At Design Portfolio, we are working with clients undertaking these strategic steps, from climate ambition-setting, to defining climate-related metrics, setting targets, disclosing, and reporting.
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Government, business, civil society and the private sector no longer doubt the reality of climate change. The question now is, how do we respond without creating chaos across the economy?
The world has awoken to the systemic nature of climate risk. If no action is taken to reduce emissions or increase our climate resilience, the physical impacts will devastate global supply chains. Financial systems could face collapse as trillions of dollars in stranded assets are wiped off balance sheets. And in many cases, the technology to facilitate a low-carbon way of life simply isn’t available yet.
As the world mobilises to take on these challenges, the financial community is demanding clear and transparent information to facilitate better-informed decisions on capital allocation. Critically, investors want to know not just the impact of companies’ activities on the environment, but how the climate crisis translates into risks and opportunities for the business.
Enter the Task Force on Climate-Related Financial Disclosures (TCFD)
To begin to address the information deficit facing financial markets, the TCFD released a framework designed to improve reporting standards on climate-related risks. First launched in 2017, the TCFD sets out four disclosure areas underpinned by eleven recommendations that encourage reporters to take action to bolster the resilience of their business models and approach to financial planning.
In late 2020, the United Kingdom and New Zealand became the first countries in the world to mandate reporting aligned to the TCFD recommendations. Fast-forward to mid-2021, and G7 finance ministers have also expressed support for mandatory climate risk disclosure. And so the stage is set for 2022 – when the first cohort of companies will publish mandatory disclosures – for UK-listed companies to set an early precedent for best practice reporting on a global scale.
Reporting requires multiple steps – starting with understanding your climate-related risks and opportunities, by scanning both historical data and forward-looking projections, and then moving to define a high-level climate strategy with targets and metrics. Companies are increasingly using scenario analysis to support their projections and to develop their transition plans.
At Design Portfolio, we are working with clients undertaking these strategic steps, from climate ambition-setting, to defining climate-related metrics, setting targets, disclosing, and reporting.
So, what does good disclosure look like?
In our latest whitepaper, the Design Portfolio ESG team explores the emergence of TCFD reporting trends among early adopters of the framework, specifically focusing on non-financial sectors. We identify distinct formats for presenting the disclosure and where in the annual report it can most often be found. We also conduct a deep dive into the core pillars of the TCFD and outline our expectations for how disclosure may evolve in each area.
TCFD-aligned disclosure is underpinned by action, and the time to start the journey is now. For many companies just getting started, reporting on climate risks and opportunities will be the beginning of a multi-year, iterative process towards achieving a future-proofed business model.
To find out more about our sustainability practice, and Sustainability by Design, get in touch with martha.mcpherson@design-portfolio.co.uk.