TCFD Workshop: Practical steps for implementation – Michael Zimonyi

October 19 | Tweet @CDSBGlobal
TCFD Workshop:
Practical steps for implementation
October 2019

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Event #TCFD
TCFD Workshop: Practical steps for implementation

Q. How would you describe your
understanding of the TCFD recommendations?
q I am an expert
q I am confident, but need to understand some elements
q I have some knowledge, but need support
q I have little knowledge
q What is the TCFD?
https://www.sli.do/

To create the enabling conditions for material climate
change and natural capital information to be integrated
into mainstream reporting.
Climate Disclosure Standards Board
Board
Technical Working Group

Overview of TCFD

TCFD Workshop: Practical steps for implementation 6

7
Why?
7TCFD Workshop: Practical steps for implementation

8
Why?
8
• Lack of disclosures on the financial implications on the climate-related aspects;
• Inconsistencies in disclosure practices;
• Lack of context for information
• Use of boilerplate, and non-comparable reporting; and
• Lack of consistent information hinders investors and others from considering
climate-related issues in their asset valuation and allocation processes.

9
Why?
9
“In general, inadequate information about risks can lead to a mispricing of
assets and misallocation of capital and can potentially give rise to concerns
about financial stability since markets can be vulnerable to abrupt corrections.”
– TCFD Recommendations Report

10
TCFD recommendations
10
Overview
1. Voluntary
2. Report climate-related financial disclosures in
the annual financial filings (mainstream report)
3. Financial sector & high risk non-financial sectors
4. Transition risks & physical risks (and opportunities)
5. Scenario analysis & forward-looking information
6. Short-term, medium-term & long-term
7. Qualitative & quantitative disclosures
Governance
Strategy
Risk
Management
Metrics
and Targets

Structuring your disclosures in line with the TCFD 11

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.

Structure of TCFD recommendations
Governance
Strategy
Risk
Management
Metrics
and Targets

What is materiality?
• Entity-specific
• Audience-specific

What is materiality?

Different views around materiality
Company impact
on climate can be
financially material

Financial materiality
“Information is material if omitting, misstating or obscuring it could
reasonably be expected to influence the decisions that the primary users
of general purpose financial statements make on the basis of those
financial statements, which provide financial information about a specific
reporting entity.”
– International Accounting Standards Board, 2018

TCFD Principles of disclosure
18
1. Present relevant information,
2. Be specific and complete,
3. Be clear, balanced, and understandable,
4. Be consistent over time,
5. Be comparable among organizations within a sector, industry, or portfolio,
6. Be reliable, verifiable, and objective
7. Be provided on a timely basis.

Q&A

First steps:
What are companies doing?
20

A
Introduction
B
Climate-RelatedRisks,
Opportunities,and
FinancialImpacts
C
Recommendationsand
Guidance
D
ScenarioAnalysisand
Climate-RelatedIssues
E
KeyIssuesConsideredand
AreasforFurtherWork
F
Conclusion
Appendices
Figure 12
Implementation Path (Illustrative)
More complete, consistent, and
comparable information for market
participants, increased transparency,
and appropriate pricing of climate-
related risks and opportunities
Final TCFD
Report Released
Companies already reporting under other frameworks implement the Task
Force’s recommendations. Others consider climate-related issues within
their businesses
Organizations begin to
disclose in financial filings
Greater adoption, further development of
information provided (e.g., metrics and
scenario analysis), and greater maturity in
using information
Five Year Time Frame
AdoptionVolume
Climate-related issues viewed as
mainstream business and investment
considerations by both users and
preparers
Broad understanding of the concentration of
carbon-related assets in the financial system and
the financial system’s exposure to climate-related
risks

TCFD Status Report 2019
Key Themes and Findings
Disclosure of climate-related
financial information has
increased since 2016, but is still
insufficient for investors.
More clarity is needed on the
potential financial impact of
climate-related issues on
companies.
Of companies using scenarios,
the majority do not disclose
information on the resilience of
their strategies.
Mainstreaming climate-
related issues requires the
involvement of multiple
functions.

