TCFD implementation webinar series - risk management with HSBC (PM)
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Although some organisations have begun to apply traditional enterprise risk management (ERM) processes to the identification, assessment, and management of climate-related risks, the practice is not yet widespread or well developed. Lacking reliable information about how these risks are managed, investors are unable to properly evaluate the risk profile of an organisation or its securities. During this webinar, CDSB and HSBC offer insight into the key characteristics of effective risk management practices and what good practice disclosure looks like in line with the TCFD recommendations.
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TCFD implementation webinar series - risk management with HSBC (PM)
- 1. January 20 | Tweet @CDSBGlobal TCFD implementation webinar: How to improve your TCFD risk management disclosures Nontokozo Khumalo, Corporate Engagement Manager, CDSB Gemma Rastelli, Senior Manager, Sustainable Finance, HSBC Moderated by: Lesley McKenna, Climate Disclosure Standards Board
- 2. January 20 | Tweet @CDSBGlobal TCFD Implementation Webinar Series 2
- 3. January 20 | Tweet @CDSBGlobal Q. How would you describe your understanding of the TCFD recommendations? I am an expert I am confident, but need to understand some elements I have some knowledge, but need support I have little knowledge TCFD Implementation Webinar Series
- 4. January 20 | Tweet @CDSBGlobal To create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting. Climate Disclosure Standards Board Board Technical Working Group
- 5. January 20 | Tweet @CDSBGlobal Climate Disclosure Standards Board 5 Reporting Requirements REQ-01 Governance REQ-07 Organisational boundary REQ-02 Management’s environmental policies, strategy and targets REQ-08 Reporting policies REQ-03 Risks and opportunities REQ-09 Reporting period REQ-04 Sources of environmental impact REQ-10 Restatements REQ-05 Performance and comparative analysis REQ-11 Conformance REQ-06 Outlook REQ-12 Assurance cdsb.net/Framework The CDSB Framework
- 6. January 20 | Tweet @CDSBGlobal Introduction to the TCFD
- 7. January 20 | Tweet @CDSBGlobal 7 Why? 7 • Lack of disclosures on the financial implications on the climate-related aspects; • Inconsistencies in disclosure practices; • Lack of context for information; • Use of boilerplate, and non-comparable reporting; and • Lack of consistent information hinders investors and others from considering climate-related issues in their asset valuation and allocation processes. TCFD Implementation Webinar Series
- 8. January 20 | Tweet @CDSBGlobal 8 TCFD recommendations 8 Overview 1. Voluntary 2. Report climate-related financial disclosures in the annual financial filings (mainstream report) 3. Financial sector & high risk non-financial sectors 4. Transition risks & physical risks (and opportunities) 5. Scenario analysis & forward-looking information 6. Short-term, medium-term & long-term 7. Qualitative & quantitative disclosures Governance Strategy Risk Management Metrics and Targets TCFD Implementation Webinar Series
- 9. January 20 | Tweet @CDSBGlobal What are companies doing?
- 10. January 20 | Tweet @CDSBGlobal TCFD Status Report 2019 10 Key Themes and Findings Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors. More clarity is needed on the potential financial impact of climate-related issues on companies. Of companies using scenarios, the majority do not disclose information on the resilience of their strategies. Mainstreaming climate- related issues requires the involvement of multiple functions. TCFD Implementation Webinar Series
- 11. January 20 | Tweet @CDSBGlobal 11TCFD Implementation Webinar Series Recommendation Recommended Disclosure Banking Energy Materials & Buildings Transportation Average Disclosure Europe North America Risk Management a. Risk ID & Assessment Processes 52% 38% 41% 23% 32% 45% 26% b. Risk Management Processes 46% 42% 39% 17% 31% 41% 33% c. Integration into Overall Risk Management 32% 21% 18% 11% 17% 24% 8% Analysis of disclosure
- 12. January 20 | Tweet @CDSBGlobal Core element: Risk management
- 13. January 20 | Tweet @CDSBGlobal 13 Governance Strategy Metrics and Targets Disclose the organization’s governance around climate- related risks and opportunities. Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. a) Describe the board’s oversight of climate-related risks and opportunities. a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. a) Disclose the metrics used by the organization to assess climate- related risks and opportunities in line with its strategy and risk management process. b) Describe management’s role in assessing and managing risks and opportunities. b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c) Describe the resilience of the organisation’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario. c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. Risk Management Disclose how the organization identifies, assesses, and manages climate-related risks. a) Describe the organization’s processes for identifying and assessing climate-related risks. b) Describe the organization’s processes for managing climate- related risks. c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. TCFD Implementation Webinar Series
