The Task Force on Climate-related Financial Disclosures (TCFD) is seeking comments on the proposed guidance on climate-related metrics, targets, and transition plans as well as the associated technical supplement on measuring portfolio alignment. This proposed guidance includes changes to the Guidance for All Sectors and the Supplemental Guidance for certain sectors in the 2017 TCFD Final Report and Implementing the TCFD Recommendations. The proposed updates to the earlier TCFD guidance involve new data for metrics and disclosures, reflect increasing demand from stakeholders for clarity and standardization/comparability, and result from increasing commitments by organizations and jurisdictions to achieve net-zero emissions. The comment period for this consultation ends on July 18, 2021 and TCFD expects to release the final guidance in the Fall of 2021.
TCFD envisions the Fall 2021 guidance to include two distinct publications: a standalone Metrics, Targets, and Transition Planning document (comprising the final language from Sections A, B, C, D, and E of this report) and a separate document updating the TCFD Implementation Guidelines (comprising the changes found in Appendix 1: Proposed Changes to Guidance and Supplemental Guidance). A number of developments around climate-related metrics and areas warranting further guidance motivated the proposed guidance laid out in this document. Since the TCFD issued its Final Report in 2017, there has been significant progress in the following areas of disclosure, particularly related to transition risks:
- Scope 3 emissions. Interest in Scope 3 emissions and the risks they pose to the value chains of companies and for investors has increased, including developments that inform the circumstances in which Scope 3 emissions disclosures are appropriate.
- Financed emissions. Disclosure of Scope 3 emissions also supports and advances the calculation of financed emissions by financial institutions. The Global Carbon Accounting Standard, developed by the Partnership for Carbon Accounting Financials or PCAF, has proposed a set of financed emissions metrics, by asset class, in line with the Greenhouse Gas Protocol.
- Definition of carbon-related assets. While TCFD identified a number of non-financial groups as being more likely to face increasing financial risk from climate-related issues, it initially defined carbon-related assets as only those in the energy sector group. A number of important developments have identified a wider group of sectors subject to material climate-related risks.
This progress in the disclosure areas, among other factors, has resulted in certain areas warranting additional guidance. In the 2019 TCFD survey, 75% of surveyed organizations indicated that the Metrics and Targets recommendation is somewhat or very difficult to implement. The top implementation issue identified by preparers was the lack of standardized industry metrics and one of the top disclosure improvements requested by users was the disclosure of standard, industry-specific, climate-related metrics. Furthermore, given the continued low levels of disclosure of climate-related financial impacts, TCFD believes it is important to provide additional guidance on estimating these impacts, including use of climate-related metrics as key inputs to estimation. This proposed guidance is intended to encourage better alignment between climate-related metrics and targets and the elements of financial reporting specified in the 2017 TCFD final report (revenues, expenditures, assets, liabilities, capital, and financing). Finally, as many countries, jurisdictions, and companies set the greenhouse gas reduction targets, including those around net-zero emissions, both users and preparers are looking for more clarity on how to measure the impact of potential decarbonization pathways, assess portfolio alignment, and track progress over time. To this end, TCFD believes additional guidance on climate-related metrics and targets will encourage a more systematic approach to their selection and disclosure and further align the Metrics and Targets pillar with the other TCFD pillars of Governance, Strategy, and Risk Management. TCFD believes that guidance around transition planning and its relation to metrics and targets would also be helpful.
Related Link: Guidance and Technical Supplement
Comment Due Date: July 18, 2021
Keywords: International, Banking, Insurance, Securities, Climate Change Risk, ESG, Disclosures, Portfolio Management, Net Zero Economy, Paris Agreement, TCFD Recommendations, Transition Risk, TCFD, FSB
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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