Issuers Prepare to Use TCFD Guidelines for Climate-Related Risk Disclosures


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tcfd
09/30/2020

On the heels of Climate Week NYC, the largest climate summit of 2020, CFOs, controllers, and internal audit specialists are realizing just how critical the participation of the finance team can be in supporting sustainability and ESG reporting workflow. The topic has taken on greater urgency as more companies plan for the disclosure of climate-related financial risk in their SEC and stakeholders; communications using guidelines established by the Task Force on Climate-related Financial Disclosures (TCFD).

Asset owners, including BlackRock and State Street Global Advisors, along with a growing list of stakeholders ranging from employees to customers, communities, suppliers and governments, are all looking at climate risk through the lens of legal, regulatory, market, operational or other risks. The TCFD recommendations understand this and were designed to:

  • Be adoptable by all organizations
  • Solicit decision-useful, forward-looking information on potential financial impacts of climate change Bring the “future” nature of climate-related issues into the present through scenario analysis demonstrate a strong focus on risks and opportunities related to climate change.

In partnership with the Society for Corporate Governance, DFIN conducted a survey on the state of climate risk disclosure. The results confirmed many of the observations made by the TCFD, while also providing new insights into how companies are addressing the challenges associated with this emerging disclosure obligation. Here are some survey highlights:

  • In our survey, two-thirds of respondents said they consider whether climate change issues present risks to their businesses. As leading risk, 75% of respondents cited risks to their facilities and operations, followed by reputation, regulatory and market risks.
  • TCFD has highlighted board engagement as crucial for identifying and managing climate risks and opportunities. Our survey indicates that boards mainly review climate risks on an as-needed basis. Specifically, 24% review the issues on a quarterly or annual basis, while a fifth of respondents said their boards never discuss climate issues.
  • In its 2019 update, the TCFD said scenario modeling is a challenge for many companies and few have used it in their climate disclosures so far. Our survey indicates companies are beginning to use this tool; 44% of participants responded that they use scenario modeling or stress testing to assess climate risks. This is an encouraging finding and suggests more companies might begin this process soon, with meaningful disclosures to follow.

Access the full version of this survey, titled “The State of Climate Risk Disclosure: A Survey of US Companies.

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