We support initiatives aimed at assigning more weight to climate-related information in corporate operations. We back the TCFD’s recommendation that all companies should prepare climate-related financial disclosures: “better information will help investors engage with companies on the resilience of their strategies and capital spending, which should help promote a smooth rather than an abrupt transition to a lower carbon economy”.1
Only by including climate-related disclosures in mainstream financial reporting will investor audiences who may have not had exposure to such information in the past be able to scrutinise this aspect of companies’ sustainability performance. The aspects that are subject to such disclosure, including governance, strategy, risks and opportunities, as well as inventories, targets, and progress, correspond to the general rating criteria that we apply in our analysis across industries.
Our Corporate Rating for banks, insurance companies, asset owners and asset managers already requires disclosure beyond current reporting standards and obligations with regard to the indirect impact of companies’ portfolios. We therefore welcome the TCFD’s recommendations for the financial sector. Ideally, information on progress, such as greenhouse gas emissions avoided in lending or underwriting as a result of a company’s decarbonisation strategy, should also be included.
To enable a meaningful analysis and assessment of the climate-related data disclosed, stringent data quality requirements are paramount. We welcome the Task Force’s call to improve data quality. This includes, for example, methodologies for measuring ‘Scope 3’ indirect emissions. These arise within a given company’s supply chain, and in some industries can account for the bulk of emissions. The Task Force also extends its call for further research into how to better measure and understand the (potential) financial impact on an organisation’s future cash flow and its assets and liabilities as a result of climate-related issues. We agree with the TCFD’s view that such information will enable investors, lenders, and insurance underwriters to make more informed financial decisions.
Outlook
Implementation of the TCFD recommendations should focus on synergies with existing reporting standards, such as the Global Reporting Initiative and the Climate Disclosure Project. Streamlining is necessary in order to avoid duplication of efforts, and limit the additional workload for companies that are already frontrunners with respect to climate-related disclosures. Close attention should be paid to the selection of information to be disclosed, so that where comprehensive financial reporting already exists it remains feasible.
oekom’s approach to rating companies on their climate performance
oekom research has more than 24 years of experience rating companies and countries on sustainability themes. We assign a high level of importance to companies’ climate performance. Several aspects of our rating criteria cover climate strategy, such as target setting and risk assessments, as well as sector-specific topics, including what energy sources firms use or the energy efficiency of their products.
As well as information included in the rating, oekom’s Carbon Risk Rating offers a separate comprehensive assessment of the carbon performance of companies, based on over 100 mainly sector-specific indicators and a carbon risk classification at industry and sub-industry levels. The oekom Fossil Fuel Screening gives further information on companies’ activities related to coal, oil and natural gas.
1 Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017, https://www.fsb-tcfd.org/publications/final-recommendations-report/
