TCFD and Other Non-Catchy Acronyms
Things you didn't even know you didn't want to know
The ‘Task Force on Climate-Related Financial Disclosure’ is known as TCFD.
(I know, I know….you regret opening this post already….I’ll get to why this is less boring than it sounds quickly, promise).
One of the reasons that it’s been difficult to make progress on climate change action (other than political gamesmanship and general head-in-the-sandness), is that we don’t know exactly what risk it poses to the specific things that we do and what it will cost us.
We know that it won’t be good, and we know many of the ways it won’t be good, and we know we need to reduce the overall amount of climate change by reducing greenhouse gas emissions etc, but for example, if you’re a business, it’s hard to know: Are we more at risk now than we were? Should we move? Do we need to change suppliers? Do we need to track emissions? What are we missing?
And because the rest of us rely on businesses to supply us with goods, services, and employment (among other things), we need companies to be able to answer those questions.
Well, the TCFD is helping to define how we think about, plan for, cost-out, and take climate action, especially from a business standpoint.
Designed to be applied to large businesses (initially), the TCFD defines a more standardized approach for how to consider what the climate risk is for a business. Its original push was to help investors understand how to gauge business risk in a changing climate.
The TCFD has been around for a few years now and has proven to be useful not only for big business and investors, but for governments, cities, and smaller businesses too. Some cities are now adopting the framework for gauging their own risk. Some governments and regulatory agencies (e.g. The European Union, and the Securities and Exchange Commission in the US) are adopting the framework (or similar approaches) to impose a more standardized practice for how large businesses assess and report on risk across nations.
Don’t worry, I’m not going to go into all the details here (though I am in the middle of creating a short course that will include several ‘climate essentials’ for smaller businesses, including a few more details on this framework). But I do think it’s useful to note several broad elements of why the TCFD is important and useful (for all of us):
It standardizes an approach to assessing and managing direct risk (e.g. flooding and wind damage to physical assets) and indirect risk (e.g. employee absences or inability to work outdoors during poor air quality/high heat days, supply disruption due to a hurricane impacting shipping, power outages during wildfire risk days). When companies are using all sorts of different approaches over different timelines using different data and claiming different actions will minimize different levels of risk, there is no way to evaluate whether a company is really prepared for (and helping to reduce) the impacts of climate change. While not perfect, the TCFD begins the process of explaining what’s appropriate, rigorous, and genuinely helpful. It helps to avoid ‘greenwashing’ for investors and consumers.
It acknowledges that risk comes not only from a changing climate, but also from the transition to a low carbon economy. As more of our world is electrified, including our transportation system, these changes need to be built into business planning. If a company is not considering how it will be resilient to changing energy costs, how it will respond to carbon regulation, how it will support an electric fleet of vehicles, how its buildings will be more efficient, and even how it will deal with potential climate litigation, then the company will be (is already) at risk.
It includes recommendations for how to fold climate considerations into normal business practice and plan for opportunity, not just risk. For example, its four categories of recommendations are: governance, strategy, risk management, metrics and targets. If a business is following this guidance, it won’t only help them spread risk and reduce losses, it should also help them assess and invest in new products, services, locations, or suppliers that make the company more profitable and resilient. So the TCFD is helping to ‘mainstream’ climate by providing guidance that fits within existing business practices and that will enhance a business, not only add a bunch of new ‘things to do’.
This is useful for the non-corporations among us too!
First of all, we’re all consumers, and many of us are investors (through retirement or other portfolios).
This means that more of our investments are likely to be accounting for and reducing climate risk (better returns for us), and the products we buy are more likely to become sustainable and more reliable (less supply disruption).
Some of us are employees. TCFD is making it more likely that the companies we work for can weather (pun definitely intended) disruptions, meaning more resilience and more sustained employment! Hurrah - paychecks! It also makes it more likely that our employers become societally ‘good’ companies too - making a positive difference. For many of us, this matters a great deal!
Some of us run small or medium-sized businesses. As a small business, we likely won’t be subject to mandatory risk disclosures any time soon (unless you are a supplier or service provider to a larger corporation), buuuuuut many local jurisdictions are starting to adopt TCFD or similar sustainability disclosure reporting (SDR), or climate reporting directives (CRD). This will likely mean that even small businesses will need to participate in gathering a certain amount of data on emissions or risks. TCFD is a good place to begin to assess what data might be useful or required.
But in any case, all of us are touched by commercial enterprise.
All of us should care that there is a more standardized approach to assessing and managing climate risk out there, so that we can make more informed decisions about how we choose the goods and services and employers that support us (at a minimum).
Over 1500 corporations already report climate risk using the TCFD guidance. Those companies represent over a trillion dollars of investment. Officially, the US Securities and Exchange Commission will start to require publicly-traded companies to report on climate risk, using the TCFD guidance, as soon as 2024. (In practice, that is likely to be delayed, but it’s still coming soon).
I expect the guidance in the TCFD to evolve and become better, but this is a really an excellent start for helping all sorts of industries operate more sustainably, resiliently, and profitably!
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