TCFD and CDP: 10 Questions Answered

In April we hosted a webinar about the TCFD recommendations, specifically how they will impact CDP disclosures this year.

Here we look at some of the questions that were asked during the webinar to give you an insight into how to maximise your disclosure this year and in the future

You’ll find the full webinar broadcast here too.

 

1. How do I maximise my disclosure for 2018?

This year CDP have made updates both in response to market needs and the recommendations of the TCFD. Sector-specific questions have now been introduced, the TCFD guidelines incorporated into the climate change questionnaire, and scenario analysis and transition pathway planning are now considered key indicators of company progress.

In light of these changes, how do you go about improving your company rating? We recommend the following approach to get your disclosure fully up to scratch:

• Read the CDP Guidelines: These can be found on the CDP website.They provide a question by question guide and explain what a good answer looks like. Getting familiar with what is required of each answer will be the best place to start.

• Undertake a gap analysis on your previous response: Look carefully at last year’s analysis and assess how it falls short on each question to establish where your focus should be.

• Engage with your colleagues: particularly on risk, finance and investor relations where you need to provide more information to cover the new requirements.

• Tackle Scope 3: This takes a bit more work and for some companies will be a large undertaking, but it is worth investing efforts to ensure you have the full outlook on your business risks and opportunities.

• Consider science-based targets: Setting a science-based target will require you to understand scenarios, which is a recommendation of the TCFD and a measure of company progress in the new CDP questionnaires. If you have a target for a 2-degree scenario, this places you at an advantage and the work required will provide you with the information for a strong disclosure.

2. What is the value in disclosing this new information?

For some organisations, there is uncertainty about the new disclosures, particularly if competitors are not doing it, investors are not asking for it yet, and they already have a CSR policy.

Generally, questions ask for useful but not confidential information, but it is worth being considerate of whether information is sensitive to your particular business. However the more transparent an organisation, the more likely they are to be a better prospect as an investment. CDP is also gathering a growing body of evidence that the cost of capital to organisations is lower for those disclosing more fully and showing their governance procedures. Investors are likely to start requiring this information as adoption of the recommendations widens. Therefore, there is actually an opportunity in a situation where your competitors are not disclosing.

The recommendations are designed to provide investors with the right information to understand financial risk to organisations, information that will not necessarily be included in your current sustainability policy.

3. What risks should we consider when doing a CDP audit?

CDP are not prescriptive on this as every company is unique. This year they have in fact simplified the questions from 6 down to 2 (one for risk; one for opportunity). They are addressed using the same terminology as the TFCD in terms of acute and chronic risk, but what is included will be entirely dependent on your unique organisation and what is appropriate to it.

4. Should scenario risks consider clients?

In short: yes. The TCFD states that future scenarios should consider your market. This will include regulatory impacts and changes to consumer preferences and behaviours for example. This is a key part of the assessment and will definitely have a bearing on your future risks and opportunities.

5. What kind of information is required for scenario analysis?

The TCFD recommends using scenario analysis to assess the resilience of strategy and future climate change impacts according to possible future outcomes. For example, under a business-as-usual scenario we are likely to see more severe impacts from climate change. What will this mean to your organisation? In an ideal scenario, where we limit global warming to less than 2 degrees, how will your business need to adapt to contribute to this, and what will be the positive and negative impacts. You will need to be able to disclose any physical and transition risks and opportunities.

6. What is management’s role in assessing and managing climate-related risks and disclosures?

Management plays a vital role according to the TCFD recommendations. Governance is one of the four key areas that they recommend against and it is required that climate-related risks are discussed and managed at board level with information provided on this process. The TCFD recommendations suggest companies be able to demonstrate that risk management is integrated into the organisation’s management system.

7. Can we imagine a progressive implementation of TCFD with highest pressure put on the highest emitting countries?

Ideologically speaking, this would be a valid approach. However, the recommendations are purely voluntary at the moment. If these are not adopted voluntarily, there is likely to be a push for mandatory uptake.

8. Are the recommendations likely to become mandatory?

Simple answer: yes. However, the timescale is unclear. It may possibly happen in some European jurisdictions first, but it is difficult to predict. There are not just regulatory aspects to consider, political aspects will also have a bearing on the progress to mandatory roll out.

Ultimately, it is advantageous to get a head of the game on this one and your CDP disclosure will provide you with a structured process to assist you in doing so.

9. How many companies have committed to the TCFD disclosures?

Over 250 organisations have expressed their support for the TCFD. The full list can be found here. A combined 390 investors representing more that UDS $22 trillion in assets signed a letter calling on G20 leaders to support the TCFD recommendations. Although exact stats are not available for specific nations, there is considerable support and a pressure for companies globally to commit to the TCFD disclosures, and the number of organisations preparing to do so is rising.

10. Is there guidance on how the scoring for each of the questions is weighted?

User guides are in the process of publication and are due to be published by CDP.