TCFD Workshop: Practical steps for implementation – Ian Edwards

FOUNDATIONS OFTHE
TCFD FRAMEWORK
TESTING THE MARKET
(SPEAKERS NOTES FOR NEW ZEALAND WORKSHOPS OCTOBER 16 & 17 2019)
Ian Edwards (e: ian.edwards68@gmail.com m: +61 412 594429)

APPRECIATING THE LIMITATIONS OF THE MARKET
• TCFD recommendations and framework represents significant potential
• TCFD premise founded on a strong market focus
• An appreciation of potential pitfalls ensures expectations are realistic and that
implementation can be managed for biggest bang for buck.

CONSIDERATIONS RAISED IN THE ACADEMIC
LITERATURE
• Four predominant considerations concerning the strong reliance on markets of the
TCFD framework are apparent in the academic literature:
1. It’s unlikely that the TCFD framework as it stands will drive transition fast enough.
2. Financial sector motives may not by consistent with a stable climate
3. Financial systems have very little regard for social inequities
4. The nature of climate change significantly hinders accurate allocation of capital.

1. IT’S UNLIKELY THAT THE TCFD FRAMEWORK AS
IT STANDS WILL DRIVE TRANSITION FAST ENOUGH
• “… disclosure of climate-related information and enhanced market discipline cannot emerge
rapidly enough without action by policymakers or supervisory authorities” (Network for Greening
the Financial System, 2019, p.33)
• Disclosure frameworks involve many years of iterations of trial and error before a
robust reporting framework is developed. (McGuinness Institute, 2019)
• Challenges specific to climate risk such as data availability, the scope of reporting, and an
absence of agreed and accepted methodologies will likely slow development even more.

2. FINANCIAL SECTOR MOTIVES MAY NOT BY
CONSISTENT WITH A STABLE CLIMATE
• There is a potential tension between managing financial stability and reducing emissions
and practice rapidly enough to mitigate the drivers of extreme weather
• Concerns amongst financial regulators to safeguard global financial stability from sudden
price shocks and devaluation of fossil fuel assets could motivate a slower transition to a
net zero economy to the detriment of global climate stability (Schellhorn, 2016)

3. FINANCIAL SYSTEMS HAVEVERY LITTLE REGARD
FOR SOCIAL INEQUITIES
• Financial markets discriminate purely on financial terms
• Financial information asymmetries are opaque at best and invariably stacked against those
on the periphery or excluded from the financial markets
• “if the global climate–finance system “manages what gets measured,” the most extreme dangers
are likely to manifest among those whose interests are neither measured nor managed.This is
the global poor” (Farbotko, in press).

4.THE NATURE OF CLIMATE CHANGE HINDERS
ACCURATE ALLOCATION OF CAPITAL
A. Accurate Assessment of Climate Risk
B. Maturity and application of risk assessment tools
C. Meeting the challenge of theTragedy of the Horizons

4.A. ACCURATE ASSESSMENT OF CLIMATE RISK
• Potential impact of climate change closer to “uncertainty” than “risk”
• Risk represents outcome with knowable probabilities
• Uncertainty represents outcome with unknowable probabilities
• Risk is calculable but “it is easier to bottle the wind” than accurately project and calculate the
uncertainty of a climate changed future (Christophers, 2017, p.1129).
• Uncertainties in physical risk amplified further by myriad of paths to (or not to) net zero
carbon economy, i.e. transition risk
• Herd Mentality
• participants blindly follow as opposed to undertaking their own independent analysis, represents a
significant barrier to the realisation of methodological improvements and rational risk assessment

4. B. MATURITY AND APPLICATION OF RISK ASSESSMENT
TOOLS
• Recent article in Science (Keenan, 2019) raises concerns about the quality of tools
emerging in a rapidly expanding climate services industry:
• Opaqueness of models applied to quantify climate risk prevents any form of quality control
and confidence that the premises and information on which they are applied are valid.
• Opaqueness could also contribute to misapplication of model results where taken out of
context.

4. C. MEETINGTHE CHALLENGE OFTHETRAGEDY OF
THE HORIZONS
• Capacity in the market place and the nature of the investment potentially challenges
forward-looking disclosure.
• Nature of market place motivates short over long term view and behaviour:
• annual compensation cycle
• Investor expectations
• Capacity:
• As noted earlier: maturity of tools and methodologies

REFERENCES
• Christophers, B. (2017). Climate Change and Financial Instability: Risk Disclosure and the Problematics of Neoliberal
Governance Annals of the American Association of Geographers, 107(5), 1108-1127.
• Farbotko, C. (in press). Is it too late to prevent systemic danger to the world's poor? Wiley Interdisciplinary Reviews: Climate
Change
• Keenan, J. M. (2019).A climate intelligence arms race in financial markets. Science, 365(6459), 1240-1243. doi:
10.1126/science.aay8442
• McGuinness Institute. (2019). Discussion Paper 2019/01 – The Climate Reporting Emergency:A New Zealand case study
Wellington, New Zealand:The McGuinness Institute.
• Network for Greening the Financial System. (2019).A call for action: Climate change as a source of financial risk. from
https://www.mainstreamingclimate.org/publication/ngfs-a-call-for-action-climate-change-as-a-source-of-financial-risk/
• Schellhorn, C. (2016).The low-carbon transition and financial system stability (August 1, 2016). from
https://ssrn.com/abstract=2881467

Ian Edwards
Climate Change Adaptation Specialist
E: ian.edwards68@gmail.com
M: +61 412 594429

TCFD Workshop: Practical steps for implementation – Ian Edwards

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