April 15, 2020
Contact: Alec Gerlach, GerlachA@c2es.org
C2ES Outlines Strategies to Strengthen Climate Risk Reporting
New Brief Envisions Improved Corporate Climate-related Disclosure
WASHINGTON—The Center for Climate and Energy Solutions (C2ES) today released a brief identifying strategies key to improving corporate reporting for climate-related risks and opportunities. The paper, Implementing TCFD: Strategies for Enhancing Disclosure, seeks to improve reporting by addressing challenges in corporate scenario analysis including both physical and transition risk.
“As more companies across the economy begin to analyze and disclose how climate change could affect their bottom line, they’re learning how challenging it can be,” said C2ES President Bob Perciasepe. “Policymakers and companies can work together to provide clearer guidance and promote best practices ensuring better information for investors and other stakeholders.”
The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) published a voluntary reporting framework in 2017. C2ES has worked since then to support and contribute to the TCFD’s recommendations (See 2017 report) and improve reporting (See 2018 report). C2ES hosted two dedicated workshops with companies last year which have resulted in the insights described in the report released today. Best practices emerged for companies looking to undertake their own analyses and reporting, including coordinating across corporate functions and broadening risk analysis to potential business opportunities to strengthen executive interest.
The brief recommends that more work be done to analyze the collective impacts of physical and transitional risks taken together, the Securities Exchange Commission more closely consider potential systemic impacts posing long-term risk, and regulators better clarify how material risk should be defined for the purpose of climate disclosure.
This report shares lessons learned and recommends the following practices for better analysis of climate-related risk:
- Success requires coordination across corporate functions;
- Broadening analysis to reveal business opportunities can build executive buy-in;
- Translating risks and opportunities into business financial terms to justify strategies and investment;
- Conducting broad screenings for physical and transition risk helps scope TCFD-related scenarios;
- Accurate and organized data is the cornerstone of good analysis;
- Stress-testing modeling outcomes helps anticipate potential rough points in a transition; and
- Stand-alone TCFD reports are not expected but may showcase dedication and help strengthen internal engagement.
- TCFD guidance does not address the overlap and differing needs to identify and manage transition and physical risk;
- More work is needed to relay the financial benefit of climate resilience investments;
- Companies need more clarity regarding what constitutes “material” climate risk;
- Companies struggle to balance shareholder demand for quantitative disclosures with the range of outcomes and uncertainty that scenario analyses yield;
- The flexibility of the TCFD recommendations, particularly on scenarios, have resulted in corporate climate disclosures that vary significantly; and
- Policymakers should also recognize the significant economic risk that small- to medium-size businesses face.
The brief will be highlighted in a C2ES webinar 1:00 PM ET today what disclosure data points are in demand, the latest developments of the Taskforce on Climate-related Financial Disclosures, and how organizations are responding to challenges and leveraging opportunities to meet internal climate goals. Speakers include Sharon K. Basel, Senior Manager of Global Sustainability and ESG at General Motors Corporation; Mackenzie Huffman, Vice President of Sustainable Finance at JP Morgan Chase & Co.; Michael LeMonds, Vice President of Environment, Land and Government Affairs at LafargeHolcim; and moderator Tom Erb, Policy Fellow at C2ES.
About C2ES: The Center for Climate and Energy Solutions (C2ES) is an independent, nonpartisan, nonprofit organization working to forge practical solutions to climate change. Our mission is to advance strong policy and action to reduce greenhouse gas emissions, promote clean energy, and strengthen resilience to climate impacts. Learn more at www.c2es.org.