The Task Force has set out a framework for disclosure, which aims to identify the information needed by investors, lenders, and insurance underwriters to appropriately assess climate change and price climate-related risks and opportunities. Recommended disclosure requirements are structured around 4 themes as set out below.
Governance: Who should be responsible for assessing and reporting on climate-related risks and opportunities?
It is recommended that climate-related financial disclosures are subject to appropriate internal governance processes. For companies with publicly traded debt or equity securities, the Task Force suggests that internal governance for climate-related disclosures should be similar to existing public financial disclosure. This may involve review by the chief financial officer and audit committee. For other companies, climate related disclosures should follow similar review and approval protocols currently used for similar communications. Utilising existing governance systems will help companies to integrate climate-related financial disclosures. The Task Force recommends both disclosure of the board’s oversight of climate-related risks and opportunities and management’s role in assessing and managing those risks and opportunities.
Strategy: What are the actual and potential impacts of climate change?
Investors need to understand how climate change may affect company strategy. The Task Force recommends that companies analyse and disclose:
- the climate-related risks and opportunities that the company has identified over the short, medium and long term;
- the impact of climate-related risks and opportunities on business, strategy and financial planning; and
- the potential impact of different climate scenarios, including a 20C-compatible scenario.
Risk management: What processes are used to address these impacts?
The Task Force recommends that companies disclose their processes for identifying, assessing and managing risk, and how these fit into the company’s overall risk management strategy to allow investors and other stakeholders to assess the company’s overall risk profile and risk management activities.
Metrics and targets: What data sources and methodologies can be used to measure these impacts?
It is necessary that companies disclose the metrics and targets that have been used in assessing risk to allow investors to analyse any disclosures made, and allow companies to be compared within a sector or industry.
In addition, the Task Force has developed specific guidance for the financial sector as well as certain non-financial sectors that are considered to be most affected by climate change – energy, transportation, materials and buildings, and agriculture, food and forest products. Companies operating in these sectors should consider the Task Force’s recommendations in formulating a disclosure framework that best fits their business.