a changing climate for business: an introduction to the tcfd · a changing climate for business: an...

A changing climate forbusiness: an introductionto the TCFD4th July 2019

PwC

Agenda

2

1. Climate change in context

2. Introducing the TCFDrecommendations

3. Myth-busting

4. Introducing the ClimateGovernance Principles

5. What next?

Climate change incontext

PwC

All pathwayslimiting globalwarming to 1.5ºCimply deepemissionsreductions, carbondioxide removal...and significantupscaling ofinvestment inmitigation options.”

IPCC Special ReportOctober

IPCC Special Report on 1.5 degrees

● Current warming since1850-1900 is +1°C

● Broadly, impacts of2°C are ‘substantially’worse than 1.5°C e.g.food production,health, infrastructure,migration

● Poor & vulnerable aredisproportionatelyaffected

● All 1.5°C pathwaysrequire rapid emissionsreductions (includingcarbon removal) to netzero

● The next 12 years arecritical

An example of what’s needed: Energy Transition

6

● Expected 2050 net zero statutoryinstrument in the UK

● Decarbonise electricity (renewables,CCS)

● Electrify the energy system (especiallytransport)

● Decarbonise heat and liquid fuels(biofuels, biogas, CCS, electricity)

● Demand management - smart customersolutions, EE, network infrastructure(transmission, storage & distribution)

PwCPwC

Climate chaos?

7

PwCPwC

Pressure from investors is growing

8

Introducing theTCFDrecommendations

PwCTCFD and Climate Risk - Banco Santander December 2018

10

An introduction:Task Force on Climate-related Financial Disclosures (TCFD)

• The Task Force on Climate-relatedFinancial Disclosures (TCFD) is anadvisory body set up by the G20 toaddress concerns around insufficientdisclosure of climate-related risks andopportunities for businesses.

• The Task Force is made up of 32members, including PwC Partner JonWilliams, drawn from a range ofindustries and countries, with keyperspectives as reporters ofinformation or users of suchinformation.

• The Task Force published its finalrecommendations in June 2017 whichare intended to apply to all companieswith listed debt or equity in the G20,and additionally to asset managers andasset owners (recognising that theseorganisations are typically unlisted).

“The right information allowssceptics and evangelists alike toback their convictions with theircapital.”Mark Carney, Chair of Financial StabilityBoard and Governor of the Bank of England


11

1AWhat are the TCFD recommendations?

1

2

34

Governance

Disclose the extent of board andmanagement’s oversight ofclimate-related risks andopportunities.

Risk Management

Disclose how the organizationidentifies, assesses, and managesclimate-related risks.

Strategy

Disclose the actual and potentialimpacts of climate-related risksand opportunities on theorganization’s businesses,strategy, and financial planningwhere such information ismaterial.

Metrics & Targets

Disclose the metrics and targetsused to assess and managerelevant climate-related risks andopportunities where suchinformation is material.

A

C

B

D

The Task Force has produced additional guidance that underpins these four broadrecommendations. This can be found on the TCFD website. Refer to the Annex titled Implementing

the Recommendations of the TCFD and a Technical Supplement titled The Use of ScenarioAnalysis.

The TCFD disclosure recommendations are for all industries, as set out at a high-level below. There arealso specific implementation guidance for banks outlining expected actions for the industry.

PwC

Policy & Legal risk:Compliance costs; strandedassets; restrictions &limitations on carbon intensiveassets; climate-relatedlitigation claims

Market risk: Shifts in supplyand demand for certaincommodities and products;viability of certain businessmodels; credit ratingimplications

Technology risk: Write-offsfor investments in disruptedtechnologies; requiredinvestment in newtechnologies; process changecosts to accommodate newtechnologies

Acute physical risk: Event-driven extreme weatherimpacts; disruptions tooperations, transportation,supply chains etc; damage tophysical assets and impactson insurance liabilities

Chronic physical risk:Longer-term shifts in climatepatterns, e.g. rising meantemperature, water stress;degradation or limitations onresource availability e.g.labour, natural resources etc

Reputation risk: Damage tobrand value or reputationresulting in lost revenue andadditional expenditures e.g.corporate affairs

Key climate-related risks for financial institutionsBanks should consider how the crystallisation of risks could impact both sides of the balance sheet, aswell as the extent to which risks are correlated. The TCFD classify material risks into 6 categories.

