Integrating Climate Risks in Financial Decision-Making – The Task Force on Climate-Related Financial Disclosure (TCFD)

As we head towards a warming, albeit net zero future, it’s hard to say which companies will endure, flourish or dwindle as the environment changes, regulations evolve, new technologies emerge, and customer behaviour shifts. Without reliable climate-related financial information, financial markets cannot price climate-related risks and opportunities correctly and may potentially face a rocky transition to a low-carbon economy. That’s why The Financial Stability Board established the TCFD in 2015 to develop climate-related disclosures that “could promote more informed investment, credit [or lending], and insurance underwriting decisions” and, in turn, “would enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.”

Aimed predominantly at large corporates, investors and banks, the hope is that better information will allow companies to incorporate climate-related risks and opportunities into their risk management and strategic planning processes. As this occurs, companies’ and investors’ understanding of the financial implications associated with climate change will grow, empowering the markets to channel investment to sustainable and resilient solutions, opportunities, and business models.

Disclosure is recommenced on the governance of climate risks across the business, including board oversight, financial planning and management practices.

How do we help clients with TCFD?

We help clients to disclose their climate risk and opportunities, develop scenarios to understand climate impacts on their business and quantify the costs and upside on their bottom lines. Using the task force’s outlined specific recommendations, we assist clients in disclosing details of the following four areas:

1. Governance – Disclosing an organisation’s governance around climaterelated risks and opportunities. These are the top-down administrative policies for climate-related risks and opportunities, and how these issues are addressed at the board and management levels.

2. Strategy – Disclosing impacts of climate-related risks and opportunities on organisation’s business, strategy, and financial planning. Here we take a look at the resilience of your organisational strategy to manage climaterelated scenarios.

3. Strategic Planning Risk Management – Disclosing how a client would identify, assess, manage climate-related risks, and integrate these into the broader risk management strategy. This includes Physical and Transition Risks, Resource Efficiency, energy, and Markets.

4. Metrics and targets – Disclosing metrics and targets required to evaluate and handle relevant climate-related risks and opportunities. We can assist clients with mapping scope 1, 2, and 3 GHG emissions and set the targets they could use to manage risks and opportunities.

Physical risks are environmental events like floods or storms, whereas transition risks arise from changes in policy and new technologies, such as the growth of renewable energy.

Our TCFD reporting service includes the following:

• Gap analysis – we review your existing climate strategy and disclosures to see which recommendations they meet and prioritise where to focus for compliance should be.
• Scenario modelling – we map your carbon footprint, look for hotspots, and identify realistic interventions. For example, raw material substitution, using technological improvements to improve manufacturing process, routing, consumer behavioural change, and end of life treatment.
• Supply chain resilience – we help implement a more comprehensive approach to looking at your supply chain optimisation by combining strategy resilience and sustainability.
• Roadmap – we define the duration and timeline for selected strategies.
• Risk analysis – we investigate both physical and transition risks relevant to your business.
• Recommendations – as well as providing clients with as many applicable recommended disclosures as possible, we help identify areas for improvement.

If you want to better understand the new strategic landscape in climate disclosure, its implications through the business hierarchy and the opportunities for competitive advantage, we’re here to help. Please contact Alfa’s Principal Consultant Seyed Ebrahimi seyed.ebrahimi@alfaenergy.co.uk

Alfa Energy Group

Alfa Energy Group, an Edison Energy company, is an international energy, sustainability and technology consultant partner with 250 employees over 3 international locations. For over 25 years, Alfa has been servicing its clients’ needs through energy and water management, sustainability, and compliance consulting, and an intuitive ecosystem of user-driven energy, water, and carbon management software platforms. With coveted awards, an international industry-wide recognition, and clever simple solutions, today Alfa is partnering with clients to establish and deliver pivotal net zero strategies. Through smart energy management, the expertise and diligence of its people, transparent processes, and data management, Alfa continues to lead through its recognised gold standard of service delivery.

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