A masterclass on climate-related financial disclosure

If we want to keep on track with the Paris Agreement targets and reduce global warming to 1.5 degrees, we will be highly dependent on a financial market that accelerates green investments quickly.

Given that climate change is not only an environmental problem but a business one as well, investors need to understand and price the risks of an investment in the context of the complex effects of different climate change scenarios.

A masterclass on the Task Force on Climate-Related Financial Disclosure (TFCD) and the basics of scenario analysis by Tony Rooke, Technical Advisory at CDP, and Fredrik Lundin, Associate Vice-President at ISS Ethix Climate, addressed this topic at the Climate Innovation Summit 2018. in Dublin this week.

The TFCD, an industry-led task force created by the G20’s Financial Stability Board and chaired by Michael Bloomberg, addresses the need for transparent, scenario-based climate information with a set of recommendations (see final TFCD report) that advise companies on disclosing climate-related financial risks and opportunities in a standardised way.

These recommendations have gathered momentum since the creation of the task force in 2015; over 500 global companies worldwide are publicly supporting the recommendations and 130 investors (representing $13 trillion of assets) have been asking the leaders of G20 countries to input them to their national disclosure rules. While they are tailored to big organisations that have the resources to gather this specific, comparable dataset, Lundin encourages founders and experts from small to medium-sized companies to experiment with simple climate scenarios analysis. These analyses can be risk or impact-oriented and have different parameters, approaches or assumptions, such as:

• different time horizons
• different reference scenarios
• quantitative vs. qualitative data
• a sector-specific vs. cross-sectorial view
• assumptions about the availability of certain resources, like natural gas.

The purpose of such scenario analysis is to analyse possible futures by examining alternative possible outcomes.

Are you interested to learn more about climate risk scenario analysis and the TFCD? Check out the “CDP Technical Note on Scenario Analysis” or enrol in the free online course “Climate Change: Financial Risks and Opportunities” by Climate KIC partner Imperial College London.

With the carbon costs of travel in mind, Climate Innovation Summit session summaries are available online for those who cannot attend—and for review for those present. These summaries aim to extract the key debates, dialogues, and learnings from each #MissionFinance session.