4° scenario

2° scenario

12


13

1ASpecific TCFD recommendations for the bankingsectorThe TCFD stresses that users of climate-related financial disclosures need to be able to distinguishamong banks’ exposures and risk profiles so that they can make informed financial decisions.

Risks and opportunities

● Describe significant concentrations of creditexposure to carbon-related assets

● Consider disclosing climate-related risks(transition and physical) in lending and otherfinancial intermediary business activities.

Risk management

● Consider characterising climate-related risksin the context of traditional banking industry riskcategories such as credit risk, market risk,liquidity risk, and operational risk.

● Consider describing any risk classificationframeworks used (e.g., the EnhancedDisclosure Task Force’s framework for defining“Top and Emerging Risks”).

Metrics and targets

● Provide the metrics used to assess the impactof (transition and physical) climate-relatedrisks on their lending and other financialintermediary business activities in the short,medium, and long term.○ Metrics provided may relate to credit

exposure, equity and debt holdings, ortrading positions, broken down by:■ Industry■ Geography■ Credit quality■ Average tenor

● Provide the amount and percentage of carbon-related assets relative to total assets as wellas the amount of lending and other financingconnected with climate-related opportunities.

PwCDecember 2018

14

1ASpecific TCFD recommendations for the assetmanagement sectorThe TCFD stresses that users of climate-related financial disclosures need to be able to distinguishamong asset managers’ exposures and risk profiles so that they can make informed financial decisions.

Strategy

● Describe how climate-related risks andopportunities are factored into relevantproducts or investment strategies.

● Describe how each product or investmentstrategy might be affected by the transition toa lower-carbon economy.

Risk management

● Describe engagement activity with investeecompanies to encourage better disclosure andpractices related to climate-related risks

● Describe how material climate-related risks foreach product or investment strategy areidentified, assessed and managed.

Metrics and targets

● Describe metrics used to assess climate-related risks and opportunities used in eachproduct or investment strategy. Where relevant,also describe how these metrics have changedover time

● Provide metrics considered in investmentdecisions and monitoring

● Provide the weighted average carbon intensityfor each product or investment strategy

● Provide other metrics believed to be useful fordecision-making and a description of themethodology used.

PwCClimateWise Workshop 25th April 2019

15

Global regulatory landscape

US Green New DealPending resolution to reduce fossil fuelusage and reduce emissions acrossthe US economyIncludes a 10 year mobilisation plan tomove the US to:

● Secure 100% of its electricityfrom renewable/zero emissionspower

● Upgrade all building to beenergy efficient

● Invest heavily in electricvehicles and high-speed rail

European Central Bank formally acknowledgedclimate-related risk for the first time in its SingleSupervisory Mechanism in 2019

Network for Greening the Financial System (NGFS) (Global Central Banks andSupervisors)Steering committee members include UK, France, Singapore, Mexico, Netherlands,China, Germany, Morocco and SwedenRecent recommendations include:

● Integrate climate-related risks into financial stability monitoring and micro-supervision

● Achieve robust and internationally consistent climate and environmental-related disclosure

European Commission Action Plan on Sustainable FinanceFinancial institutions will be encouraged to:

● Reorient capital flows towards sustainable investment● Manage financial risks stemming from climate change● Foster transparency and long-termism in financial and economic activity● May consider changes to capital regime - either green incentives or brown

penalties

Hong Kong HKMA is in the finalstages of signing up to the PRI andis looking to join the NGFS

Regulatory action is increasingly aligned at aglobal level. Building on the momentum of the TCFD,the NGFS in particular will drive consistent globalstandards on climate-related risks for FS institutions.


The PRA has issued its final Supervisory Statement andsupporting Policy Statement on how banks should manageclimate-related risks. The following measures are expectedof firms:

• Allocation of responsibility for identifying andmanaging financial risks from climate change to therelevant Senior Management Function(s) (SMF(s))most appropriate within the firm’s organisationalstructure and risk profile.

• Implementation of stress testing and scenarioanalysis to inform risk identification andunderstand the short-term and long-term financialrisks climate change presents to their businessmodels.

• Material exposures to climate risks should beincluded within the ICAAP.

From July to September 2019 PRA plans to conductmarket-wide stress tests, including climate scenariosfor the first time for insurers. The PRA has indicated thatstress tests for banks are likely to follow.

