The recently published guidelines by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), headed by Mark Carney, recommend a number of disclosures for financial institutions and corporates. Implementation of these recommendations will be a key component in defining the framework for asset owners and asset managers in responding to portfolio carbon and climate risk.
As experts in climate investment advisory, we have created this guide to help investors understand how they can work with us in order to build a clear and effective implementation strategy in response to the TCFD recommendations.
The TCFD categorises the recommended disclosures in to five different categories:
- Governance - disclosure of board oversight of climate-related risks and opportunities.
- Strategy - assessment of an organisation's resilience to a 2 C degree transition scenario in the short-, medium- and long-run.
- Risk Management - disclosure of risk identification and how identified risks are integrated into a wider framework.
- Metrics & Targets - organisations are urged to disclose a variety of specific climate-related metrics, where these are seen as material. These include a carbon footprint (carbon intensity) of Scope 1 and 2 emissions, and where relevant Scope 3 emissions, specific targets for identified risks and opportunities and how progress is measured. Where relevant, internal carbon prices, financial loss tolerances and metrics such as revenues derived from activities designed for a lower-carbon economy should be disclosed.
- Scenario Analysis - asset owners and managers should undertake a range of scenario analyses, both for favourable and unfavourable scenarios. Specifically, the guidelines detail a 2 C degree or under transition scenario and stress testing in accordance with a specific country's Nationally Determined Contribution (NDC - a specific country pledge to fulfilling the Paris Agreement).
How we can support you with implementing the TCFD recommendations
|TCFD Disclosure Requirements for Asset Managers / Asset Owners||ETIR Services|
|Strategy: Disclose short-, medium- and long-term risks and the effects of these on the business, its strategy and financial planning where seen as material.||
ET Portfolio Analytics - Covers estimated temperature trajectories, sensitivity to global carbon pricing, portfolio correlation to an emerging spread between low- and high-carbon companies and a range of other climate-related risks.
Advisory - build a joined up sustainable investing strategy, which seeks to ensure buy-in across executive management, ESG personnel and portfolio managers.
|Strategy: The resilience of the organisation to a 2 C degree or lower transition scenario, where seen as material.||ET Portfolio Analytics - holistic understanding of how a portfolio responds to a 2 C degree transition scenario.|
|Risk Management: Disclose the process for identifying and managing climate-related risks, and how these are into integrated into the overall risk management framework.||ET Portfolio Analytics & Advisory - assist in identification of portfolio climate risks and understand how these can be incorporated into a wider risk management framework.|
|Metrics & Targets: Disclose Scope 1 & 2 emissions, and where relevant Scope 3 emissions and related risks and how these are estimated where data is missing (footprint for asset owners and managers).||
ET Portfolio Analytics - detailed portfolio Carbon Footprinting across Scope 1, 2 and 3 emissions categories. ETIR uniquely focuses on Scope 3 carbon emissions as they can account for up to 75% or more of a company’s entire carbon footprint.
Bespoke Data Collection - Collection of corporate emissions data for a universe of stock that matters most to you.
Portfolio Construction Service - create custom low carbon or climate-related investment strategies to drive better sustainable asset allocation.
ET Carbon Dataset - provision of Scope 1, 2 and 3 carbon emissions data to fulfill disclosure requirements.
Advisory - assist in target setting and measuring carbon related performance over time.
|TCFD Scenario Analysis||ETIR Service|
|2 degree target||ET Portfolio Analytics - determine how well aligned an investment portfolio is to a specific temperature pathway and how this can affect performance.|
|Identifying opportunities||Green Revenues Framework and Data Collection - identify corporate activities responsible for driving the low-carbon transition.|
|Various unfavourable scenarios||ET Portfolio Analytics - range of scenario analysis and portfolio stress testing.|