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Risk Management Article
March 21, 2018

The G20 Task Force Report Implications on Business

Presently the financial sector is experiencing a rising force in the area of disclosures and reporting of risks pertaining to climate change. The release of the last report from the Carney/Bloomberg Task Force on Climate-Related Financial Disclosures (TCFD) took place in July 2017. It’s poised to introduce climate change fully to the boardroom.

Recommendations from the Task Force for organizations include a clear inclusion of information on climate-related material risk facing they encounter during financial reporting. Reasons why every business should examine the metrics of climate change, strategy, governance, and risk management were contained in the report. It provides an avenue for flexible and quick adoption of climate action strategies across every sector and industry.

Climate plan: The realities
Four vital constituents of the TCFD recommendations are essential for organizations to consider:

  • Governance : opportunities and risks that are climate related the involvement of board and top management in climate issues.
  • Strategy : current and prospective effects of climate related opportunities and risks to the firm’s business model.
  • Risk Management : the means used for identification, assessment and management of risks relating to climate.
  • Targets and Metrics : the measurement, assessment, and management tools of opportunities and risks pertaining to climate.

A major notable point is that scenario analysis represents a major constituent of the corporate climate strategy that investors currently expect from top organizations. It analyzes the likely business effect in various situations, like compliance with the Paris decision of restricting the rise in temperature globally to less than 2°C or 2°C.

These analyses also clarifies the resilience of the business strategy to, things like new regulations on climate or risk affecting supply chain which arose due to increase in temperature. Reports like these will expose the prospect climate risk, and will provide a comprehensive knowledge of the financial sectors exposure to risks that are climate related through their portfolio firms.

It also avails comparable information to investors to help in identification of winners in the low-carbon economy, and make sure that firms continuously disclose and analyze information pertaining to climate risk with the exact precision applicable for financial information.

Climate affects everybody
The business and investor forces promoting climate action can’t be reversed. In a just concluded shareholder meeting that took place in the US, investors at utility PPL, Occidental Petroleum, and ExxonMobil demanded a report on the long term climate related business impact by companies. In the United Kingdom, a recent announcement credited to the Bank of England stated its readiness to begin examination of the exposure of banks to climate change, in a bid to tackle the huge financial threats resulting from rising temperatures. The effect of this by extension is the fact that banks will weigh their lending practices to any emission-intensive firms.

Also, just last year, about 6,000 firms made public their environmental data via CDP, nearly 60% of the market capitalization of the leading stock exchanges globally. This year, more than 800 investors with about US$100 trillion in assets are expecting and requesting that more organizations do so. Climate risk management is a nice venture; firms that make up the CDP’s ‘Climate A List’ have in the past 4 years overtaken the market by 6%.