Over 2250 financial market participants will have to report on TCFD recommendations of governance, strategy and risk/opportunity in 2020. This is the next step in the PRI’s support of the disclosure framework.
The PRI (Principles of Responsible Investing) has announced that several TCFD-aligned disclosure indicators will move from being voluntary to be mandatory in 2020 – two years after they were first introduced into the PRI’s reporting framework. The indicators cover the climate-related risks and opportunities identified by the PRI signatories, their likelihood and impact and management strategy; climate governance; and use of scenario analysis. This is a strong move in support of TCFD reporting that affects over 2,000 finance sector organizations including the largest asset owners and managers in the world.
In general, companies have few issues with disclosing the governance of climate issues, but being able to credibly and comprehensively disclose the risks and opportunities that have been integrated into investment products and strategies can be more difficult. This is especially true for organizations that are still in the early stages of their climate management journey. Scenario analysis is another order of magnitude of difficulty.
However, it appears that this is yet another signal of the momentum behind the TCFD disclosures and perhaps one of the first signals that these disclosures will at least be on a ‘comply or explain’ footing if not fully required by law one day. Financial companies that are able to meet these requirements sooner rather than later will have a strong tool in building client trust. But more importantly, companies that use the disclosure as a framework or impetus for integrating solid climate management in their organizations will have a true competitive advantage.
About Manifest’s work in this area
One of the services we offer is to help our clients understand what the TCFD recommendations mean to them and how they can align their reporting to this framework. We’ve found that one step that is helpful in doing this is to perform an organizational review of the client’s functions. This uncovers activities that are already climate-related, but that are not being credited as such. Once this ground work is complete, an organization is in a good position to move on to risk and opportunity identification and management.
About the PRI
The Principles for Responsible Investment (PRI) is the world’s largest investor network on sustainable investing. Established in 2005 by the then UN Secretary General Kofi Annan, the PRI is now a privately funded organisation with over 2250 signatories (asset owners, investment managers, service providers), representing $83T of assets under management, to its six principles.
About the TCFD
The Financial Standards Board (FSB) Taskforce on Climate-Related Financial Disclosure (TCFD) published voluntary, consistent recommendations for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The work and recommendations of the Task Force will help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.