Climate change is no longer an issue that corporates can sweep under the carpet or wish away but have to deal with it. It poses a significant risk to businesses and the financial systems worldwide, not to mention the harm it’s causing to society and ecosystems. Due to these impacts, investors are becoming more sensitive to how companies handle their risk exposure and try to mitigate their contributions to climate change. Because of the importance of the matter, investment companies are prioritizing TCFD recommendations this year to ensure they implement them and make their positive contribution to alleviating the risks.
What Are TFCD Recommendations?
The Financial Stability Board formed the Task Force on Climate-related Financial Disclosures (TCFD). It was meant to make better and broaden reporting of financial information related to climate change. The task force released in 2017 several recommendations intended to help companies make better their disclosure to investors about their financial risks linked to climate change.
What Are the Contributions of TFCD recommendations?
Although there were other disclosure frameworks, TFCD recommendations make a significant input. They form a structure for companies to identify better, manage, and disclose climate-associated risks and opportunities. Consequently, there is more valuable data for businesses themselves, investors, and other parties with various interests in those companies.
These recommendations from the TFCD are different from other reporting frameworks. They are not prescriptive but instead make the company involve itself in a constructive exercise that helps in internal decision-making. Reporting using the TFCD recommendations goes a long way to fill the gap that is there for consistent, relevant, or comparable data.
Which Risks Do Climate Change Pose to Investors?
As some of the key stakeholders in the business, investors face some risks due to climate change. These include:
- Floods and other effects of climate change can lead to the destruction of crops, leading to losses.
- Hurricanes can damage properties and other investments.
- Rising sea levels may destroy coastal resorts and other investments.
- Companies not taking the necessary measures to mitigate their contribution to the climate change risk exposure to negative publicity, legal suits, and financial losses.
- An increase in regulatory requirements to deal with climate changes may make operating companies more costly due to the need to comply, necessitating spending on various protective mechanisms.
TFCD recommendations come in handy for companies to quantify the risks and opportunities posed by climate change and take various measures. And as the business endeavor to be transparent about their risk management process, they need to focus on materiality. This means they explain what they deem to be relevant and how that influences the climate change strategies.…