September 24, 2020 – Vigeo Eiris and Four Twenty Seven Report. The TCFD recommendations helped to catalyze a global conversation on the need for increased climate risk assessment and disclosure. While there is much progress still to be made, there has recently been significant developments in the uptake and quality of TCFD-aligned climate risk disclosures. This report explains Vigeo Eiris’ new TCFD Climate Strategy Assessment dataset, sharing key findings of how firms’ disclosure align with each element of the TCFD framework and includes a case study on how companies’ risk reporting compare to their physical risk exposure.
Consistent climate risk disclosure is essential to improving market transparency and building a more resilient financial system. As devastating extreme events, regulatory developments and investor pressure have led to an increase in climate risk disclosure, the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations have become a global reference. Moody’s affiliate Vigeo Eiris’ new TCFD Climate Strategy Assessment dataset provides a granular view of how 2,855 companies report in line with TCFD recommendations.
This new Vigeo Eiris and Four Twenty Seven report, Measuring TCFD Disclosures, explores the key findings from this assessment, highlighting companies’ disclosures in governance, strategy and risk management. We find that while 30% of companies have identified at least one climate-related risk that may affect their business, only 3% have disclosed enhanced due diligence for projects and transactions. The report highlights examples from the three sectors of energy, electric & gas utilities and diversified banks to compare reporting for several indicators within each TCFD category. It includes a case study on the energy sector to review how companies’ physical risk exposure compares to their risk disclosure. Based on Four Twenty Seven’s data on physical climate risk, we find that there is still significant discrepancy between how companies are exposed to climate risk and what they disclose. This is essential for investors to understand when leveraging disclosures to assess their own risk exposure and when engaging with companies around improving climate risk assessment and disclosure.
- 30% of the companies have identified at least one climate-related risk that may affect their business and strategy over the short, medium and long term.
- Physical risks are most frequently reported, followed by policy and legal risks.
- 15% of the companies report on having assigned climate-related responsibilities to management.
- 16% have established processes to inform board members about climate change issues.
- 12% of all assessed companies report the development of products or services that contribute to the low-carbon economy, making it the most common Strategy disclosure.
- Only 8% of the European and 7% of the North American companies in the panel disclosed climate change as a material factor in their financial planning.
- Risk Management:
- 30% of the assessed energy companies report using an internal carbon price.
- Enhanced due diligence for projects and transactions remains a minority practice, with only 3% of companies disclosing information on this specific recommendation.