Climate Week in New York City just wrapped up, and we were in attendance. With more than 300 events taking place, we couldn’t attend everything—but we had a presence at several events discussing the role of sustainable finance and the importance of businesses taking action on climate.
Here are the top four things that we learned businesses should pay attention to:
Pressure to disclose climate risks and opportunities is only going to grow
Businesses who take action now to disclose how climate change impacts them and forecast how it may impact them in the future will have a big advantage over those who don’t—because the pressure to disclose is only going to grow. The Task Force on Climate Disclosures (TCFD) released a detailed framework in 2017 for how businesses should report on climate change which has quickly become industry best practice. Although many Canadian businesses have committed to TCFD-aligned reporting, there is still a long way to go.
Businesses gambling that the movement to disclose on climate risk and opportunity won’t go anywhere will face challenges, gaining investment and staying competitive. Multiple speakers at Climate Week, including Mindy Lubber, the CEO of the sustainability non-profit CERES, and Bank of England Governor Mark Carney, said mandatory disclosure is becoming a reality. While Canada’s Expert Panel on Sustainable Finance recommends TCFD reporting by 2024, Carney said the UK is considering mandatory reporting by 2022. Ricardo Lama, an Insurance Commissioner from California, spoke about how his state is working with the UN to develop a sustainable insurance roadmap set to be released in 2020. If you’re a business and you’re not doing TCFD-aligned reporting, get going.
The financial industry needs education on climate risk and opportunity
The financial services sector, trained to look at traditional metrics of risk, does not have the skill set to properly assess climate risk and advance sustainable finance initiatives. Daniel Klier, HSBC’s Global Head of Sustainable Finance, spoke about the need for the financial industry to aggressively pursue deeper education in the area of climate risk and sustainable finance.
There is a need for further education and training for the industry to understand the differences between the physical and transition risks of climate change, the data sets available to forecast climate risk, and the ways in which boards should be disclosing how climate change risks and opportunities impacts their business.
At Manifest, we regularly provide training for boards and senior managers on climate-risk disclosure and sustainable finance. We cover everything from the latest science on climate change to fiduciary responsibilities for board directors, to developing TCFD-aligned disclosures designed for investors and regulators.
There’s no excuse for delay, because the data is there
There is no shortage of research available when it comes to integrating climate change’s physical and transition risks into business forecasting. The excuse that it is too complicated, or there is too much uncertainty, does not hold water. Plenty of services and freely accessible data sets are available for businesses or investors looking to run scenarios on how their organization will be impacted due to climate change.
A lack of data is not an excuse for failing to deliver TCFD-aligned disclosure. Lubber, CEO of Ceres, made the case that it’s less about the need for more data, and more about how to standardize it. At Manifest we track emerging data sets on climate risk and work with our clients to ensure they have access to the specific research they need to manage climate risk.
Businesses need to focus less on targets and more on transition
Businesses tend to focus on their short and long-term climate change targets: annual emission reductions or emissions intensity, for example. But increasingly, financial analysts are less interested in targets and are more focused on a company’s ability to manage energy transitions. Bruce Clark, SVP of Transportation and Capital Goods Team at Moody’s Investors Service, discussed why he looks at a company’s financial flexibility when considering climate risk. Long-range targets for GHG reductions may give an indication of where a company wants to go but give little information concerning a company’s strategy for addressing transition shocks due to climate change. Does a company have the cash flow, or management skill set, to deal with a sudden shift away from fossil fuels or uptake in electric vehicles? A net-zero target for 2050 is of little use for a company unprepared for the possibility of peak demand in oil much sooner than they expect. The ability to manage the transition to a low-carbon economy is one of the reasons why TCFD reporting is so important, because it requires companies to detail their scenario planning efforts and ensure they have the necessary board/management skills in place to deal with both their climate risks and opportunities.