TCFD 2019 Status Report 25
Alignment with 11 recommended disclosures
More progress
needed
• 78% aligned with at least 1 of the recommendations disclosures
• 1 in 4 companies aligned with > 5 of the recommended disclosures
• 4% of companies aligned with at least 10 of the recommended
disclosures
Disclosure is
low
• Number of disclosures increased by 0.8
• None of the recommended disclosures are over 50% even for
governance and risk
• 78% of companies made a least one recommended disclosure
Resilience &
scenario analysis
• 9% of companies disclosed information on strategy resilience
• Increase of 3% from 2016

Location of the 11 recommended disclosures
The Task Force recommends that:
• Disclosures should be made in the mainstream (i.e., public) annual financial fillings;
• In most G20 jurisdictions, material information should be disclosed in financial fillings;
• Disclosures should be made in accordance with national disclosure requirements;
• Climate-related financial disclosures should be subject to appropriate internal governance
processes; and
• Asset managers and asset owners should use their existing means of financial reporting.

So, what do the findings mean?
What do the
findings mean?

“... progress must be accelerated. Today’s
disclosures remain far from the scale the
markets need to channel investment to
sustainable and resilient solutions, opportunities,
and business models. I believe in the power of
transparency to spur action on climate change
through market forces.”
Michael Bloomberg, Chair, TCFD

Challenges to implementation
• Lack of standardised industry metrics to support implementation;
• Concerns about revealing confidential business information;
• More clarity on the financial impact of climate-related issues; and
• Challenges in adopting scenario analysis include:
– need for further tools;
– business-relevant data;
– industry- and sector-specific methodologies;
– business-relevant climate-related scenarios, and
– methods to quantify financial impacts.
The report highlights:

Commitment from the TCFD
The Task Force is also considering additional work in the following areas:
• Clarifying elements of the Task Force’s supplemental guidance contained in the
annex to its 2017 report (Implementing the Recommendations of the TCFD);
• Developing process guidance around how to introduce and conduct climate-related
scenario analysis; and
• Identifying business-relevant and accessible climate-related scenarios.
The Task Force will continue to promote and monitor adoption of its
recommendations and will prepare another status report for the Financial
Stability Board in September 2020.

First steps in Europe
• Review of reporting practice against the EU Non-
financial Reporting Directive (NFRD) and TCFD
recommendations.
• 30 companies referred to the TCFD in their
management report.
• Range of detail and depth of disclosure with different
approaches taken.
Review of 80 annual reports

Key findings
• 79% identify at least one risk related to climate change
• Only 4 companies specifically disclose definitions for short-, medium- and long-term
32
Principal risks
• 81% disclose GHG emissions, but only 41% include an emissions target
• Targets are often missing details of the timeframe, baseline and progress
Non-financial KPIs
• 75% disclose board oversight of environmental or climate-related matters
Governance
• Only one company conducted scenario analysis and disclosed details within their
management report
Scenario analysis

Practical steps for implementation

Twin tools to implement TCFD
Practical “how to”
guidance for
companies on
implementing the
TCFD
recommendations
using mock
disclosures
Real world
examples of
corporate
disclosure to
further illustrate
the concepts in
the Guide
Resources
Useful resources to understand and implement the TCFD recommendations

TCFD Implementation Guide
Getting Started
Good-Practice Disclosures
Key Takeaways

TCFD Implementation Guide 6
Good practice disclosures: how-to guidance
Ø OilCo is an integrated oil
and gas company with
global operations
Ø AgriCo is a global agricultural
products company engaged in
processing, trading, and
distributing vegetables and
fruits, and producing and milling
agricultural commodities
Ø AutoCo is a global
automobile manufacturer of
passenger vehicles, light
trucks, and motorcycles

