Author: Dan Saccardi, Director, Ceres Company Network.
With more than 500 companies, investors, and other stakeholders supporting its recommendations, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) just reached a milestone.
Now that companies have had a year to begin implementing the TCFD’s important recommendations on how to best identify, manage, mitigate, and disclose climate risk, it’s a good time to take a step back and evaluate progress. The TCFD Secretariat has just done this exercise , putting out a comprehensive evaluation of what companies have done and have yet to do. Building on this analysis, I’d like to share some of our insights based on Ceres’ extensive work with companies and investors to enhance decision-useful environmental, social, and governance (ESG) disclosures.
Something we’ve heard again and again from companies and investors, as well as from the TCFD Secretariat, is that fully implementing the TCFD recommendations will be a journey and no one will get it right from the starting line. But, everyone should get in the race. An instructive parallel is how companies continue to evolve their approach to reporting on the UN’s Sustainable Development Goals (SDGs), which were adopted by world leaders in 2015.
Initially, companies linked the SDGs to their existing accomplishments (and sometimes challenges). This approach provides useful information about how current priorities and activities align with relevant SDGs, but it doesn’t demonstrate how companies are truly integrating the SDGs into business strategy. Companies that go a step further not only do this mapping, but also demonstrate how they’re using SDGs to enhance their understanding of risks and opportunities, and evolve their strategy accordingly. UBS’s and Enel’s approaches illustrate such leading practices. UBS, for example, didn’t stop at identifying priority SDGs. It made the connection to where private investment could have the greatest impact on those priorities and then developed metrics to measure how assets in its investment portfolios could help achieve these specific impacts.
We’re now seeing a similar trend with early TCFD-related reporting. For the most part, companies are starting out by addressing how their current strategies and actions are responsive to specific TCFD recommendations. Citi, for example, provides an index that maps where to find TCFD-related information. This is a necessary but not sufficient step, which Citi explicitly acknowledges by adding that in “future reports, Citi plans to expand our reporting on TCFD recommendations,” based on the results of a pioneering United Nations Environment Programme Finance Initiative TCFD implementation pilot project underway in collaboration with other financial institutions.
Like most things new, the hardest part can be starting. But once this process is underway and something has been shared publicly, however preliminary it may be, companies find it much easier to make the case internally not just for the importance of the exercise but also for greater ambition in subsequent disclosures.
And companies must go further because this is an imperative to satisfy investors’ needs—and to stabilize our rapidly changing climate.
For evidence of the investor focus, look no further than two separate but related initiatives that Ceres, along with our international investor partners, has launched:, Climate Action 100+ and The Investor Agenda. Each initiative has the support of more than 300 investors, collectively representing more than $30 trillion in assets under management, and both feature engaging with companies on their approach to the TCFD recommendations.
The Intergovernmental Panel on Climate Change’s (IPCC) recently-released Special Report on Global Warming of 1.5°C starkly demonstrates why investors are concerned: the window is ever narrowing to curb the devastating financial and existential impacts of climate change. Critical to mitigating these impacts is fully understanding and disclosing the risks (and opportunities) companies face, and modifying business strategies accordingly – which, not coincidentally, are the pillars of the TCFD recommendations.
I’ll be speaking about these issues and more at the upcoming Sustainable Brands New Metrics 2018 conference, along with experts from CDP, NRG, Dana Investment Advisers and South Pole. To learn more about how companies are responding to the TCFD recommendations, and what investors are expecting companies to disclose, join our panel discussion, “A Practical Guide to the Task Force for Climate Related Financial Disclosures and its Implications for Companies” in Philadelphia on October 29-31.
Dan Saccardi is a director in the Company Network at Ceres. Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.