The building blocks for successful TCFD disclosure in conversation with Sue Howells, CDP.
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To mark the launch of the building blocks guidance, this webinar focussed on trends in climate-related financial disclosure, key developments and how to use CDP disclosure and the CDSB Framework to satisfy the TCFD recommendations.
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The building blocks for successful TCFD disclosure in conversation with Sue Howells, CDP.
- 1. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal The building blocks for successful TCFD disclosure Mardi McBrien, CDSB Sue Howells, CDP Tatiana Boldyreva, CDP David Astley, CDSB
- 2. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal In conversation with: Mardi McBrien, CDSB Sue Howells, CDP
- 3. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What’s the current state of play with climate disclosure?
- 4. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Current state of play • Experience 3°C of warming by the end of the century • Double the global temperature increase sought by the Paris Agreement • Carbon emissions continue to rise • Annual 7.6% reduction in emissions is required from 2020 • Transition risks to limit warming to 1.5 include policy and regulation, technological advancements and reputational impacts. 4
- 5. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What are the key developments and where are we seeing greatest regulatory uptake?
- 6. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What are the benefits of disclosure and implementing the TCFD recommendations?
- 7. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Benefits of disclosure 7 1. Get ahead of regulation 2. Boost your competitive advantage 3. Uncover risks and opportunities 4. Track and benchmark progress 5. Protect and improve your company’s reputation
- 8. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What trends are emerging?
- 9. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What is your advice for report preparers implementing the TCFD recommendations?
- 10. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal What does the road to COP 26 look like?
- 11. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Tatiana Boldyreva, CDP David Astley, CDSB The building blocks: Connecting CDP data with the CDSB Framework to successfully fulfil the TCFD recommendations
- 12. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Purpose 12 Where do I get the data from? How do I report it?
- 13. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal The building blocks 13 Organisations with climate-related risks, opportunities and impacts Generate clear and well- structured information and data Disclose relevant material information and data in the mainstream report Resulting in: Efficient and investor- useful TCFD-aligned mainstream disclosures
- 14. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Successful TCFD disclosure 14 Governance Strategy Risk Management Metrics and Targets Disclose the organization’s governance around climate-related risks and opportunities. Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. Disclose how the organization identifies, assesses, and manages climate-related risks. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. a) Describe the board’s oversight of climate-related risks and opportunities. a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. a) Describe the organization’s processes for identifying and assessing climate-related risks. a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process. b) Describe management’s role in assessing and managing risks and opportunities. b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. b) Describe the organization’s processes for managing climate-related risks. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. CDP Questionnaire CDSB Framework C1.1b; C1.2; C1.2a C2.1a; C2.3; C2.3a; C2.4; C2.4a; C3.1; C3.1a C3.1b; C3.1d; C3.1e; C3.1f C2.1; C2.2; C2.2a C4.1; C4.1a; C4.1b; C4.2; C4.2a; C4.2b; C6.1; C6.3; C6.5; C9.1
- 15. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Governance
- 16. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Governance (a) Describe the board’s oversight of climate-related risks and opportunities 16 • Question C1.1b gathers information on integration of climate into governance functions plus specifics on how climate-related issues considered • REQ-01 – demonstrate transparency and accountability, e.g. resources drawn on, frequency of updates, internal or external expertise • P3 encourages proper interconnection of CDP information with rest of annual report • P5 helpful to ensure that governance disclosures are well-balanced between detail and concision and clarity.
- 17. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Strategy
- 18. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal 18 Strategy (a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term • Questions C2.3a and C2.4a allow companies to detail climate-related risks and opportunities over short, medium and long term, which is defined in C2.1a • REQ-03 requires similar risk and opportunities disclosures – explain impacts and timelines • P1 of CDSB Framework provides relevance and materiality tests • P2 encourages disclosures and discussion of uncertainty inherent to medium and long term assessments
- 19. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Risk Management
- 20. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal 20 Risk Management (a) Describe the organisation’s processes for identifying and assessing climate- related risks • Question C2.2 asks companies to report their processes for identification and assessment of climate risks, with C2.2a gathering information on what risk types are considered • REQ-03 of CDSB Framework requires reporters to signpost how climate is incorporated into existing risk management systems • P3 of the Framework is important for understanding how climate has been integrated • P4 key for detailing integration – how have different characteristics of climate-related risks been dealt with in relation to other business risks?
