Insights from the Nordic TCFD Reporting Summit

Since the Task Force on Climate-Related Financial Disclosures (TCFD) issued its voluntary climate-related financial risk disclosure recommendations in 2017, its supporters have reached a critical mass. Nordea and the Climate Disclosure Standards Board (CDSB) co-hosted the TCFD Reporting Summit 2020 to discuss the state of TCFD implementation and climate-related reporting.

Climate-related disclosure has entered the spotlight in recent years, with investors and entities being both supportive and sceptical about the proliferation of disclosure frameworks and policies within this field. The TCFD has seen the largest increase in supporters, now with 1,500 supporters from the corporate sector and an additional 110 from the government and institutions space, with 85% joining during the last year.

Yet while momentum is building when it comes to entities’ reporting of their climate-related risks and opportunities in their financial reporting, the progress needs to pick up its pace.

That was one of the main takeaways from the recent Nordic TCFD Reporting Summit, co-sponsored by Nordea and the Climate Disclosure Standards Board (CDSB). The event brought together some of the leading experts in the field to discuss the current implementation of the TCFD recommendations and the implications for corporates and investors going forward.

Nordic TCFD Reporting Summit 2020 banner showing snow-covered mountains

The important purpose of TCFD

Back in 2016-2017 when the first draft of the TCFD recommendations was developed, not many other climate-related reporting frameworks existed in the market. The existing ones primarily focused on how entities affect climate with their businesses, often encouraging carbon footprint disclosures.

The aim of the TCFD, on the other hand, was to give investors guidance on how climate change can affect the financial outlook for entities. The recommendations thus focus on how climate policies and climate change can affect companies financially, rather than how companies affect the climate. Stress testing and information about companies’ strategies are at the TCFD’s core.

Martin Skancke, Chair of the PRI and member of the TCFD highlighted this point in his keynote address at the summit.

“In a market economy it’s really investors that are responsible for capital allocation and for making sure that capital flows to the most productive uses. And in a climate context we know that we need to make a transition to a low carbon economy. What we don’t know is the extent to which that transition will happen through the transformation of existing companies or by existing companies being built down and new companies being built up,” Skancke said.

He noted that two TCFD reporting areas where companies struggle more than others are stress testing and scenario analysis as well as how to integrate climate risk into their risk management processes. He pointed to two guidance documents the TCFD recently published with its latest status report as two helpful resources on those subjects.

See the TCFD’s Guidance on Scenario Analysis for Non-financial Companies and its Guidance on Risk Management Integration and Disclosure.

We know that we need to make a transition to a low carbon economy. What we don’t know is the extent to which that transition will happen through the transformation of existing companies or by existing companies being built down and new companies being built up.

Martin Skancke, Chair, PRI, Member, TCFD

It’s not just about a glossy report

Skancke also emphasized that TCFD reporting is about the journey, not just the final result of a shiny annual report. Rather it is intended to be an iterative process that provokes dialogue with internal stakeholders and drives improvement.

Equinor is one example of a company that has transformed its business to become more resilient, going from an oil company to a broad energy major. Regarding TCFD, the company had a head start as they had already been doing scenario analysis even before the TCFD recommendations were released, stress testing their portfolio against future climate change scenarios developed by IEA.

The company benefited from that groundwork when they started to report in line with the TCFD, said speaker Hilde Røed, VP Sustainability at Equinor. However, she also emphasized that it’s not something that can be solved once and for all but is rather a continuous journey that evolves as you go along.

Collaboration is key

The TCFD recommendations are built around the four areas: governance, strategy, risk management and metrics & targets. When it comes to the challenges related to stress testing and scenario analyses included under strategy, many companies have searched for guidance and examples from peers.

“We have learnt a lot from collaborating and learning from our peers,” said Equinor’s Røed. “We were part of one of the first TCFD preparer forums, and that was immensely useful for us. In parallel we have also reached out and collaborated with financial institutions to better understand what are useful disclosures. For example, we made a case study together with Storebrand and the PRI. That was very useful, I think, for both parties to better understand how we could disclose information that was actually useful.”

Equinor is today integrating climate into governance, enterprise risk management and performance through collaboration across different units of the company. The close collaboration between CFO, Sustainability and Strategy has been crucial, Røed said, noting that the risk to business from climate change has triggered more interest from the various units.

We have learnt a lot from collaborating and learning from our peers. We were part of one of the first TCFD preparer forums, and that was immensely useful for us.

Hilde Røed, VP Sustainability, Equinor

Changes in the climate-reporting landscape

The TCFD is highly interconnected with other developments in the market. For example, the European Commission has announced that the Non-Financial Reporting Directive will be revised; market leaders within climate-related reporting, namely CDP, SASB, CDSB, GRI and IIRC have announced their intention to work together towards comprehensive corporate reporting; and the IFRS is proposing to set up a sustainability standards board to further harmonize this space.

The online event delved into these developments as well as valuable hands-on insights from Christine Sobieski, Head of ESG Engagement at Ørsted; Roy Antink, SVP, International Policy Coordination, Sustainability at Stora Enso; Luke Blower, Associate, Redefining Value at the World Business Council for Sustainable Development (WBCSD); and Nontokozo Khumalo, Corporate Engagement Manager, CDSB. The event was hosted by Michael Zimonyi of the CDSB together with Jacob Michaelsen and Alexander Berg from Nordea’s Sustainable Finance Advisory team.

You can find the full webinar recording here.

If you have further questions or reflections on ESG-related reporting, reach out to Ebba Ramel on Nordea’s Sustainable Finance Advisory team.

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