16

The UK PRA has set out its expectations for banksThe PRA wants to see banks take a strategic, holistic and long-term approach, considering how climate-related risks might impact all aspects of the risk profile

The PRA’s Supervisory Statement takesimmediate effect: firms should take action now

Making sure boards are engaged and equippedConduct a climate governance review to understand whetherexisting governance structures can be made more robust,and provide climate governance training to the board. Identifya suitable SMF(s) to have specific responsibility andappropriate support for identifying and managing climaterisks. The PRA expects firms to submit an updated SMFForm by 15 October 2019

Embedding climate into riskmanagementReview and updating riskmanagement frameworks, policies,management information and boardrisk reports to include consideration ofclimate risk

.Conducting scenario analysisBegin work on scenario analysis toprovide a long-term and strategic viewof how business models andoperations could be impacted byphysical and transition risks


17

Mark Carney on the TCFDSince the June 2017 launch (see below) TCFD supporter organisations have risen from c.100 to 785 asat June 2019

PwC

TCFD Status Report 2019

Key findings:• Disclosure of climate-related

financial information has increasedsince 2016, but is still insufficientfor investors

• More clarity is needed on thepotential financial impact of climate-related issues on companies.

• Of companies using scenarios, themajority do not disclose informationon the resilience of their strategies

• Mainstreaming climate-relatedissues requires the involvement ofmultiple functions

Insurance and climate risk June 2019

TCFD status report update June 2019

19PwC

PwC

How sectors compare

Myth-busting

PwCPwC

Myth-busting: barriers to action

22

It's too long-term to

consider today

It's notmaterial today

We are doingit already

Investorsdon't care

01 02

03 04

Corporate myths around climate risk remain widespread

Introducing theClimate GovernancePrinciples

PwC 24

BackgroundClimate Governance Initiative

• Launched by the World Economic Forum followingencouragement by various Chairpersons and members ofBoards of Directors.

• Seeks to equip boards to develop and supervise businessstrategies that support the transition to a low-carboneconomy, consistent with the ambition of the ParisAgreement, with an appreciation for the inherentchallenges.

PwC 25

“How to Set Up Effective Climate Governance on Corporate Boards: Guidingprinciples and questions”

Climate Governance Initiative

• A set of practical guiding principles andquestions to guide the development of goodclimate governance.

• Designed to help board members practicallyassess and debate their organization’sapproach to climate governance and frametheir thinking about how to improve theirapproach.

• Builds on existing corporate governanceframeworks as well as other climate risk andresilience guidelines.

• Drafting process involved extensiveconsultation with over 50 executive and non-executive board directors, among others.

PwC 26

The Role of Corporate Governance

The Risk

• Long-term board stewardshipresponsibility to shareholders

• Large climate-driven shifts tobusiness landscape areexpected/already in motion

• Many organisations lack the focuson climate governance to respondeffectively

The Opportunity

• Competitive ‘first mover’ advantagefor organisations with strong climategovernance

• Greater ability to identify andmitigate emerging strategic &operational risks

• Greater ability to compete in newmarkets, e.g. low-carbon technology

PwC 27

Climate Governance PrinciplesBoardStructure

The board should determinethe most effective way tointegrate climateconsiderations into itsstructure and committees.

StrategicIntegration

The board should drawupon managementinformation to ensure thatclimate informs strategicinvestment planning,decision making and riskmanagement.

SubjectCommand

The board should havesufficiently diverse skillsand experience torecognise, debate and takeinformed decisions onclimate-related threats andopportunities.

Incentivization

The board should ensurethat executive incentivesare aligned to promote thelong-term prosperity of thecompany, including climate-related targets andindicators where appropriate.

ClimateAccountability

Under its stewardship role theboard should be accountablefor long-term resilience,including climate-relatedchanges to the businesslandscape.

Exchange

The board should maintainregular dialogue withpeers, policy-makers, andkey stakeholders, sharingknowledge, e.g. reportingbest practice, regulatorychanges & emerging risks.

Reporting &DisclosureThe board should ensurethat material climate-relatedrisks, opportunities andstrategic decisions areconsistently andtransparently reported tostakeholders, particularly toinvestors and regulators

MaterialityAssessment

The board should overseemanagement’s materialityassessment of short andlong-term climate risks andopportunities, and alsomanagement’s responses tothese.