Good Practice Mock Disclosures
Disclosure Excerpt:
The Board of Directors has delegated to the Integrated
Sustainability Advisory Committee (ISAC), a
committee of independent directors appointed by the
Board, on matters relating to sustainable management
of the Company’s activities. The committee directly
reports to and advises the Board on such matters. 1
The Committee reviews internal compliance with both
internally established and externally applicable
sustainability codes and principles across all business
units, reviews compliance with environmental, health,
and safety matters, reviews the results of internal
scenario planning and analysis related to the impacts of
environmental and social trends and uncertainties, and
advises the Disclosure Committee regarding the
determination of materiality of sustainability issues for
the purposes of disclosure herein. 2.
p.18

October 19 | Tweet @CDSBGlobal © CDSB / SASB
TCFD Good Practice Handbook
Annual reports from across the G20

Governance

Governance
The TCFD recommends the following disclosures for all organizations:

Governance
Why do investors want to know?
• Insight into the governance and risk management context in which financial and operating
results are achieved.
• Do climate-related issues receive appropriate board and management attention?
Survey respondents identified the value of:
• Specificity and detail around board level oversight of climate risk;
• Frequency and types of interactions with management around climate-related
performance; and
• The use of targets to establish accountability around performance.

Governance
G a) Disclose the role of the board of the organization in overseeing climate-related
issues.
Consider including a discussion of:
• Processes and frequency by which the board and/or board committees (e.g., audit, risk, or
other committees) are informed about climate-related issues,
• Whether the board considers climate-related issues when reviewing strategy, risk
management policies, expenditure, etc; and
• How the board monitors and oversees progress against targets for addressing climate-
related issues.

Governance
G b) Disclose the role of management in assessing and managing climate-related
issues.
Consider including a discussion of:
• Whether your organization has assigned climate-related responsibilities to management-
level positions or committees;
• Description of the associated organizational structure(s);
• Processes by which management is informed about climate-related issues; and
• How management monitors climate-related issues.

44
BHP BillitonAnnual Report 2018
MRSG

Barrick, New Value Champion: Annual Report 2018 (pg. 28)
In this succinct extract, the Canadian mining company Barrick states which board-level committee is responsible for overseeing policies,
programmes and performance related to climate change. It states that this committee met quarterly, although it could be made explicit
whether climate change featured on the agenda of each of these meetings.
The disclosure also states that climate change is built
into the company’s formal risk management process.
This shows the interconnectivity of the governance and
risk management core TCFD elements and associated
disclosures, with the two TCFD governance
disclosures covering who in the business is involved
and the risk management disclosures covering what
processes are used to manage and monitor the
associated climate-related risks.
This governance disclosure on board oversight also
helpfully explains the roles of both the audit and risk
committees and their interface with the company’s
Board, which is not always clear in other governance
disclosures.
https://barrick.q4cdn.com/788666289/files/annual-report/Barrick-Annual-Report-2018.pdf
TCFD Good Practice Handbook 45
Governance

Royal Bank of Canada, Annual Report 2018 (pg. 5 and 89)
This second extract from the Royal Bank of Canada explains which
functions are involved in identifying, assessing, monitoring and
reporting on climate-related issues, and ties this back to
performance goals at a management level.
This extract from the Royal Bank of Canada, a Canadian
multinational banking and financial services company, shows that
climate issues feature prominently at the top. Here, the Chair of the
Board, in introducing the annual report, refers to “climate change
as the most pressing issue of our age” and explains the Board’s
oversight function in this respect.
https://annualreports.rbc.com/ar2018/
Governance

Investor use of governance information
• Identify the organizational structures and functions of corporate boards; and
• Verify that board oversight of climate-related governance is being effectively implemented,
through reports to the boards from the relevant committees.
Aspects to check as an investor
Examples of verification
• Are the CEO/Board Members up to date in policies outlined in the Annual Report?
• Have deliberations and decisions been circulated, acted on?

Strategy

Strategy
The TCFD recommends the following disclosures for all organizations, subject to a
materiality assessment:

Strategy
• What do you mean by short-, medium- and long-term?
• What material opportunities and risks have you identified for each?
• What process(es) have you used to determine whether they will have a financial impact on
your organisation?