- 21. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Metrics and targets
- 22. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal 22 Metrics and Targets (c) Describe the targets used by the organisation to manage climate- related risks and opportunities and performance against targets • CDP Climate Change Questionnaire offers many opportunities for companies to report climate-related targets and performance • P3 of the CDSB Framework is important to ensure that targets and timelines speak to the risks and opportunities identified • P4 encourages consistent and comparable reporting – appropriate metrics, methodologies and timelines – great value to investors • Think about advice offered for other TCFD recommendations
- 23. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Important considerations Materiality • TCFD and mainstream reporting requires application of materiality • P1 of CDSB Framework can be used to determine relevant and material CDP disclosures Reporting boundaries • Boundary of material climate information should match financials in mainstream report • REQ-07 of CDSB Framework requires information outside boundaries be distinguished and explained Timeframes • Reporting period of material climate information should match financial in mainstream – enhances comparability Forests and water security • Questionnaires can provide TCFD-aligned information for companies with climate-related forests and water risk and opportunities
- 24. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Resources 24 www.tcfdhub.org www.cdsb.net/buildingblocks https://www.cdsb.net/resources/ cdsb-publications
- 25. 14 May, 2020| © Climate Disclosure Standards Board | Tweet @CDSBGlobal Questions? With the contribution of the LIFE Programme of the European Union. Hosted by CDP Europe. Mardi McBrien, CDSB Sue Howells, CDP Tatiana Boldyreva, CDP David Astley, CDSB info@cdsb.net Contact:
Notas del editor
- David: Developed in response to market demand around the TCFD Recommendations to help get the number of companies reporting up and improve the quality of existing disclosures Two of the questions that we get asked most is : 1) Where do I get my data from and 2) how do I report it in the mainstream report. Change slide
- David: The good news is that most companies already have the data they need by disclosing through CDP. The CDSB Framework then maps out the how and where to disclosure this data within the mainstream report, resulting in TCFD-aligned disclosures. Tatiana would you like to talk us through this in more detail. Tatiana: Reporting in line with the TCFD Recommendations in the mainstream report should not be seen as novel or daunting as it is often presented. Last year, over 8000 companies, including the majority of the world’s largest, disclosed to CDP through its climate change questionnaire. The questionnaire is aligned with the TCFD recommendations so the information provided in a CDP response covers much of the same ground as what TCFD recommends to be disclosed in the mainstream report. David , would you like now to elaborate on how CDSB Framework helps with effective TCFD disclosure? David: The TCFD stresses the importance of reporting material climate-related information in the mainstream report. But the annual report has a number of essential characteristic and expectations, which companies need to satisfy when using the well-structured information from CDP submissions to meet the TCFD recommendations. The CDSB Framework, which is highly aligned with the TCFD, provides companies with the principles and reporting requirements to be able to repurpose and add to the CDP submissions to meet the expectations of the mainstream report and the TCFD. Next slide
- David: And it is for that reason CDP and CDSB have created this guidance for companies. The guidance highlights the most relevant CDP climate change questions and explains how this information can be best used for reporting in the mainstream report using CDSB’s reporting principles and requirements. The guidance clearly sets out for companies the how and what for making effective TCFD-aligned disclosures. Now Tatiana will give us a quick overview of the TCFD Recommendations… Tatiana: As a quick recap we can see here a reminder of the TCFD recommendations. They are structured around four thematic areas that represent core elements of how organizations operate – Governance, Strategy, Risk Management and Metrics and Targets. The four recommendations are supported by specific disclosures that organizations should include in their reports to provide decision-useful information to investors and other stakeholders. The table in red at the bottom shows the key questions in the CDP climate change questionnaire that request the disclosure of this information. The Building Blocks guidance provides details on each recommended disclosure and how it can be best approached using the relevant CDP questions and CDSB’s reporting principles and requirements. For the purpose of today’s presentation, in the interest of time, we will talk you through one example of a recommended disclosure from each of the four TCFD recommendations to give you an idea of how this guidance can help you to integrate your climate-related information into the mainstream report. I will take you though these examples of TCFD recommended disclosures and the CDP questions aligned with them and David will explain the related CDSB’s reporting principles and requirements.