CGIPrinciples

What next?

PwC 29

Potential next steps to assess climate governance:What Next?

Get climate on the Board agenda

Understand your current alignment withTCFD recommendations

Assess the quality of current climate governance

Test strategic integration of climate change

01 02 03 04

PwC 30

• Disclosure reviews– Corporate reporting alignment with

TCFD

• Scenario-based analysis of organisationperformance under given conditions

– Modelling 2 degree world, 4 degreeworld, etc.

• Governance reviews– A risk-based approach considering

corporate governance in placearound climate change

– Evaluation of governance practicesagainst World Economic Forumprinciples

1. Understanding of existing processes andcontrols around climate governance &reporting

2. Clarity of board-level versus committee-level governance practices

3. Understanding climate risk andopportunities; identifying riskmanagement gaps

4. Identifying opportunities to establishmarket leading practices

5. Competitive advantage around climateadaptation

Potential next steps What are the benefits

Next steps on climate


31

Our suggested approachImplementing the TCFD’s recommendations is a journey that we see companies taking over the course of2-3 years. This is driven by a balance of regulatory and investor pressure and the realities andcomplexities of implementation.

Establishbaseline andambition

Plan andimplement

Embed andreport

1. AnalysegapsUnderstandyour currentdisclosures andhow theycompare to theTCFD ask.

2. Peer reviewUnderstand whereyour peers and themarket are positionedand headed.

6. EmbedEnsure that staff aretrained on new policiesand processes.Communicate the shiftin thinking on climaterisk.

5. Implement plan(strategic)Initiate more strategicresponses such asscenario analyses andquantifying risk maps.Start to integrate climaterisks into your company’sexisting risk managementframework.

7. ReportDisclose LBG’sprogress in yourjourney towardsmeeting TCFDrecommendations.

4. Implement plan(tactical)Start with tacticalresponses such asgovernance reviews andmateriality assessmentswhich are essential tosuccessfulimplementation.

3. Define ambitionand develop planUnderstand whereyou want to bepositioned.Develop animplementation planand create the rightgovernance structuresaround its delivery.


In order to formulate your approach, a practical first step is tounderstand how your existing public disclosures alignwith the TCFD recommendations and where priority areasto address might lie.

To help companies do this, we have developed a proprietarytool to assess and score the maturity of a company’s existingdisclosures and practices relating to management of climate-related issues.

The tool contains a series of questions addressing each TCFDrecommendation. The questionnaire is completed based on areview of a company’s public disclosures. This could besupplemented with a review of your peers’ public disclosuresand a more in-depth look at your internal practices.

This will provide you with:

★An initial assessment of the alignment between yourpublic reporting and the TCFD recommendations;

★An understanding of how you are positioned againstyour peers; and

★Considerations for what actions are needed to addressthe TCFD recommendations.

32

A practical first step - the TCFD diagnostic tool

Example outputs

PwC 33

Using scenarios analysis to assess climate risks

To help companies do this, we can:

● Conduct a scenario review of existing scenarios eg: IEA, 450,Shell, Greenpeace, IPCC RCP 8.5, and assess the potentialimplications of a 2°C world vs. BAU

● Conduct market analysis to leverage your company’s strengthsand prepare for market disruption

● Develop and test strategies that respond to the risks andopportunities presented by climate change

● Support strategic planning including goal and benchmark settingand evaluation

● Advise on managing your portfolio of assets and liabilities toensure alignment with your climate strategy

A forward-looking strategy, that is robust and considers different climate scenarios, determines thelong-term viability of a company in a world that is constantly changing.

Illustrative outputs

pwc.com

© 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms ofPricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each memberfirm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCILis not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bindthem in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise ofanother member firm’s professional judgment or bind another member firm or PwCIL in any way.

Valérie ArnoldCorporate Responsibility & Sustainability Partner+352 49 4848 [email protected]

Kenny PanjanadenTCFD Leader+352 49 4848 [email protected]

Thank you&

keep in touch!

Also, keep an eye for our follow-up e-mail.Among others, a link to our dedicated TCFDwebsite will be provided with more news.

