Bringing TCFD reporting to life

Client's challenge

The TCFD framework aims to improve and increase reporting of climate-related financial information. The goal is to provide financial markets with clear, comprehensive and high-quality information on the impacts of climate change.

Our client is a drinks manufacturer and distributor. As TCFD reporting is now mandatory for premium-listed entities in the UK, they are obliged to report under the framework.

Given that this was our client's first engagement with TCFD, PwC was engaged to complete a climate risk and opportunity materiality assessment, provide training to the board, perform a qualitative scenario analysis, draft the client's TCFD narrative and identify a road map for future TCFD reporting.

Approach

There are four pillars within the TCFD framework:

1. Governance: disclose the organisation's governance around climate-related risks and opportunities.
2. Strategy: disclose the actual and potential impacts of climate-related risks and opportunities on the organisation's businesses, strategy and financial planning where such information is material.
3. Risk management: disclose how the organisation identifies, assesses and manages climate-related risks.
4. Metrics and targets: disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

We began by conducting a climate risk and opportunity materiality assessment. Once the outputs were approved by the client's project steering group, it was followed by qualitative scenario analysis to identify the potential range of climate change implications for the business. This analysis allowed us to identify options for increasing the organisation's resilience to climate-related risks and opportunities, and helped inform the client's disclosures in relation to metrics and targets and risk management.

We then worked with the client to support them in disclosing decision-useful metrics, targets and migrating actions that link to the climate risks and opportunities identified under the strategy pillar. The proposed climate-related metrics and targets should create a feedback loop over time in the same way other key performance indicators and key risk indicators are used to inform business management processes. Having climate-related metrics and targets will also enable the organisation's board and management to more effectively direct the business by measuring and describing the impacts of climate-related risks and opportunities on the organisation on a recurring basis.

Impact

The result was a set of robust TCFD disclosures, which were published in our client's annual report in line with regulatory requirements. But this about more than simply meeting regulatory requirements – the broader benefits of better disclosure are succinctly outlined by TCFD:

• Risk assessment: more effectively evaluate climate-related risks to their company, its suppliers and competitors.
• Capital allocation: make better-informed decisions on where and when to allocate capital.
• Strategic planning: better evaluate risks and exposures over the short, medium and long term.

Furthermore, once you uncover the climate-related risks and opportunities under the strategy pillar, you must then act on them – and this is arguably where the real work begins. Such activity can take years to plan and implement, as it incorporates end-to-end business transformation to ensure that your business is ready to participate in the low-carbon economy.

Key factors for success

1. Increasing board-level and executive-level awareness and understanding of the climate-related risks and opportunities facing the company will result in better risk management and more informed strategic planning.
2. It is important to take the longer-term impacts and challenges of climate change into account (e.g. more than 10 years) when assessing materiality to avoid missing any key climate-related risks or opportunities.
3. For the first year of disclosures, begin building the right internal processes to manage climate-related issues and collect the necessary data and metrics. This will allow organisations to increase the maturity of their disclosures in subsequent years.