- Tatiana: Let’s start with the first recommendation on Governance
- Tatiana: We will use an example for the recommended disclosure a) Describe the board’s oversight of climate-related risks and opportunities. According to TCFD, disclosing this information is important because it supports evaluations by investors and other stakeholders of whether climate-related issues receive appropriate attention by the board. The key question in the CDP questionnaire that requests this information is C1.1b “Provide further details on the board’s oversight of climate-related issues” . This question requests details on the governance mechanisms that exist in the organisation and how these mechanisms contribute to the board's overall oversight of climate-related issues. Over to you, David. David: REQ-01 of the CDSB Framework offers a number of additional disclosure requirements that may assist companies in demonstrating governance and accountability for climate-related issues – this could be explaining the internal or external resources drawn on, the number of meetings that discussed climate-related risks and opportunities, frequency of updates on strategy and targets. In addition, when repurposing the CDP disclosures, the Building Block guide offers that companies must ensure that it is properly connected and integrated with existing governance disclosures, following Principle 3 of Framework. In doing so, companies should also be wise of Principle 5 of the CDSB Framework, making sure the need for a balance of detail and clarity is met. For instance, diagrammatic approaches to identifying responsibilities and pathways of accountability for climate issues may be beneficial Now let’s move to a strategy example…
- Tatiana: The Strategy Recommended Disclosure (a) asks to describe the climate-related risks and opportunities that the organization has identified over the short, medium, and long term. This information, and in particular the potential impacts of the identified risks and opportunities on the organization’s strategy, is used to inform investor expectations about the future performance of an organization. There is a number of questions in the CDP questionnaire that allow you to disclose all this information – listed here on the left hand side. Among the key Strategy disclosures according to TCFD is a description of what companies consider to be the relevant short-, medium-, and long-term time horizons, taking into consideration the specifics of their business and the useful life of their assets. This information is reported through question C2.1a in the CDP climate change questionnaire. Companies are also recommended to include a description of the specific climate-related issues for each time horizon that could have a material financial impact on the organization. CDP requests this information in questions C2.3a and C2.4a. These questions allow companies to provide details on the risks and opportunities identified over various time horizons, their potential financial impacts and what actions they take to respond to risks and to capitalize on opportunities. David, would you like to take us through the related CDSB principles and requirements? David: REQ-03 of the CDSB Framework similarly asks companies to disclose the material risks and opportunities identified over different time horizons, setting out what is expected from companies in terms of the detail the nature of the risks and its business implications When using CDP disclosures, though, the Building Blocks paper advises that companies must ensure that the disclosed risks and opportunities meet the materiality definitions used in the mainstream report. Principle 1 of the CDSB Framework offers a two-step process to assist companies in such decisions, offering report preparers a suite of tests to distil down to the most material information. In addition, when preparing information for disclosure for the mainstream report, it should be remembered that climate-related risks and opportunities can be highly uncertain and dependent on many different factors outside of the control of companies. For this reason, when using their CDP responses, the paper draws attention to CDSB’s second principle – faithful representation – is applied and that key uncertainties and assumptions are explained in the mainstream report so that investors can appropriately respond. I’ll now pass back over to Tatiana to start the discussion of our third example…
- Another important area of the TCFD recommendations is Risk Management.
