FSB's Task Force on Climate-Related Financial Disclosures (TCFD) is seeking views on the decision-useful, forward-looking climate metrics for firms in financial sector, with the consultation ending on January 27, 2021. TCFD also published guidance on integrating climate-related risks into existing risk management processes and guidance on climate-related scenario analysis for non-financial firms. The guidance on scenario analysis is intended to assist non-financial companies interested in using climate-related scenarios as part of their efforts to implement the TCFD recommendations. It is expected to guide companies through the elements, considerations, challenges, limitations, pitfalls, and questions they may face in undertaking climate-related scenario analysis.
The consultation on forward-looking climate metrics asks questions about the usefulness and challenges of such metrics and what may be necessary to enhance their comparability, transparency, and rigor. Through public consultation, TCFD aims to better understand the evolution of metrics used and disclosed by companies in the four financial groups that were identified in its 2017 supplemental guidance: asset owners, asset managers, banks, and insurance companies. Such metrics may focus on carbon and other emissions or other financially relevant factors. Weighted average carbon intensity and other carbon foot printing metrics provide some visibility into the carbon exposure of certain assets at a fixed point in time. Although still useful for decision-making, past carbon exposures provide little insight into potential future exposure. Financial sector organizations may also use forward-looking metrics to assess climate-related risk and opportunity outside of carbon exposure. Other forward-looking metrics could focus on physical climate-related risk, future valuations of specific assets, and applications of climate within more traditional financial valuation metrics. One example of a forward-looking financial metric is climate Value-at-Risk. TCFD will take consultation responses into consideration to determine whether further financial sector guidance on forward-looking metrics is needed.
The guidance on integration of risk management and disclosures is aimed at companies that are interested in integrating climate-related risks into their existing risk management processes and disclosing information on their risk management processes in alignment with the TCFD recommendations. The guidance is intended to cover a wide range of companies—from banks and insurance companies to various types of nonfinancial companies, including energy; building and materials; and agriculture, food, and forest products companies. In addition, as with its recommendations in general, TCFD expects this guidance to be useful to companies of all sizes and located in various countries worldwide. The guidance:
- describes the unique characteristics of climate-related risks that are important to consider when integrating such risks into existing processes.
- explores the practicalities of integrating climate-related risks into existing risk management processes.
- describes features of decision-useful risk management disclosures as well as examples of companies’ disclosures.
- provides, via Appendices, further information on topics covered in the guidance, including transition and physical risk definitions, additional information to support integration, and references.
- Consultation on Climate Metrics (PDF)
- Guidance on Risk Management Integration (PDF)
- Guidance on Scenario Analysis (PDF)
Comment Due Date: January 27, 2021
Keywords: International, Banking, Insurance, Securities, TCFD, Disclosures, Scenario Analysis, Climate Metrics, Climate Change Risk, ESG, 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.
Previous ArticleFASB Publishes Proposals Related to Reference Rate Reform
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.