Covid-19 has brought irreversible changes to our society and economic systems. As we turn our attention towards rebuilding resilient economies, government policy on recovery is now top of mind. Bailout conditions in particular are capturing people's attention. Leading the way, Canada has connected state aid with climate action.
Elsewhere, policy makers are turning to the economy, hoping to reopen gradually without creating a significant spike in new Covid-19 cases. In Switzerland, the federal government and banks took part in a program to provide rapid support to the economy in the form of loans. Similar plans are in place in Sweden, the United States and the United Kingdom. The conditions to qualify for these loans relate to an applicant's financial position at the end of 2019; detailed environmental or social criteria are usually not included, despite calls for it from civil society.
There is increasing pressure to tie environmental performance to receipt of support, particularly when it comes to carbon intensive industries. Social media is playing a key role - hashtags like #greenrecovery are going viral - and the Extinction rebellion campaign #notgoingback focuses on governments around the world who are putting together relief packages for high carbon industries. Greenpeace requested a stimulus plan which prioritises the transition to a low-carbon economy or a Green New Deal, as communicated by the EU. Meanwhile, global investor groups published a joint statement calling for a sustainable recovery.
In this respect, the approach taken in Canada is interesting and groundbreaking: in order to obtain Covid-19 bailout funds, firms are required to file TCFD reports. While unique in its approach to state aid, the message resonates with a deeper trend aimed at boosting corporate reporting around climate-related risks and actions. Such transparency can become the bedrock for a resilient economic recovery. Aligning with the TCFD recommendations is a vital step.
TCFD stands for Task Force on Climate-related Financial Disclosures. The TCFD recommendations are a global framework which aims to channel private sector efforts to realising the goals of the Paris Agreement: most importantly, by limiting greenhouse gas emissions to prevent warming beyond 1.5 or 2 degrees above pre-industrial levels. The framework is principles-based and can be applied to any sector. It contains a clear focus on analysing and reporting the impacts of climate change on the business model and strategy of a company.
Investors, lenders, insurers and governments around the world increasingly rely on the data emerging from corporate disclosures to assess their value and to inform their investment strategies. TCFD has a five-year implementation period, with most companies incrementally adding to their disclosures during this window. The TCFD recommendations contain four key elements for a company to report on annually in their financial filings or in a separate supplementary report:
There are some great freely available public resources which provide guides to getting started. Engaging internal Risk and Finance teams is a useful first step. Focusing on the financial sector, TCFD requires obtaining data and analysing scope 3 carbon emissions. i.e. the carbon emissions associated with lending and investment portfolios.
TCFD is quickly moving to becoming mandatory. From 2020 this is the case for investors who are UN PRI signatories. Countries and regulators will likely follow suit. Therefore, getting ahead of upcoming regulation and investor-led initiatives makes TCFD important for businesses to consider.
While considering TCFD reporting, it is important to keep in mind three T's:
Of course, there is lots more to do, every single journey starts with a first step and TCFD is no different...crawl, walk, run.