The Task Force for Climate-Related Financial Disclosures: What You Need to Know

Climate change is one of the most significant risks that your organisation may face, yet is one of the most misunderstood.

While we all recognise the global threat that climate change poses, its timeline is difficult-to-define. You might view the implications of climate change to be exclusively long-term and not relevant to current decision making.

This couldn’t be more wrong.

Climate-related risks are not a thing of the distant future, and, in the wake of the COVID-19 crisis, it's never been more important to “plan for and manage systemic economic shocks” says Climate Change Minister James Shaw.

The New Zealand Government wants to “move to a position where the effects of climate change become routinely considered in business and investment decisions” (1). In achieving this, businesses participating in financial markets must disclose clear, consistent, and comparable information about their climate-related risks and opportunities.

The recently proposed New Zealand legislation would require around 200 organisations to make annual disclosures regarding their exposure to climate risk, based on the TCFD’s recommendations.

What is the TCFD?

The Task Force for Climate-Related Financial Disclosures was established in 2015 and is an organisation with the goal to develop a set of climate-related financial risk disclosures.

These disclosures can be adopted by organisations to inform investors about the climate change risks and opportunities they are faced with. The recommendations are voluntary and act as a guideline for organisations to identify and share their climate-related risks and opportunities.

The Task Force considers “the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries”, according to their mission statement.

Recommendations

The TCFD’s recommendations are structured around four thematic areas: Governance, strategy, risk management and metrics & targets.

Governance relates to the organisation’s governance and climate-related risks and opportunities.

Strategy encompasses the potential and actual impacts of those risks and opportunities on the organisation, including businesses, strategy, and financial planning.

Risk management is the processes used by the organisation to identify, assess, and manage climate related risks.

Metrics and Targets involves the metrics and targets used to assess the climate-related risks and opportunities.

While the recommendations of the TCFD are voluntary, countries like New Zealand are beginning to use them as a reference for new legislation being proposed.

The Benefits of TCFD-Aligned Reporting

Assess Exposure to Climate-Related Risks and Identify Opportunities

Perhaps the most obvious benefit of reporting using the TCFD’s recommendations is the ability to assess your organisation, and business partners’ exposure to climate change risks and opportunities.

Many organisations do not currently have a solid understanding of how climate change will affect what they do. If your organisation understands how climate change may be impacted in the future, they can prepare for and minimise any risks.

Companies who are aware of risks can reduce their potential exposure, being better equipped for increasing climate risks like extreme weather events and ensuring their organisations adapt and survive. Beyond preparing for these risks, companies can also take advantage of climatic changes to improve their competitive standings.

Improve Stakeholder Relations

A TCFD-aligned report can not only help your organisation understand climate-related risks and opportunities, but in publishing this report, can communicate these with key stakeholders.

Publicising these findings informs both current and potential investors of your plans to manage climate-related issues. These investors will then have superior information when making decisions regarding the allocation of capital.

Companies that are the most transparent and proactive in tackling climate issues will attract investors and clients, as well as improving public relations.

Reduce Future Regulatory Risks

The Zero Carbon Bill was introduced by the New Zealand government in 2019 and is a piece of legislation that aims to reduce the country’s carbon emissions to net zero by 2050.

If we are to reach the targets laid out in the legislation, we need a massive nation-wide shift to a low emissions economy. The new proposed legislation around climate-related financial disclosures is one example of legislation being introduced to make these low-emission changes.

After the government's declaration of a climate emergency, requirements have also evolved to include mandatory reporting for a broader range of organisations, like the public sector. Because of this, getting ahead of the curve and assessing your organisation’s climate-related risks, opportunities and impact is a good idea.

Reporting can also help you get a handle on your organisation’s carbon footprint and what future obligations could look like.

Carbon EES: Towards Zero

e-Bench® gives you all the tools you need to monitor your organisation’s environmental impact and begin identifying and reporting upon your climate-related risks.

Know the facts. e-Bench® helps you collect accurate, relevant data and presents information in easy-to-interpret reports. These reports can inform internal decision-making, as well as influencing public stakeholders, based on your organisation’s data.

To learn more about your reporting obligations and how you can manage your energy and emissions, book a time to chat with us at Carbon EES.

(1) Ministry for the Environment & Ministry of Business, Innovation & Employment. 2019. Climate-related financial disclosures – Understanding your business risks and opportunities related to climate change: Discussion document. Wellington: Ministry for the Environment.