- Tatiana: According to TCFD, investors and other stakeholders need to understand how an organization’s climate-related risks are identified, assessed, and managed and whether those processes are integrated into existing risk management processes. This information is important for users of climate-related financial disclosures because it helps to evaluate the organization’s overall risk profile and risk management activities. Risk Management recommended disclosure (a) states that organizations should describe their processes for identifying and assessing climate-related risks. The key questions in the CDP questionnaire that request this information are C2.1, C2.2 and C2.2a. Question C2.2 asks companies to report their processes for identification and assessment of climate risks, and C2.2a gathers information on what risk types are considered. The risk types in C2.2a and throughout the CDP questionnaire are aligned with the TCFD recommendations and cover both risks related to the transition to a lower-carbon economy (or “transition risks”) and risks related to the physical impacts of climate change (or “physical risks”). Over to you, David. David: REQ-03 of the CDSB asks companies to make clear how climate-related issues have been integrated into risk management processes and systems, taking the position that they shouldn’t be treated separately from other corporate risks and opportunities The third principle of the CDSB Framework – on connectivity with other mainstream disclosures – is of real importance here then. This is, one, about making the connections between the risks and opportunities identified and the processes used to do so, and, two, how climate and its characteristics have been integrated into the processes. In doing so, Principle 4 of the CDSB Framework, which concerns consistency and comparability, can offer helpful guide for companies reporting on their climate risk processes. In reporting in the mainstream report, how the differences inherent to these risks – timelines and scopes of impact, for instance – have been integrated should be rationalized for report users
- And finally, the fourth area covered by the TCFD recommendations is Metrics and Targets.
- Tatiana: TCFD highlights the importance of access to the metrics and targets used by a company to assess and manage relevant climate-related risks and opportunities. This is important for several reasons: It allows investors and other stakeholders to better assess the organization’s potential risk-adjusted returns, ability to meet financial obligations, general exposure to climate-related issues, and progress in managing or adapting to those issues. They also provide a basis upon which investors and other stakeholders can compare organizations within a sector or industry. On this slide we take a closer look at Metrics and Targets recommended disclosure (c) which asks companies to describe the targets that they use to manage climate-related risks and opportunities and performance against targets. Among the key climate-related targets recommended by TCFD are those related to GHG emissions and energy usage. Module 4 in the CDP climate change questionnaire offers many opportunities for companies to report on these targets – the key questions for this are listed here on the left. The questions are quite detailed and structured so you can report on both absolute and intensity targets that cover emissions, energy use or any other climate-related targets. The questions allow you to provide all the key data recommended by TCFD, such as base year from which progress is measured, time frames over which the target applies, and of course the current status of the target and how much has been achieved already. David, would you like to explain CDSB’s principles and requirements that should be applied for this disclosure? David: In fitting these material CDP disclosures into the mainstream report, companies must again think about how their targets and timelines speak and respond to the risks and opportunities identified and the strategies developed in response. TCFD disclosures should offer investors a coherent narrative of effective response to climate-related issues, emphasizing the logic and reasonableness of the targets set in response In terms of coherence, Principle 4 of the CDSB Framework is also an important consideration. Consistency and comparability should be considered within the organisation as well as outside it. For example, are the targets set according to industry standards? Are the same indicators and methods being used consistently by the company? Do the targets or timelines link with nationally or internationally agreed pathways? In addition, as with all the advice offered in the Building Blocks paper, companies should think of the different Requirements and Principles of the CDSB Framework when looking to satisfy the TCFD – each company will need to draw on different lessons and learnings when formulating the most effective and efficient disclosures If we can move onto the next slide…
- David: There are four further overarching issues that companies should be considerate of when translating their CDP responses into mainstream, TCFD- aligned disclosures that we draw attention to in the Building Blocks guidance. First, as has been noted, the mainstream report is governed by materiality – when repurposing CDP disclosures, companies must apply the lens of relevance and materiality to ensure that the report doesn’t become cluttered with immaterial information. Principle 1 of the CDSB Framework offers companies some tests to help determine what is material for climate-related disclosures Second, the boundaries employed for reporting on climate-related risks and opportunities in the mainstream report should follow those of the financials. This might mean that companies will have to rejig their CDP responses, which might be different. In addition, REQ-07 of the CDSB Framework notes that where disclosures are made of information from outside this financial boundary, such as Scope 3 emissions, it should be noted and explained. Likewise, when using CDP responses for mainstream TCFD reporting, companies should ensure that the timeframes of reported information matches that of the of the rest of mainstream report. The Building Blocks paper offers further guidance on this issue. Finally, for some companies, climate-related risks and opportunities will intersect with the risks and opportunities they face in relation to water security and forests. In those cases, the information in the CDP Forests and Water questionnaire responses may further assist in effectively reporting against the TCFD in the mainstream report. In the annex of the paper, we offer an illustrative set of relevant questions to guide companies. We’ll now hand back over to Lesley for the Q&A…