- 14. January 20 | Tweet @CDSBGlobal Types of risk Transition risk • Policy and Legal e.g.: Exposure to litigation, carbon pricing • Technology e.g.: Substitution of existing products and services with lower emissions options • Market e.g.: Increased cost of raw materials • Reputation e.g.: Shifts in consumer preferences 14 Physical risk • Acute e.g.: Increased severity of extreme weather events such as cyclones and floods • Chronic e.g.: Changes in precipitation patterns and extreme variability in weather patterns TCFD Implementation Webinar Series
- 15. January 20 | Tweet @CDSBGlobal Risk management 15 Describe the organization’s processes for identifying and assessing climate-related risks. Consider including a discussion of: • How do you determine the relative significance of climate-related risks vs other risks? • Do you consider existing and emerging regulatory requirements related to climate change? • Existing risk classification frameworks used? TCFD Implementation Webinar Series
- 16. January 20 | Tweet @CDSBGlobal Risk management 16 Describe the organization’s processes for managing climate-related risks. Consider including a discussion of: • How do you make decisions to mitigate, transfer, accept, or control those risks? • How do you prioritise climate-related risks? • How are materiality determinations made within your organisation? TCFD Implementation Webinar Series
- 17. January 20 | Tweet @CDSBGlobal Risk management 17 Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. TCFD Implementation Webinar Series
- 18. January 20 | Tweet @CDSBGlobal Risk management 18 What do investors want to know? Survey respondents identified the value of: • Having clear definitions of the categories and specific channels of risk the companies identified in the example as material. • Greater clarity around the process by which companies prioritized risks, and how this prioritization may change over time in response to actions taken by the company to mitigate these risks. • More information about how a company’s risk management process informed the board’s decisions around strategic resilience. TCFD Implementation Webinar Series
- 19. January 20 | Tweet @CDSBGlobal HSBC
- 20. 20 Increasing expectations from across stakeholder groups PUBLIC Embedding Sustainability into Strategy . 1 Investors Consumers Other stakeholders Long-term corporate performance
- 21. 21 How does HSBC think about sustainability? PUBLIC Embedding Sustainability into Strategy GovernanceEnvironmental Social Low carbon transition Gender Mental health Cyber security Financial Crime Compliance Our operational sustainability 2 ESG rating: ‘Outperformer’ US$100bn sustainable finance target Improve customer satisfaction in eight scale markets Improved employee engagement Our customers Our people
- 22. 22 Environmental: Supporting the global transition to the low-carbon economy PUBLIC Embedding Sustainability into Strategy 3 Source: HSBC ESG Update – published 8 April. www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies Task Force on Climate-related Financial Disclosure (‘TCFD’) Sustainable Finance • Target: $100 billion of sustainable financing and investment to be provided and facilitated by 2025 • Progress: $28.5 billion cumulative progress since 2017 Sector % of total wholesale loans and advances to customers and banks in 2018 Oil & Gas ≤ 3.9% Building & Construction ≤ 3.8% Chemicals ≤ 3.9% Automotive ≤ 3.4% Power & Utilities ≤ 3.0% Metals & Mining ≤ 2.8% Total ≤ 20.8% Sustainable Operations • Target: 100% of our electricity will be from renewable sources by 2030 • Progress: 29% signed renewable electricity from power purchase agreements
- 23. 23 Climate Risk disclosure – year end 2018 PUBLIC Embedding Sustainability into Strategy 4 Source: HSBC ESG Update – published 8 April. www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies
- 24. 24 TCFD disclosure – year end 2018 PUBLIC Embedding Sustainability into Strategy 5 Source: HSBC Annual Report – published February 2019
- 25. January 20 | Tweet @CDSBGlobal Tips for implementation
- 26. January 20 | Tweet @CDSBGlobal 7 top tips for effective disclosure 1. Adopt the correct lens for looking at climate-related risks 2. Make holistic disclosures 3. Distinguish between climate leadership and management 4. Explain how you assess the material risk of climate change to your business 5. Disclose using existing standards and metrics 6. Make as many of the 11 recommended disclosures are you can 7. Put it in your mainstream report 26TCFD Implementation Webinar Series
- 27. January 20 | Tweet @CDSBGlobal 27TCFD Implementation Webinar Series HSBC’s top tips Become an internal disruptor Get the board on board
- 28. January 20 | Tweet @CDSBGlobal Where to learn more? tcfdhub.org CDP helps companies collect, report and structure their data. SASB will help companies understand what is material to their organisation. CDSB helps companies integrate the financially material information into their annual reports. 28 ww.cdsb.net/tcfdguide ww.cdsb.net/tcfdhandbook learn.tcfdhub.org ww.corporatereportingdialogue.com TCFD Implementation Webinar Series
- 29. January 20 | Tweet @CDSBGlobal Questions? Nontokozo Khumalo Climate Disclosure Standards Board With the contribution of the LIFE Programme of the European Union. Hosted by CDP Europe. Gemma Rastelli HSBC info@cdsb.net
Notas do Editor
- The Climate Disclosure Standards Board is a consortium of 9 environmental and business NGOs. We were set up in Davos in 2007 with a mission to create the enabling conditions for material climate change and natural capital information to be integrated into the mainstream report.