Strategy
Impacts on:
• Products and services
• Supply chain and/or value chain
• Adaptation and mitigation activities
• Investment in research and development
• Operations (including types of operations and location of facilities)

Strategy

Strategy – scenario analysis
• Context of the relevant scenarios selected and developed;
• Assumptions behind the scenarios;
• Alignment of a company’s underlying future vision with its business model;
• Risks and opportunities recognized through scenario analysis and processes to
incorporate them into the company’s strategy and financial plans.

Strategy – scenario analysis
• Assess alignment between the decision-making processes that led to a company’s
strategies and the scenarios used; as well as
• Appropriateness of scenarios used within the industry.
• Accuracy of the data of the scenario or analytical results provided by the company is less
important.

Example
55TCFD Good Practices Handbook
Retrieved from page 50-53:
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/results/ fy18/cba-annual-report-2018.pdf

xxxxxxx xxxxxxxxx 56
2018 financial year climate change scenario analysis program
FY18 Climate Change
Scenario Analysis program
Disruptive
Decarbonisation
Policy
Inertia
Physical Transition
DRIVERSOFRISKSCENARIOS
Market Regulatory Legal Reputation TechnologyFlooding Storms Extreme heat Bushfires Sea level
Global
Co-ordination
Strategic report
Performance
overview
Corporate
governance
Strategic
report
Climate-related
financial disclosures

Expected insurance
premium cost impacts
over time
Transition risk impacts
on domestic economy
at a sectoral level
Expected impacts on
damage and loss over time
Transition risk impacts
on domestic economy
at a sectoral level
Physical Transition
Insurance WealthRetail lending Business lending
Building
insurance policies
FirstChoice
Australian Share Fund
Home loan portfolio Business lending portfolio
debt exposure
MODELLINGANALYSISDRIVERSOFRISKCBA-SPECIFIC
APPLIEDANALYSIS
Market Regulatory Legal Reputation TechnologyFlooding Storms Extreme heat
and drought
Bushﬁres Sea level
rise
Corporate
governance
Directors’
report
Financial
report
Other
information

Potential impacts
on insurance claims and
affordability of insurance
Change to sector
value add contribution
Exposure of fund to growth
and contraction sectors
Potential damage to properties
Home loan portfolio
exposure concentrations
Building
insurance policies
FirstChoice
Australian Share Fund
Home loan portfolio Business lending portfolio
debt exposure
Economic growth and
contraction by sector
Sector heat maps
Exposure of portfolio to growth
and contraction sectors
CBA-SPECIFIC
APPLIEDANALYSIS
PROJECTOUTPUTSSTRATEGICRESPONSE
Develop
management approach
of current and
future portfolio in
high risk areas
Consider customer awareness
and engagement options
Consider
asset allocations
Consider further
scenario analysis for
global portfolios
Update ESG risk
assessment tool
Explore and develop
low carbon products
and services
Client engagement and
capacity building
Consider business and
customer implications and
emerging insurance
product needs
Explore approaches
to risk mitigation
Consider customer awareness
and engagement options
(at an aggregated level)
due to perils
51
Other
information

Scenario analysis is not a prediction of
future performance
Scenarios should be understood as narratives based on
multiple assumptions.
What is important is not credibility of the results of
analysis, but the responses to the expected futures.

Risk management

Risk management
• How do you determine the relative significance of climate-related risks vs other risks?
• Do you consider existing and emerging regulatory requirements related to climate
change?
• Existing risk classification frameworks used?

Risk management
• How do you make decisions to mitigate, transfer, accept, or control those risks?
• How do you prioritise climate-related risks?
• How are materiality determinations made within your organization?

Risk management
• Climate risk is a business risk.
• If it is material, should it be reported separately?

