The Task Force on Climate-related Disclosures (TCFD) was established in 2015 by the international Financial Stability Board. It is based on the growing consensus that climate change has immediate effects on economic decisions. Investors are growing more aware of climate-related risks and putting more faith in organisations that are planning ahead.
In a recent series of environmental measures from the government, Chancellor Rishi Sunak announced plans to make alignment with the TCFD guidelines mandatory. This will apply to most sectors of the economy by 2025 including listed companies, banks, and large private businesses. This part of the green recovery plan aims to bolster the UK’s position as a global leader for green finance.
“By taking as many equivalence decisions as we can in the absence of clarity from the EU, we’re doing what’s right for the UK and providing firms with certainty and stability.”
– Chancellor Rishi Sunak
Can increased transparency help achieve net zero and a stable green economy? We look at the key points and benefits of the guidelines for the TFCD.
What are climate-related risks?
The Task Force broke down climate-related risks into two major categories:
- risks related to the transition to a lower-carbon economy, and
- risks related to the physical impacts of climate change.
Transition risks include shifts in policy and litigation, market, technology and reputation. Organisations are already seeing this impact with climate-related litigation and policy changes rising. Costs of operation, raw materials, and products are all vulnerable to shifts in policy, technology, and markets. And changes in consumer preferences and customer behaviour must also be taken into account.
Physical risks involve the effects of climate change on the natural world. These are broken down into two categories: acute and chronic risk. Acute risk involves extreme weather events such as wildfires or floods. Chronic risk refers to longer-term shifts in climate patterns. These could affect anything from an organisations supply chain to their employees’ safety.
What are climate-related opportunities?
In light of the potential risks posed by climate change, the TCFD also recommends several opportunities. These are solutions that can reduce risk and provide organisations with long-term stability.
- Resource efficiency: Making your buildings and transportation as efficient as possible by integrating intelligent energy management, reducing water usage and consumption, and recycling.
- Energy source: Implementing the use of clean energy sources through procurement or onsite generation and taking advantage of policy incentives.
- Products and services: Developing low-emission goods or services and/or innovative climate-related products.
- Markets: Having access to new markets and assets and use of public-sector incentives.
- Resilience: Boosting financial and reputational stability by adopting sustainable solutions such as energy efficiency and supporting renewable energy.
What are the recommended disclosures?
There are four recommendations laid out by the task force for disclosures.
- Governance: Disclosure of the board’s oversight on, and management’s role in, assessing and managing climate-related risks and opportunities.
- Strategy: Disclosure of the short and long term climate-related risks and opportunities, their impact on the organisation, and the resilience of the strategy in place to manage those risks and opportunities.
- Risk Management: Disclosure of the organisation’s process for identifying, assessing and managing risks, and how this is integrated into the organisation’s overall risk management.
- Metrics and Targets: Disclosure of the metrics used to assess risks – Scope 1, Scope 2, and Scope 3 greenhouse gas emissions, the risks they pose, and the targets in place to manage risks and opportunities.
What are the benefits of implementing TCFD?
In the future green economy, disclosures like these will be crucial for a company’s sustainability and resiliency. Implementing TCFDs will help companies to identify and assess the risks posed by climate change. They can then address their structural weaknesses and implement mitigation and adaptation efforts to future-proof their business. Organisations that do this will have a competitive advantage over those that don’t when it comes to future funding and investments.
At EIC we are experienced in helping clients mitigate climate-related risks. Through our unrivalled energy management services and cutting-edge technology, we can help with most of the TCFD’s recommendations. From resource efficiency and clean energy to your carbon compliance, our goal is to simplify your sustainability journey. For more information on future-proofing your organisation, contact us at EIC.