TCFD’s increasing influence – Is your business ready?

The UK Government’s Green Finance Taskforce released its report on Accelerating Green Finance today. In it, the Taskforce recommends 10 Key Themes, from “issuing a sovereign green bond” to “boosting investment into innovative clean technologies”.

In particular, the Taskforce has suggested in its “Theme 3″ that companies implement the recommendations of the TCFD and are encouraging Government to conduct a review in 2020 of how organisations are performing against the recommendations.

This adds further weight to the importance and relevance of the TCFD recommendations and the likely impact it will have on your organisation.

Over the next few months, in a new blog series about TCFD, we will be reminding you of what the TCFD recommendations are, why they are important and which key elements you need to consider.

Kicking off in this blog, I will be giving a high-level overview of the recommendations and why they are so prominent.

What is TCFD?

The Task Force on Climate-related Financial Disclosures recommendations sets out voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to their stakeholders.

The recommendations were released in June 2017 ahead of the G20 Summit in Germany and are supported by over 100 CEOs from leading businesses around the world.

When we asked a group of companies “Does your organisation plan to align its mainstream financial reporting with Task Force on Climate-related Financial Disclosure recommendations?” 58% said they did not know.

With the UK Government now endorsing TCFD recommendations, it is safe to say that they are only going to grow in importance and influence in the near-future.

What is their purpose?

The purpose of the TCFD recommendations is to improve financial disclosure so that investors can make better-informed decisions on where to deploy their capital. Companies and investors need to be aware of the risks from climate change.

We believe they will become increasingly important factors in investment decisions, potentially devaluing an organisation or rendering it obsolete, if ignored.

Business impact

With Michael Bloomberg stating that “Increasing transparency makes markets more efficient, and economies more stable and resilient,” investors are looking for companies who are leading the way on climate-related financial disclosure. The impact this disclosure will have on investor’s decision making will only increase over time and organisations failing to disclose appropriately will start to be penalised by investors allocating their funds to more resilient companies.

It’s not just about disclosure though. Company Boards are finding themselves being held to account more and more for their environmental performance by better informed and increasingly vocal shareholders. And in the 2018 proxy season, it is expected that climate change risk is to feature prominently on the agenda again. Last year, Exxonmobil suffered reputational damage following pressure from investors to disclose on the impact of climate policies. Understanding the impact and influence your shareholders have, is becoming increasingly important. Increased transparency and information will help Boards engage with investors on the resilience of their strategy and avoid high profile disputes at AGMs.

With whom does responsibility lie?

Understanding the implications of climate volatility on business often falls with Sustainability Managers however the financial implications and business uncertainty of climate change mean that Board Members should be equally involved.

The TCFD recommendations are clear and represent a growing consensus that companies need to be disclosing more on climate-related risks and ultimately act on those disclosures.

This cannot be managed by a Sustainability Manager alone but requires the commitment of the whole company. Boards that recognise this are far more likely to mitigate the risks of a stranded business model and ensure a successful business in a changing environment.

Check out my previous blog on “Why is it so difficult to get climate issues onto the board level agenda?

How we can help
Since the launch of the TCFD, Carbon Credentials has been helping our clients to prepare for alignment with the TCFD recommendations.

If you have any questions or need help aligning with TCFD recommendations please contact me joe.pigott@carboncredentials.com

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