Types of risk
Transition risk
• Policy and Legal
e.g.: Exposure to litigation, carbon pricing
• Technology
e.g.: Substitution of existing products and
services with lower emissions options
• Market
e.g.: Increased cost of raw materials
• Reputation
e.g.: Shifts in consumer preferences
Physical risk
• Acute
e.g.: Increased severity of extreme
weather events such as cyclones
and floods
• Chronic
e.g.: Changes in precipitation patterns and
extreme variability in weather patterns

SSEAnnual Report 2018
66
MRSG

Metrics and targets

Metrics&Targets
http://2018ar.prudentialreports.com/src/assets/pdf/Prudential-AR2018.pdf
In its data table, Prudential reports its Scope 1, 2 and 3 emissions and breaks
down such emissions by both its occupied estate as well as its investment
estates. Prudential’s previously discussed focus on its Scope 2 emissions are
supported by the relatively high degree to which such emissions contribute to
its overall emissions. Prudential also reports several normalised metrics, using
factors to establish efficiency ratios that can enhance comparability across
companies to the extent such ratios are generally accepted.
Prudential has also
established a target
with a base year of
2018 to achieve
100% renewable
electricity by 2025
across its occupied
and management
investment estates.
It notes that it has had its Scope 2 group
emissions independently assured, enhancing
investor confidence in the reliability of the
reported data.
Prudential, a British multinational life insurance and financial services company, provides an in-depth discussion of its climate-related
performance. When discussing its Scope 1, 2, and 3 emissions, Prudential specifically notes the scope and methodology utilised to
calculate its Scope 3 emissions related to the air travel of its employees. Prudential also provides in-depth discussion on its Scope 2
emissions, which make up the majority of its overall emissions.
Prudential, We do life: Annual Report 2018 (pg. 76-7)

Key Take-
Aways
Start at the
Beginning
Keep it
simple
Connectivity
is key
Push for
proportionality
Iterate on
scenario
analysis
© CDSB / SASB
Key takeaways

TotalRegistration Document 2018
71
MRSG
Including a reference table is a great idea,
especially when additional information is
included in separate disclosures.
“The Task Force believes disclosures related to its
Governance and Risk Management
recommendations directly address [the] need for
context and should be included in annual
financial filings. For disclosures related to the
Strategy and Metrics and Targets
recommendations, the Task Force believes
organizations should provide such information
in annual financial filings when the information
is deemed material.” (TCFD, p17)

Commonwealth Bank of AustraliaAnnual Report 2018
MRSG

TCFD recommendations: checklist
Secure the support of your board of directors and
executive leadership team
Integrate climate change into key governance
processes, enhancing board-level oversight through
audit and risk committees
Bring together sustainability, governance, finance, and
compliance colleagues to agree on roles
Look specifically at the financial impact of climate risk
and how it relates to revenues, expenditures, assets,
liabilities, and capital
Assess your business against at least two scenarios
Adapt existing enterprise-level and other risk
management processes to take account of climate risk
Solicit feedback from engaged investors to understand
what information they need regarding climate-related
financial risks and opportunities
Look at existing tools you may already use to help you
collect and report climate-related financial information
(e.g., CDP, CDSB, SASB)
Plan to use the same quality assurance and
compliance approaches for climate-related financial
information as for finance, management, and
governance disclosures
Prepare the information you report as if it were going to
be assured
Look at the existing structure of your annual report and
think about how you can incorporate the
recommendations

7 top tips
1. Adopt the correct lens for looking at climate-related risks
2. Make holistic disclosures
3. Distinguish between climate leadership and management
4. Explain how you assess the material risk of climate change to your business
5. Disclose using existing standards and metrics
6. Make as many of the 11 recommended disclosures are you can
7. Put it in your mainstream report
TCFD Good Practice Handbook
Learning from good practice in climate-related financial disclosures
Don’t let the perfect be the enemy of the good
74

Resources available
75

www.tcfdhub.org

Thank you
Michael Zimonyi
Policy & External Affairs Director
michael.zimonyi@cdsb.net

TCFD Workshop: Practical steps for implementation – Michael Zimonyi

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