Recommendations and Guidance

Author

Shel

The Task Force’s recommendations are structured around four thematic areas that are core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.

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Source: Final Report - Recommendations of the Task Force on Climate-related Financial Disclosures

These four areas are supported by key climate-related financial disclosures that build out the framework with information that helps investors and others understand how reporting organizations assess climate-related issues.

1. Governance

Information disclosed in this sector provides an understanding of the role an organization’s board plays in overseeing climate-related issues as well as management’s role in assessing and managing those issues. Such information supports evaluations of whether material climate-related issues receive appropriate board and management attention.

In describing the board’s oversight of climate-related issues, organizations should consider including a discussion of the following:

  1. processes and frequency by which the board and/or board committees are informed about climate-related issues;

  2. whether the board and/or board committees consider climate-related issues when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans as well as setting the organization’s performance objectives, monitoring implementation and performance, and overseeing major capital expenditures and acquisitions; and

  3. how the board monitors and oversees progress against goals and targets for addressing climate-related issues.

In describing management’s role related to the assessment and management of climate-related issues, organizations should consider including the following information:

  1. whether the organization has assigned climate-related responsibilities to management-level positions or committees; and, if so, whether such management positions or committees report to the board or a committee of the board and whether those responsibilities include assessing and/or managing climate-related issues;

  2. a description of the associated organizational structure(s);

  3. processes by which management is informed about climate-related issues; and

  4. how management, through specific positions and/or management committees, monitors climate-related issues.

2. Strategy

Information disclosed here helps investors and other stakeholders to understand how climate-related issues may affect an organization’s businesses, strategy, and financial planning over the short, medium, and long term. Such information is used to inform expectations about the future performance of an organization.

Organizations should provide the following information:

  1. a description of what they consider to be the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of the organization’s assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms;

  2. a description of the specific climate-related issues potentially arising in each time horizon (short, medium, and long term) that could have a material financial impact on the organization; and

  3. a description of the process(es) used to determine which risks and opportunities could have a material financial impact on the organization.

Organizations should consider providing a description of their risks and opportunities by sector and/or geography, as appropriate.

Additionally, organizations should discuss how identified climate-related issues have affected their businesses, strategy, and financial planning. They should consider including the impact on their businesses, strategy, and financial planning in the following areas:

  1. Products and services

  2. Supply chain and/or value chain

  3. Adaptation and mitigation activities

  4. Investment in research and development

  5. Operations (including types of operations and location of facilities)

  6. Acquisitions or divestments (process of selling off some of its assets or business units to a third party)

  7. Access to capital

Organizations should describe how climate-related issues serve as an input to their financial planning process, the time period(s) used, and how these risks and opportunities are prioritized.

Organizational disclosures should reflect a holistic picture of the interdependencies among the factors that affect their ability to create value over time.

Organizations should describe the impact of climate-related issues on their financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities). If climate-related scenarios were used to inform the organization’s strategy and financial planning, such scenarios should be described.

Organizations that have made GHG emissions reduction commitments, operate in jurisdictions that have made such commitments, or have agreed to meet investor expectations regarding GHG emissions reductions should describe their plans for transitioning to a low-carbon economy, which could include GHG emissions targets and specific activities intended to reduce GHG emissions in their operations and value chain or to otherwise support the transition.

Organizations should describe how resilient their strategies are to climate-related risks and opportunities, taking into consideration a transition to a low-carbon economy consistent with a 2°C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks.

Organizations should consider discussing:

  1. where they believe their strategies may be affected by climate-related risks and opportunities;

  2. how their strategies might change to address such potential risks and opportunities;

  3. the potential impact of climate-related issues on financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities); and

  4. the climate-related scenarios and associated time horizon(s) considered.

3. Risk Management

Investors and other stakeholders need to understand how an organization’s climate-related risks are identified, assessed, and managed and whether those processes are integrated in existing risk management processes. Such information supports users of climate-related financial disclosures in evaluating the organization’s overall risk profile and risk management activities.

Organizations should describe their risk management processes for identifying and assessing climate-related risks. An important aspect of this description is how organizations determine the relative significance of climate-related risks in relation to other risks.

Organizations should describe whether they consider existing and emerging regulatory requirements related to climate change (e.g., limits on emissions) as well as other relevant factors considered.

Organizations should also consider disclosing the following:

  1. processes for assessing the potential size and scope of identified climate-related risks and

  2. definitions of risk terminology used or references to existing risk classification frameworks used.

Organizations should describe their processes for managing climate-related risks, including how they make decisions to mitigate, transfer, accept, or control those risks. In addition, organizations should describe their processes for prioritizing climate-related risks, including how materiality determinations are made within their organizations.

Organizations should describe how their processes for identifying, assessing, and managing climate-related risks are integrated into their overall risk management.

4. Metrics and Targets

Information disclosed in this section provides an understanding of how an organization measures and monitors its climate-related risks and opportunities. Access to the metrics and targets used by an organization allows investors and other stakeholders to better assess the organization’s potential risk-adjusted returns, ability to meet financial obligations, general exposure to climate-related issues, and progress in managing or adapting to those issues.

Organizations should provide the key metrics used to measure and manage climate-related risks and opportunities, as well as metrics consistent with the cross-industry, climate-related metric categories described in Appendix 2.

Organizations should consider including metrics on climate-related risks associated with water, energy, land use, and waste management where relevant and applicable.

Where climate-related issues are material, organizations should consider describing whether and how related performance metrics are incorporated into remuneration policies.

Where relevant, organizations should provide their internal carbon prices as well as climate-related opportunity metrics such as revenue from products and services designed for a low-carbon economy.

Metrics should be provided for historical periods to allow for trend analysis. Where appropriate, organizations should consider providing forward-looking metrics for the cross-industry, climate-related metric categories described in Appendix 2, consistent with their business or strategic planning time horizons. In addition, where not apparent, organizations should provide a description of the methodologies used to calculate or estimate climate-related metrics.

Organizations should provide their Scope 1 and Scope 2 GHG emissions independent of a materiality assessment, and, if appropriate, Scope 3 GHG emissions and the related risks.

All organizations should consider disclosing Scope 3 GHG emissions. GHG emissions should be calculated in line with the GHG Protocol methodology to allow for aggregation and comparability across organizations and jurisdictions. As appropriate, organizations should consider providing related, generally accepted industry-specific GHG efficiency ratios.

GHG emissions and associated metrics should be provided for historical periods to allow for trend analysis. In addition, where not apparent, organizations should provide a description of the methodologies used to calculate or estimate the metrics.

Organizations should describe their key climate-related targets such as those related to GHG emissions, water usage, energy usage, etc., consistent with the cross-industry, climate-related metric categories in Appendix 2, where relevant, and in line with anticipated regulatory requirements or market constraints or other goals.

Other goals may include efficiency or financial goals, financial loss tolerances, avoided GHG emissions through the entire product life cycle, or net revenue goals for products and services designed for a low-carbon economy.

In describing their targets, organizations should consider including the following: 1) whether the target is absolute or intensity based;

  1. time frames over which the target applies;

  2. base year from which progress is measured; and

  3. key performance indicators used to assess progress against targets.

Organizations disclosing medium-term or long-term targets should also disclose associated interim targets in aggregate or by business line, where available.

Where not apparent, organizations should provide a description of the methodologies used to calculate targets and measures.


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