The four things you need to know about climate-related financial disclosure

Since the Task Force on Climate-Related Financial Disclosures (TCFD) was formed in 2015, a growing number of businesses, investors and solution providers have been working to better understand, and inform one another, of the risk climate change poses.

And in light of the pandemic, and its global economic ramifications, interest in climate-related financial disclosure has accelerated further.

But, for many organisations, how climate risk data and finance intersect remains unclear. And this lack of clarity is understandable; if there’s one thing our global climate and global financial systems have in common, it’s their complexity!

To help you get up to speed with what it’s all about, here we outline four key things you need to know, as well as pointers to useful resources for those ready to take a deeper-dive into the important world of climate-related financial disclosure.

When it comes to disclosure on climate, the TCFD is the leading authority. Chaired by Michael Bloomberg, the TCFD first began issuing recommendations on climate disclosure in 2017, with the aim to help companies share more transparent information relating to climate that can inform markets and investors.

Today, the TCFD has a whole range of online resources providing a comprehensive route for businesses ready to get to grips with climate-related financial disclosure. These include its own set of recommendations and an e-learning knowledge hub with over 300 different courses, insights, tools and more designed for companies, investors and finance professionals.

While the TCFD’s best practices are voluntary, as regulators start to enforce disclosure, their established frameworks are likely to play a significant role in informing eventual standards, metrics, and legislation. Familiarisation and preparation with them now is highly recommended to prepare for integration into risk management, operations, reporting, and governance.

Climate-related financial disclosure isn’t mandatory today, but all signs point toward that changing in the near future. The UK’s Green Finance Strategy last year outlined plans to have all listed companies and large asset owners provide climate-related financial disclosures. Meanwhile, national banks across the G7 are discussing how to make disclosure mandatory (the Bank of England notably disclosed theirs, voluntarily, for the first time this June, demonstrating commitment) and the TCFD announced earlier this year that it had more than 1,000 supporting organisations.

Across the globe, businesses need to start treating climate-related financial disclosure as a matter of when, not if. And, this offers an opportunity to business—climate-related financial disclosure isn’t a tick-box exercise or more red-tape to wade through. It’s an essential part of future-proofing and adding value to a business.

The fact is, environmental factors go hand in hand with good business, rather than presenting an unnecessary burden. The green finance sector is flourishing with estimates suggesting last year it was worth £23.8trn. Meanwhile, huge portfolios like BlackRock are divesting from fossil fuels and moving funds to more sustainable investments.

It’s increasingly clear that investors and regulators know the future is green, and will be looking to businesses to prove their credentials. However any discussion on investment in 2020 can’t ignore the impact of the pandemic.

After a crisis, investors seek security. And the pandemic will have left many funders reeling.

The fact that green funds are growing doesn’t mean investors won’t scrutinise their options. The global pandemic has shown the fragility of our globalised system of trade and supply chains, as well as the crucial importance of transparent access to shared knowledge.

Investors will be taking heed, because without the right action to build climate security, the disruptive force of the climate crisis could dwarf the pandemic. For organisations that wish to secure funding in a post-COVID world, demonstrating a thought-out approach to disclosing climate risk has to be top of mind.

Beyond the TCFD recommendations, businesses seeking granular, actionable insights into their climate risk that can better enable their ability to share climate-related financial disclosure, should explore how new technology can reveal exactly how their value chain could be impacted.

Thinking about climate risk can often feel abstract and overwhelming to businesses, particularly those that haven’t yet experienced the direct impact from a physical climate risk through, for example, flood or fire damage.

Technology can play a powerful role in demystifying the factors impacting climate security, forecasting extreme events, and can provide businesses with actionable insights to build into future strategies, as well as inform climate-related risk disclosures.

Cervest’s solution does this by combining recent advances in artificial intelligence and Earth science to make sense of the vast, interconnected and always-changing climate systems that impact organisations and their value chain. By drawing on global climate data and analysing it, Cervest can present businesses with clear insights into their specific climate risks. This will enable you to predict and manage the short and long term effects of the changing climate.

Overall, while grasping the fundamentals of climate-related financial disclosure can seem intimidating, there’s never been a better time for businesses to embrace them.

To learn more about how Cervest can help your business build its climate security, understand its climate risk and inform climate-related financial disclosures, please get in touch with the team at sachin@cervest.earth.