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TCFD: Experiences from the Front Line

03 May 2018

Coinciding with the launch of the TCFD Knowledge Hub, Principal Consultant Matt Rooney shares insights and experience gained from supporting clients to implement the recommendations.

Focusing on the ‘how’

In the context of the Task Force for Climate Related Financial Disclosures (TCFD), how to implement the recommendations is a question we’re being frequently asked. As consultants, we often and justifiably spend a large amount of time on the ‘what’ and ‘why’. However, this time it’s different. The general concept is nothing new; to quote the CDSB, “it is about enhanced disclosure, not more disclosure”.

So, whether it is because of repeated efforts each year to preserve a current benchmarking status, or to genuinely enhance governance, financial performance, and operational resilience, many of our current clients seem to quickly ‘get it’. For those that are still unclear on the ‘why’, Mark Carney’s Breaking the Tragedy of the Horizon speech will have helped clarify this further in April.

So now, as we engage with corporates and move on to the ‘how’, we are starting to see trends in perceived barriers and sources of confusion that we feel can be easily overcome. Below, I’ve outlined three common observations and provided guidance on how we are supporting our clients in these areas.

1. Scenario analysis: Sounds complicated

Whether it is climate driven or otherwise, understanding your organization’s tolerance to stress is critical. To date, I’ve seen technical experts stand up and lose the room before they have finished saying representative concentration pathway. I’ve also witnessed CFO’s nervously scratch their heads while feeling increasingly alienated by climate related acronyms. But it doesn’t need to be like this.

Scenarios are not about accurately predicting the future, they are just a range of potential ‘stories’. Yes, it helps if they are grounded in credible data, and yes, it’s important to ensure assumptions are prudent and can be justified. But really, this is something many companies are doing in non-climate change contexts already.

Our advice

Start simple, then build in sophistication. Don’t get hung up on the climate change scenario technicalities. By working backwards from your material or ‘substantive’ risk and opportunity impacts, exploring what specific operational conditions would be required for impacts to be realized; a lot can be learned before even going near the climate factors. At Anthesis, we use specialist climate modelling tools to take care of this aspect in an efficient, credible and simplified manner.

2. Opportunity disclosure: The chance to get your business case heard

Many assume that the interest will be more in the risks. After all, you have an ERM system, a ‘robust’ risk matrix that is ‘updated’ every quarter. You may have even made an attempt to quantify risks where possible. Of course you’re going to want to show this off. But what about the opportunities?

Companies commonly just reverse the risk already disclosed and state that, if well managed, it may present a commercial opportunity of equal and opposite (or sometimes greater) value. Plus, the risk disclosures can take a long time to disclose and get sign off, which may take the edge off the level of effort you have left for opportunities.

Our advice

Consider your approach carefully - don’t miss the chance to get your business case heard and increase support for the commercial opportunity that exists. It’s likely the scenario element will tease out key assumptions, so why not take the chance to proactively assess the commercial viability in more detail; this will be needed to realize opportunities at a later date anyway. Use the disclosures to escalate the business case, as, after all, the executive board level profile that these opportunities have has never been higher.

3. Engaging new stakeholders: This may not necessarily be easy

In the spirit of implementing good governance, better harnessing strategic linkages and understanding the true nature of risks and opportunities; it’s likely you will need to engage more. More engagement with new stakeholders, across more business functions. You may naturally prioritize material topics, and some people will stand out as more engaged than others. But be under no illusion; not everyone may be as enthused as you or see the commercial relevance as easily. They may need some convincing. 

As sustainability and climate change consultants, we regularly encounter a mix of attitudes and pre-conceptions on the topic, at all levels of seniority. From those who do nothing, to those who still have it in the ‘nice to have’ category (but may not realize it), and those who believe they have done all they can, but are now constrained by factors ‘beyond their control’. It is therefore highly likely no ‘one size will fit all’ when it comes to engaging with stakeholders and implementing the TCFD’s recommendations.

Our advice

If you’re assuming the role of TCFD implementer in your organization, you’ll have a lot of influence on how people view climate change and how engaged they are likely to be. We have found that tailoring the brief to your audience is vital. Preparing compelling examples and department-specific illustrations in advance can help. Rightly or wrongly, it’s often not what you tell them, but how you tell them.

Translating climate speak into commercial speak is what the TCFD is all about, so don’t underestimate the need to do this on your journey internally, right from the start. We’ve supported numerous clients in relation to client engagement and communication.

Our experience

Anthesis have extensive experience in developing robust climate change and environmental information for mainstream corporate reports. We have worked with a wide range of companies, including many from the financial services sector. In particular, we are advising investment funds on how to effectively use this type of information within benchmarking, screening and portfolio governance activities. We are therefore optimally placed to support.

Further TCFD Resources

Reach out to one our TCFD experts blow via email, or by using our dedicated fill out form.

FionaPlace

Fiona Place

Associate Director

 

 

Lisa_GriceLisa Grice

Managing Partner

 

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