Shehzad Ahmad SahibSenior Manager+352 49 4848 [email protected]

Jan RosetzkySenior Associate+352 49 4848 [email protected]

Appendices

TCFDRecommendedDisclosures


38

Governance

What the TCFD says

Companies are asked to disclose the extent of the boardand management’s oversight of climate-related risks andopportunities. This includes the process and frequencyby which board committees, such as the auditcommittee, are kept informed and how climate changeissues are considered when reviewing the company’sperformance, strategy and business plans. The auditcommittee’s role in overseeing climate-related financialdisclosures should be the same as with any otherfinancial disclosure.

What we are seeing

Investors are increasingly demanding “climate competent”boards. Global asset manager BlackRock stated that itexpects “the whole board to have demonstrable fluency inhow climate risk affects the business”. Large pensionfunds such as CalPERS and CalSTRS are requestingappointment of directors with climate change expertise totheir portfolio companies.

Shell has tied its executive compensation to climatemetrics. Up to 10% of bonuses is linked to greenhousegas emissions.

Key questions

1) Do board members have a clearpicture of the company’sexposure to climate risksbeyond physical impacts?

2) Does the board have access tocurrent and relevant climateexpertise?

3) Are the right governancestructures in place to manageclimate risks and captureopportunities?

4) Is the audit committeesufficiently informed on thestrategic, business and financialimplications of climate change?

5) Is the audit committee satisfiedthat the financial statementsappropriately reflect materialclimate risks?

We can help

★ Review existing governancestructures and integrate climateissues, allowing appropriateoversight

★ Support board and executiveawareness and education onclimate issues, including briefingpapers and high level analysisof business exposure

★ Conduct internal and externalstakeholder engagement toassess views on climate risksand opportunities to guidemanagement decisions

1 Disclose the extent of board andmanagement’s oversight of climate-related risks and opportunities.A


39

Strategy

What the TCFD says

Companies are asked to disclose what climate-relatedrisks and opportunities they are exposed to and how thiswill impact them, e.g. by affecting demand for theirproducts and services or their supply chain - these couldpotentially impact the income statement and balancesheet. Most importantly, companies are asked to conductforward-looking scenarios on how their businesses willperform in a world where global warming is kept at 2°C.

What we are seeing

Shareholder requests for companies to publish their “2°Ctransition plan”, i.e. how the business plans to manoeuvreas the world transitions to a low carbon economy, areincreasing. Oil and gas companies BP, Shell, Statoil andChevron are amongst the latest companies who havepublished such analysis in response to shareholderresolutions. Whilst the oil & gas sector has been the primetarget thus far, we anticipate pressure on other sectorswill grow. BHP Billiton, a global mining company with coalinterests has published results from its scenario analysis.

Key questions

1) Have you conducted a strategicreview of how climate changecould impact its business (andits funded pension schemes)?

2) Does the executive team havean understanding of thepotential impacts of futurescenarios, including a 2°Cworld, on its business model inthe next 3, 5, or 10 years?

3) Does the company’s strategytoday incorporate theimplications of such scenarioanalysis?

4) Have you considered theopportunities presented byclimate adaptation andmitigation activities to yourbusiness model in differentgeographies?

We can help

★ Conduct scenario analysis toassess the potentialimplications of a 2°C worldvs. BAU

★ Conduct market analysis toleverage your company’sstrengths and prepare formarket disruption

★ Develop and test strategiesthat respond to the risks andopportunities presented byclimate change

★ Support strategic planningincluding goal andbenchmark setting andevaluation

★ Advise on managing yourportfolio of assets andliabilities to ensure alignmentwith your climate strategy

Disclose the actual and potentialimpacts of climate-related risksand opportunities on theorganization’s businesses,strategy, and financial planningwhere such information ismaterial.

B


40

Risk Management

What the TCFD says

Companies are asked to disclose how they identify,assess and manage climate-related risks andspecifically, how the management of climate-related risksis integrated into existing risk management frameworks.The TCFD believes that climate risks are material formany organisations and its framework should helpcompanies evaluate these risks.

What we are seeing

Broadening understanding that climate change generatesmore than just physical impacts. As the world attempts tomitigate climate change, it creates transition risks whichstart at the business end but will wind its way up theinvestment chain. The UK’s Financial Reporting Councilhas identified climate change as one of three principalrisks that companies should consider in their annualreports. Prudential regulators, including those in the UKand EU, Canada and Australia, have expressed concernabout the potential for this to become a systemic risk foreconomies.

