
TCFD disclosure – year end 2018
PUBLIC
Embedding Sustainability into Strategy
5
Source: HSBC Annual Report – published February 2019
25. January 20 | Tweet @CDSBGlobal
Tips for
implementation
26. January 20 | Tweet @CDSBGlobal
7 top tips for effective disclosure
1. Adopt the correct lens for looking at climate-related risks
2. Make holistic disclosures
3. Distinguish between climate leadership and management
4. Explain how you assess the material risk of climate change to your business
5. Disclose using existing standards and metrics
6. Make as many of the 11 recommended disclosures are you can
7. Put it in your mainstream report
26TCFD Implementation Webinar Series
27. January 20 | Tweet @CDSBGlobal
27TCFD Implementation Webinar Series
HSBC’s top tips
Become an internal disruptor
Get the board on board
28. January 20 | Tweet @CDSBGlobal
Where to learn more?
tcfdhub.org
CDP 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.
28
ww.cdsb.net/tcfdguide ww.cdsb.net/tcfdhandbook
learn.tcfdhub.org
ww.corporatereportingdialogue.com
TCFD Implementation Webinar Series
29. January 20 | Tweet @CDSBGlobal
Questions?
Nontokozo Khumalo
Climate Disclosure Standards Board
With the contribution of the LIFE Programme of the European Union.
Hosted by CDP Europe.
Gemma Rastelli
HSBC
info@cdsb.net
30. January 20 | Tweet @CDSBGlobal
30TCFD Implementation Webinar Series
www.cdsb.net
Notes de l'éditeur
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.
The 7 principles and 12 requirements of the CDSB Framework
7 guiding principles (the how)
12 reporting requirements (the what)
Fully aligned with the TCFD recommendations and principles – and the TCFD was developed based on the CDSB Framework and other leading reporting frameworks
Therefore, complementary to existing reporting provisions (CDP, GRI, SASB) and existing regulations
Referenced in the EU NFRD guidance and stock exchange guidance globally
The TCFD was set up in 2015 to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. They specifically considered the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries.
What makes the TCFD different?
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.
78% aligned with at least 1 of the recommendations disclosures
4% of companies aligned with at least 10 of the recommended disclosures
The Banking industry generally had the highest percentages across the recommended disclosures. However, other industries had higher percentages for specific recommended disclosures such as strategy but not in the case of Risk Management. Average disclosure is XXX. Given the timing of this webinar, we can assume most attendees are based in Europe and Asia Pacific and for this reason I have focussed on these two regions. A full breakdown of disclosure across all regions can be found in the second status report.
Pop out core element
These are some key takeaways on what constitutes decision-useful information from an investor survey on TCFD disclosures conducted by one of our board members, SASB. It is useful her in terms of what is the nature of disclosures required by investors. Do these reasonate with you?
These are 7 top tips for developing and refining climate-disclosures.
1. We have found in reviewing reports that some report preparer are confused by the orientation For TCFD, we are looking at the impact of the climate on the business not the converse.
2. Disclosures are interconnected and mutually reinforcing. Ensuring the connectivity of information is key. This includes linking financial and non-financial finroamtion.
3. We found governance disclosures muddled. Explain how the board exercises its oversight function of climate risks and how this differs from managers’ roles and responsibilities. This is a distinction between climate leadership and management – both are important hence the two recommended TCFD disclosures.
4. The process for assessing materiality was often absent from disclosures.
We found that beyond scope 1 and 2 emissions, climate-related disclosures differs from company to company and within indsutries. There are existing standards and metrics that can be used to help make your TCFD disclosures.
You don’t drive a car with three wheels instead of four [may change analogy], why would try to tell your story of how you are identifying, assessing and managing climate risks to investors without giving them the full picture
The annual report is aimed principally at investors. It allows you to put climate-related information on the same level of rigour as financial information. It allows you to make key linkages there. If it is in the mainstream report it matters.
Overall, we are moving along the TCFD implementation path with more companies and disclosures, let’s keep going, learning-by-doing and refining our evolving practice. Don’t let the perfect be the enemy of the good when making your climate-related financial disclosures. This is an evolving area.
Now I will turn back to Katie on what next?
Nadine: - Now that we have identified some top tips from the good practices in this year’s disclosure cycle, we would like to share with you a snapshot of the ample resources that are available to help you implement the TCFD. We suggest you start with our twin resources – the guide and handbook.
We also wish to draw your attention to the Corporate Reporting Dialogue’s Better Alignment Project report (being launched tomorrow) – this will be of particular interest in the context of the 50 illustrative metrics from the TCFD and how a report preparer can use CDP, SASB or GRI metrics to make some of the quantitative disclosures suggested by the TCFD. It also shows how the five leading framework and standard setters, including SASB and CDSB are collectively aligned to the TCFD principles for effective disclosures and recommended disclosures. It provides a mapping of how we fit together in the context of climate.
The World Economic Forum’s climate governance principles, our implementation guide and this good practice handbook are examples of what you will find on the TCFD Knowledge Hub. The Hub is powered by CDSB and an online aggregator for publicly available resources, events, and case studies relating to the TCFD. E-learning courses on making climate related financial disclosures were developed by CDSB and launched earlier this month. We encourage you and your colleagues to test your knowledge, and this provides an excellent introduction or refresher to climate-related financial disclosures.