Climate change is not only affecting the environment but also the way we do business. This informed the theme of the latest South Pole and GreenBuzz workshop, “Addressing your Climate Risks and Opportunities”. Before diving into the main discussion, South Pole’s CEO, Renat Heuberger, and Corporate Sustainability Advisor, Bastien Girod, Senior Business Developer (DACH), welcomed the visitors with a quick trip down memory lane, and talked about the company’s foundation and interesting evolution since 2006.
Subsequently, they introduced the two popular initiatives which formed the main talking points: the Task Force on Climate-related Financial Disclosures (TCFD), and Science-Based Targets (SBTs). The event brought together an interesting combination of delegates, with representatives from both corporates and investment companies in attendance. As Renat pointed out, the exchange between those two groups is very important to inspire climate action, and these two issues are highly topical as sustainability themes.
The TCFD as a framework for increased transparency on climate risks
As climate change becomes a defining issue for financial stability, transparency around climate risks is much needed in order to circumvent the "tragedy of the horizon", explained the expert and former task force member, Andreas Spiegel. To tackle the short termism which often overlooks climate change, the TCFD framework considers the essential elements for minimising climate risks and maximising the opportunities of climate change, for investors and business. In particular, it recommends forward-looking climate scenario analysis to model possible climate risks. This makes TCFD a game changer.
The TCFD framework recommends disclosures under four themes: Governance, Strategy, Risk Management and Metrics & Targets. By following this framework, climate risks, the processes in place to manage them, and the steps taken to manage them are made visible to investors and peers. This allows more informed allocation of investments and drives the decarbonisation agenda.
Other main takeaways from the discussion surrounding TCFD were the importance of collaboration, timely planning, seeking advice through tools and experts, and defining targets. As Amandine Favier, Head of Sustainable Finance at WWF Switzerland pointed out, it is essential to define selection criteria for service providers and create incentives.
South Pole’s Franziska Sinner, Head of Advisory - Corporates and Capital Markets, presented different case studies in relation to TCFD, climate risk assessments, South Pole’s new Climate Risk Tool, and its Open Innovation Platform. In line with the necessary shift from assessing the present to shaping the future, the Open Innovation Platform is targeting European financial centres and developing innovative solutions on how to best prepare for the inevitable shift towards green and sustainable finance.
South Pole’s Climate Risk Tool assesses the physical and transitional climate risks that investment portfolios are exposed to, allowing fund managers to make more informed decisions and de-risk if necessary. This is one way for the growing number of companies and financial sector stakeholders committed to disclosing under TCFD to understand and quantify their physical and transitional risks due to climate change.
SBTs for meaningful corporate climate action
When defining climate change action targets, one method in particular is fast growing in popularity: Science Based Targets (SBTs).
SBTs align strategy and action with the Paris Agreement goals, and the trajectory recommended by science to minimise climate disruption. As a result, corporates may minimise policy risks such as climate legislation and taxes, and additional reputational damage from being a climate laggard.
Businesses are now playing a key role in reducing greenhouse gas (GHG) emissions, as current government pledges are insufficient to meet the Paris goals. In this way, SBTs are accelerating voluntary corporate climate action to close the emissions gap, by defining how much and how quickly an organisation needs to reduce GHG emissions. They also help satisfy the ‘Metrics and Targets’ element of the TCFD disclosures.
The number of companies adopting SBTs is fast-growing. Nevertheless, the complexity of setting and reaching SBTs is high. To break down the barriers to participation, Charles Henderson, Head of Corporate Climate Risks and Opportunities at South Pole, explained the business benefits and outlined common SBT methodologies. A crucial insight was that there isn’t a “one solves all” method. SBT-setting methods need to be adapted, as they vary depending on the organisational sector, the ambition of the targets, and with financial and practical constraints.
Moreover, setting SBTs is an important step in an organisation’s sustainability journey, as was illustrated by Heinz Hänni from McDonald’s, whose SBT is to reduce emission intensity across the supply chain by 31%, by 2030. As with many other businesses, the McDonald’s supply chain accounts for the majority of GHG emissions, at 65% of the total. Reductions of the remaining 35% are being tackled at McDonald’s restaurants and for transportation.
By focussing on its supply chain, McDonald’s is having a positive impact beyond the company itself. It joined forces with its suppliers who are being encouraged to adopt similar sustainability standards and reduce their own GHG emissions. This illustrates how big corporations can influence positively and underscores the crucial role they play in meeting the goals set by the Paris Agreement.
Companies profit from this action too, as Damian Oettli from WWF Switzerland pointed out. Those adopting SBTs achieve competitive advantages – a boost in brand reputation, investor confidence and bottom line savings. Furthermore, SBTs have driven scientific innovation and increased organisations’ regulatory resilience, proving that taking action against climate change is not only good for the environment but also for business.
For questions concerning the “Addressing your Climate Risks and Opportunities” workshop, TCFD or SBTs, don’t hesitate to get in touch with Bastien Girod, or visit our website to learn more about South Pole’s Climate Readiness Programme.