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Understanding climate risk reporting – TCFD event takeaways

Understanding how climate risk reporting is evolving has escalated in priority for many businesses and investors as they remain increasingly alert to the impact of climate change on their operations and decision-making. 

Aware of this need, 3Degrees participated in the TCFD and Climate Risk Reporting event in London in March where I had the pleasure of speaking on a panel about providing a harmonised sustainability message across reporting. Over the two-day conference, we also had the chance to hear unique perspectives into implementing the latest developments in climate risk disclosures and mitigation plans.

I’ve outlined some highlights of the event that will hopefully shine a light on the understanding that climate reporting must commence now.

Factors behind climate-related financial disclosure

Traditionally, companies have been required to disclose how their operations impact the environment. The Taskforce on Climate-related Financial Disclosures (TCFD) was created in 2017 to provide a more effective financial disclosure framework, as it considers the impact of climate change on businesses. 

At the conference, it was discussed that sustainability reporting and specifically, TCFD, have been evolving due to various drivers:

TCFD is a strategic tool that focuses on transition plans that significantly help companies with their reporting and investment decisions. Transition plans are defined as an organisation’s roadmap for addressing climate-related risks and opportunities aligned with business strategy.These plans will play an increasingly key role in the short-, medium-, and long-term. Successful companies will be those who regard TCFD reporting as an opportunity to self-assess, plan, and prioritise investments.

Harmonising frameworks within the risk management landscape

A central highlight of the event was the focus on reporting bodies aligning to work together to support businesses in their climate-related financial disclosures. In light of harmonising frameworks, Mardi McBrien, Managing Director at the International Financial Reporting Standard (IFRS) Foundation, shared that the International Sustainability Standards Board (ISSB) objectives aim to develop global standards for sustainability disclosures; meet investors’ requirements; help companies build their sustainability dossier; and integrate disclosures that tackle specific jurisdictions or target bigger stakeholder groups.

On the second day of the event, at the “Harmonising Sustainability Message Reporting” panel, we dove deeper into the concept of harmonisation. Companies have been facing the burdensome task of understanding and implementing different reporting standards into their financial disclosures. Several umbrella frameworks, such as CSRD, ISSB, and CDP, are looking to help businesses with having fewer platforms to report on and adding a third-party verification to ensure data quality. They aim to implement a mix of best practice standards and provide additional guidance for successful reporting in their framework. 

In an effort to become better aligned, reporting bodies are in constant communication. Each system has a crucial focus on developing detailed disclosure guidance, paving a path to a more standardised reporting landscape, aiding both financial and non-financial sectors.

Most market participants affected by these sustainability reporting requirements have global or multi-country exposure. Additionally, the main actors imposing TCFD are investors with complex portfolios that need comparability of potential investments in ESG terms for decision-making. 

Harmonisation of the disclosing mechanisms allows companies to easily report using the same data in various frameworks for comparability. Given the constant cooperation between standard setters, businesses would have much better alignment of data requirements, and more granular guidance on reporting processes and priority setting. 

Climate risk reporting is a team effort

Climate reporting tools, particularly TCFD, bring a new, more advanced layer to a business’ emissions reduction strategies by assessing climate change risks and opportunities. 

TCFD is shifting sustainability reporting, awareness, and action from a task performed by few people to a vital element of company planning affecting all organisational divisions. 

In this context, a key observation during the conference was the importance of distributing sustainability responsibilities amongst all company functions. The conference itself convened finance, operations, and procurement roles, and less than 50% had job titles directly connected to sustainability, reflecting that the transition to a low-carbon future is a shared arena and a team effort.

Looking forward

Data is a crucial reporting component, and part of it depends on an assumption-based perspective at the start. Yet, data quality will evolve with time. CSRD is adding a third-party verification requirement for reported data, considerably improving information transparency and reliability. This will provide better industry average activity and emissions data that could lead to more robust, industry-specific databases. 

More businesses are adopting sustainability reporting frameworks into their strategies. This awareness is increasing the need for data quality, technological solutions for emissions calculation and scenario analysis, and additional capacity building. 

Our team at 3Degrees supports businesses around the world in identifying their climate risks and defining mitigation plans through a variety of best-fit solutions. Please reach out to learn more.