A super yacht is beached in Hong Kong followed typhoon Mangkhut in September 2018. Under TCFD, companies are urged to consider the impact of climate change on their business models
Luxembourg’s central bank is among the three dozen to have signed up to the Task Force on Climate-related Financial Disclosures (TCFD).
Speaking on Thursday at PwC Luxembourg, PwC UK partner John Williams said: “Globally, there are now 36 central banks who have said that climate change is a financial risk, that it is a matter of financial stability and we’re going to put in place regulation and guidance to make sure it comes under our supervision or under our financial conduct, if you’re an asset manager,” he said.
Despite being voluntary, Williams said that the 11 recommendations contained in the report have resulted in action in the market. According to the June 2019 status report, 785 companies, $9.3 trillion of market capital and just under 400 investment companies with financial assets of $118 trillion--over half of the entire value of debt in capital markets in the world--had signed up to implement TCFD.
Climate-related disclosures insufficient for investors
Williams shared the key findings in the latest status report, which analysed 1,100 companies across the G20 countries, using an AI tool to extract disclosures from reports. Among other things, it concluded that climate-related financial information had increased since 2016 but was still insufficient for investors. It also found that further clarity was needed on the potential finance impact of climate-related issues on companies.
Williams peer reviewed the task force’s initial 18-month market review, which was prompted by the Bank of England governor Mark Carney in 2013. It concluded that climate change was the most significant risk to financial stability that wasn’t being managed.
“It didn’t matter what your views were on climate changing,” Williams said, adding that it was about actors considering scenarios and understanding their impacts on the company’s strategy, its business plan and financial performance.
Everybody is going to be impacted
PwC Luxembourg partner and CR leader Valérie Arnold was swift to stress that it was important for companies to consider both their impact on the climate and the impact of climate change on their business model. “Everybody is going to be impacted to a certain extent,” she said.
Reflecting on the progress made so far of individual companies, Williams said that a standard observation of PwC customers who had committed to TCFD was that few had a plan. His advice was to approach the matter by putting governance in place first then a risk strategy. “We say start with good governance then have a proper discussion with the right people around the table and say what are the likely scenarios in the short- and long-term. If you’ve mapped out where you think you’re exposed, focus on that, then do the numbers scenario,” he said on 4 July.
He added that it was unlikely customers could build this approach into their next reporting period unless they are well advanced. “Most will expect it’s a 3-5 -year journey,” he said.