Key questions

1) Do you have a clear picture ofyour company’s exposure toclimate risk?

2) Are there processes forprioritising climate risks anddetermining their relativemateriality?

3) Do you have effective riskmanagement processes in placethat integrate climate changeinto enterprise risk managementframeworks?

4) Does your risk or investmentcommittee have adequateoversight of climate risks?

5) Are you able to explain theserisks, and your management ofthem, to investors andregulators?

We can help

★ Identify and assess thematerial climate risks facingyour organisation overall or atthe asset, business unit, orgeographic levels

★ Determine, on a qualitative orquantitative basis, thecompany’s exposure toclimate risks to guidemanagement decision-making

★ Design risk managementprocesses to address climaterisks and integrate intooverall enterprise riskmanagement systems

★ Support awareness andeducation of risk managerson the risks posed by climatechange and the company’srisk management processes

Disclose how the organisationidentifies, assesses, and managesclimate-related risks.

C


41

Metrics and Targets

What the TCFD says

Companies are expected to disclose metrics and settargets that are aligned with the risks and opportunitiesthey have identified as material for their business.Guidance also specifically asks for companies todisclose their Scope 1 and 2 greenhouse gas emissions,and if appropriate, Scope 3 as well. This is in recognitionof the fact that rising emissions are still a key driver ofglobal warming, and big emitters are, arguably, subjectto greater transition risk.

What we are seeing

Companies are continuing to combine their financial andnon-financial reporting into annual reports or self-declaredintegrated reports, with 91% (2013: 86%) of reports havingsome form of assurance on their sustainability disclosures,through external assurance or internal audit assurance.

63 companies in the FTSE100 currently get assuranceover non-financial data and PwC provides assurance over21 of these.

Key questions

1) Have you got the right data andsystems in place to capture allthe information needed todisclose?

2) Are you confident that the datayou are disclosing is completeand accurate and a truereflection of your business?

3) Would your systems and datahold up under scrutiny by aninvestor or other key interestedstakeholder?

4) Are you comfortable that yourbaseline targets are correct andan accurate measure on whichto base future performance?

5) Have you identified metrics andtargets that are genuinelymaterial to your business andmeaningful for your investors?

We can help

★ Define reporting aims andtarget audiences

★ Identify suitable climate-related financial metrics andbest practice

★ Quantify carbon footprint atthe product, process ororganisational level

★ Advise on the design andimplementation of datagathering and reportingsystems which are credibleand auditable

★ Harmonise reportingpractices for globalorganisations and reconcilemultiple standards

★ Engage stakeholders andcollect feedback

★ Provide independent internalor external assurance

Disclose the metrics and targetsused to assess and managerelevant climate-related risks andopportunities where suchinformation is material.

D

- WEFClimateGovernancePrinciples

PwC

What does this principle mean?The board is ultimately accountable to shareholders for the long-termstewardship of the company. Accordingly, the board should be accountable forthe company’s long term resilience with respect to potential shifts in the businesslandscape that may result from climate change. Failure to do so may constitute abreach of directors’ duties.

Sample guiding questions:• Do your board directors consider the risks and opportunities associated with

climate change as an integral part of their accountability for the long-termstewardship of the organisation?

• Do your board directors feel confident in their abilities to explain theirdecisions as informed by the best available information on climate risks andopportunities?

43

Climate accountability on boardsPrinciple 1

PwC

What does this principle mean?The board should ensure that its composition is sufficiently diverse in knowledge,skills, experience and background to effectively debate and take decisionsinformed by an awareness and understanding of climate-related threats andopportunities.

Sample guiding questions:• What steps has your board taken to test that its composition allows for

informed and differentiated debate as well as objective decision-making onclimate issues?

• Who is responsible for climate change at board level and are theseindividuals in positions that will allow them to influence board decisions (e.g.committee chairs)?

• What steps is your board taking to ensure it remains sufficiently educatedabout the relevant climate-related risks and opportunities for its business?

44

Command of the (climate) subjectPrinciple 2

PwC

What does this principle mean?As the stewards for long-term performance and resilience, the board shoulddetermine the most effective way to integrate climate considerations into itsstructure and committees.

Sample guiding questions:• Has your board determined how to effectively integrate climate

considerations into the board committee structures? Are they integrated into(an) existing committee(s)? Or, are they addressed by a dedicated specificclimate/sustainability committee?

