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Implementing the TCFD recommendations: identifying the challenges (Part I)

Between October and March, we held a number of interactive workshops on the TCFD recommendations and climate risks to provide some guidance on the topic and gather feedback on the significant challenges that organizations are facing on this journey.

The workshops were held in Melbourne, London, New York, Amsterdam and Paris, with representatives from a dozen industry sectors and a variety of departments, allowing us to understand the different issues that reporters are dealing with. 

We received a significant amount of feedback, which allowed us to identify key themes and challenges, which were related to the practical first steps to implementation we discussed in our sessions. 

In this two-part blog, we will provide a summary of the responses we obtained from the workshops, highlighting the challenges and the solutions that were broadly agreed upon across the workshops, as well as those unique to certain regions or sectors. 

1. Internal engagement 

  • Many attendees cited a lack of internal coordination between teams and a tendency for departments to operate in silos as a key challenge for this type of disclosure;
  • These issues are being exacerbated by a lack of a common language when approaching climate risks and opportunities; 
  • There is a need for climate-related risks to be seen as a material financial risk outside of sustainability teams to get internal buy-in and for additional education in this respect; 
  • A board mandate and a strong business case for implementing recommendations were seen as important steps to increase internal engagement and address issues of buy-in and coordination. 

2. Board buy-in 

The main challenges the audience identified were a lack of education on the topic at the board level, a shortage of time for boards to consider these issues and a potential lack of motivation without mandatory regulation. 

3. Risk management 

  • There was a clear, common theme with all organizations responding in this category stating the difficulty of integrating climate risks into existing risk management processes. Attendees said they generally struggle with adapting to longer time horizons, integrating qualitative aspects and incomplete data, but also having climate risks accepted as material, quantifiable business risks; 
  • The need for tools and a rigorous methodology to be developed to accomplish the goals of integrating climate risk into mainstream processes was shared amongst many attendees. 

4. Existing tools 

  • Many organizations have found the application of existing tools, such as risk management and financial modelling tools, to be difficult in adapting to climate-related risks and opportunities; 
  • Some attendees stressed the fact that existing tools are often siloed within departments, calling for an overall framework with common methodologies and tools to meet accounting standards to be developed; 
  • The existence of wider and more comprehensive frameworks was acknowledged but the multitude of these and the lack of clarity over which ones to use was cited as a key barrier to effective adoption. 

5. Financial impacts 

  • Many responses identified significant technical barriers in quantifying risks related to financial impacts, especially physical risk manifesting in the long-term; 
  • Incomplete data and a lack of tools and methodologies were cited as the main barriers to be overcome in this respect. 

6. Investor engagement 

Several organizations expressed concern over a lack of understanding of climate risks and opportunities and the TCFD itself among the investors they engage with, raising the issue of how their disclosure would be digested and interpreted. 

7. Scenario analysis 

  • Organizations without any previous experience of scenario analysis were struggling to find an initial starting point and a process to follow; 
  • Those more advanced in their scenario analysis process were still experiencing technical challenges in terms of financial quantification, as well as a lack of clarity over which scenarios to select or how to develop plausible scenarios; 
  • Financial sector organizations highlighted the need to clarify how to apply scenario analysis across multiple assets and aggregating this at a portfolio level. This was connected to the need for sector standards to be developed, in order to have some comparability across similar scenarios. 

8. Annual report structure 

  • Attendees raised a concern about the potential fragmentation of climate-related financial information in mainstream reports, as well as how to give a clear overall picture; 
  • There was particular concern among US attendees regarding the legal risks when including this information in 20-F and 10-K filings. 
  • These are only some of the challenges that were dealt with in the discussions that took place across our workshops and webinars. In the next part, we will look at the guidance given by experts at our events as well as the work CDSB is doing to support organizations to overcome these challenges.  

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