TCFD Status Report Finds That Firms Struggle With Climate Scenario Analysis

TCFD Status Report Finds That Firms Struggle With Climate Scenario Analysis

The Taskforce for Climate-Related Financial Disclosures (TCFD) released a status report this month on how firms are disclosing in line with the TCFD’s recommendations. Today, governments around the world are incorporating the recommendations into regulations (for example, see Verdantix Strategic Focus: Complying With The SEC Climate Disclosure Rule) to support investor demand for firms’ climate-related financial data, and 77% of surveyed firms highlighted investor requests as a key reason for implementing the TCFD recommendations. Indeed, in the status report, investors highlighted data consistency and availability as a continuing issue. In March, 680 financial institutions, which represent over $130 trillion in assets, requested that nearly 10,400 companies disclose through the TCFD-aligned CDP in particular to improve data consistency.

The report found that 19% more firms are disclosing their climate-related risks and opportunities compared to 2019. However, only 16% of them are publishing information on the resilience of their climate strategy considering different warming scenarios, and disclosures on climate-related governance practices continue to fall behind; 80% of respondents stated that they found disclosing the resilience of their strategy in line with different warming scenarios difficult or very difficult to implement.
The TCFD 2022 status report flagged three primary challenges by reporting companies:

• Conducting climate-related scenario analysis, including selecting relevant scenarios and identifying key inputs and parameters. Investors looking to compare firms cited a lack of consistency on the different warming scenarios that companies used. Firms can turn to software providers such as Cervest and Jupiter Intelligence to provide asset-level physical climate risk analysis under different warming scenarios.
• Estimating scope 3 GHG emissions, including challenges with data collection across the value chain. Firms can utilise carbon management software or supply chain sustainability software to organise and streamline scope 3 data collection and data modelling process. In the Verdantix Green Quadrant: Enterprise Carbon Management Software, Verdantix found that vendors such as Engie and Sphera have particular strengths in data modelling for scope 3 emissions. 
• Developing processes for identifying, assessing, and managing climate-related risks and integrating such risks into existing processes. Firms want guidance on how to build their internal capacity for assessing and managing climate-related risks and how to conduct a holistic analysis of their firm’s climate resilience. Upgrading risk management practices and adapting corporate business models to the low carbon transition requires significant organisational change. Professional services firms such as KPMG and WTW, in partnership with digital solutions providers, are developing offerings suited to these changes.

See Verdantix Strategic Focus: Improving Climate Resilience With Digital Solutions and Verdantix Strategic Focus: Open Ecosystem For Consulting Partnerships for more information.