• How does your board ensure that climate considerations are given sufficientattention across the board (e.g. being discussed in the audit, risk, nominationor remuneration committees)?

45

Board structurePrinciple 3

PwC

What does this principle mean?The board should ensure that management assesses the short-, medium- andlong-term materiality of climate-related risks and opportunities for the companyon an ongoing basis. The board should further ensure that the organization’sactions and responses to climate are proportionate to the materiality of climate tothe company.

Sample guiding questions:• Is climate considered in company-wide assessments of material risks and

opportunities in the short, medium and long term?• How does your board ensure that the company’s response to climate change

is aligned to the materiality and proportionality of the issue to the business?• Are different climate scenarios being included to inform the assessment of

climate change materiality at your organization?

46

Material risk and opportunity assessmentPrinciple 4

PwC

What does this principle mean?The board should ensure that climate systemically informs strategic investmentplanning and decision-making processes and is embedded into the managementof risk and opportunities across the organization.

Sample guiding questions:• Does your corporate strategy include a holistic climate strategy informed by

scenario analysis, i.e. climate risk mitigation and adaptation as well asbusiness continuity and opportunities?

• Are climate considerations incorporated into the strategic planning, businessmodels, financial planning and other decision-making processes?

• How does the board ensure that climate risks and opportunities areidentified, mitigated, managed and monitored across the company?

47

Strategic and organizational integrationPrinciple 5

PwC

What does this principle mean?The board should ensure that executive incentives are aligned to promote thelong-term prosperity of the company. The board may want to consider includingclimate-related targets and indicators in their executive incentive schemes, whereappropriate. In markets where it is commonplace to extend variable incentives tonon-executive directors, a similar approach can be considered.

Sample guiding questions:• Is the company’s management incentivization scheme designed to promote

and reward sustainable value creation over time?• Are any climate targets and/or goals integrated into management’s

incentivization model? . If so, how do these targets and/or goals relate toother management incentives? Are there any inconsistencies orcontradictions in relation to the other incentives?

48

IncentivizationPrinciple 6

PwC

What does this principle mean?The board should ensure that material climate-related risks, opportunities and strategicdecisions are consistently and transparently disclosed to all stakeholders – particularly toinvestors and, where required, regulators. Such disclosures should be made in financialfilings, such as annual reports and accounts, and be subject to the same disclosuregovernance as financial reporting.

Sample guiding questions:• Does your organization operate in jurisdictions with mandatory climate-related

reporting? Is the board aware and informed about potential mandatory climate-relatedreporting requirements?

• Does the organization report against relevant voluntary climate-related reportingframeworks in your jurisdiction? If not, has the board considered the potential risksassociated with failing to do so?

• Does the board feel confident that the level of climate-related disclosure isproportionate to the materiality of climate-related risks and opportunities at thecompany and complies with any mandatory reporting requirements?

49

Reporting and disclosurePrinciple 7

PwC

What does this principle mean?The Board should maintain regular exchanges and dialogues with peers, policy-makers, investors and other stakeholders to encourage the sharing ofmethodologies and to stay informed about the latest climate-relevant risks,regulatory requirements etc.

Sample guiding questions:• How does your board maintain its awareness about good climate-

governance practices?• Is the board kept regularly informed of, does it approve, and does it

supervise consistent conduct of the company’s industry and public policyengagement?

• How does the board ensure that climate risks and opportunities are beingadequately discussed with investors, where legal and governancearrangements allow for such a dialogue?

50

ExchangePrinciple 8

pwc.com

© 2019 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms ofPricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each memberfirm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCILis not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bindthem in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise ofanother member firm’s professional judgment or bind another member firm or PwCIL in any way.

Valérie ArnoldCorporate Responsibility & Sustainability Partner+352 49 4848 [email protected]

Kenny PanjanadenTCFD Leader+352 49 4848 [email protected]

Thank you&

keep in touch!

Also, keep an eye for our follow-up e-mail.Among others, a link to our dedicated TCFDwebsite will be provided with more news.

Shehzad Ahmad SahibSenior Manager+352 49 4848 [email protected]

Jan RosetzkySenior Associate+352 49 4848 [email protected]

a changing climate for business: an introduction to the tcfd · a changing climate for business: an...

Documents