- The 7 principles and 12 requirements of the CDSB Framework 7 guiding principles (the how) 12 reporting requirements (the what) Fully aligned with the TCFD recommendations and principles – and the TCFD was developed based on the CDSB Framework and other leading reporting frameworks Therefore, complementary to existing reporting provisions (CDP, GRI, SASB) and existing regulations Referenced in the EU NFRD guidance and stock exchange guidance globally
- The TCFD was set up in 2015 to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. They specifically considered the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. What makes the TCFD different?
- Now before we dive into the details, let’s take a look at the four key themes and findings that emerged from the report. The 2019 Status report tells us that, despite support for the TCFD rising by more than half since last September, companies are still finding it a challenge to implement the recommendations resulting in insufficient disclosure for investors. More clarity is needed on the potential financial impact of climate-related issues, the majority of companies do not disclose information on resilience and, finally, mainstreaming climate-related issues requires the involvement of multiple functions. Given the urgency of the situation and the scale of the challenge, these findings are concerning. The financial risks that climate change presents to the global economy are enormous. In fact, the United Nations states that delays in tackling this issue could cost companies nearly $1.2 trillion over the next 15 years. In the upcoming slides, we’ll explore these key themes in more detail, discuss some of the most significant statistics from the report and action needed moving forward. 78% aligned with at least 1 of the recommendations disclosures 4% of companies aligned with at least 10 of the recommended disclosures
- The Banking industry generally had the highest percentages across the recommended disclosures. However, other industries had higher percentages for specific recommended disclosures such as strategy but not in the case of Risk Management. Average disclosure is XXX. Given the timing of this webinar, we can assume most attendees are based in Europe and Asia Pacific and for this reason I have focussed on these two regions. A full breakdown of disclosure across all regions can be found in the second status report.
- Pop out core element
- These are some key takeaways on what constitutes decision-useful information from an investor survey on TCFD disclosures conducted by one of our board members, SASB. It is useful her in terms of what is the nature of disclosures required by investors. Do these reasonate with you?
- These are 7 top tips for developing and refining climate-disclosures. 1. We have found in reviewing reports that some report preparer are confused by the orientation For TCFD, we are looking at the impact of the climate on the business not the converse. 2. Disclosures are interconnected and mutually reinforcing. Ensuring the connectivity of information is key. This includes linking financial and non-financial finroamtion. 3. We found governance disclosures muddled. Explain how the board exercises its oversight function of climate risks and how this differs from managers’ roles and responsibilities. This is a distinction between climate leadership and management – both are important hence the two recommended TCFD disclosures. 4. The process for assessing materiality was often absent from disclosures. We found that beyond scope 1 and 2 emissions, climate-related disclosures differs from company to company and within indsutries. There are existing standards and metrics that can be used to help make your TCFD disclosures. You don’t drive a car with three wheels instead of four [may change analogy], why would try to tell your story of how you are identifying, assessing and managing climate risks to investors without giving them the full picture The annual report is aimed principally at investors. It allows you to put climate-related information on the same level of rigour as financial information. It allows you to make key linkages there. If it is in the mainstream report it matters. Overall, we are moving along the TCFD implementation path with more companies and disclosures, let’s keep going, learning-by-doing and refining our evolving practice. Don’t let the perfect be the enemy of the good when making your climate-related financial disclosures. This is an evolving area. Now I will turn back to Katie on what next?
- Nadine: - Now that we have identified some top tips from the good practices in this year’s disclosure cycle, we would like to share with you a snapshot of the ample resources that are available to help you implement the TCFD. We suggest you start with our twin resources – the guide and handbook. We also wish to draw your attention to the Corporate Reporting Dialogue’s Better Alignment Project report (being launched tomorrow) – this will be of particular interest in the context of the 50 illustrative metrics from the TCFD and how a report preparer can use CDP, SASB or GRI metrics to make some of the quantitative disclosures suggested by the TCFD. It also shows how the five leading framework and standard setters, including SASB and CDSB are collectively aligned to the TCFD principles for effective disclosures and recommended disclosures. It provides a mapping of how we fit together in the context of climate. The World Economic Forum’s climate governance principles, our implementation guide and this good practice handbook are examples of what you will find on the TCFD Knowledge Hub. The Hub is powered by CDSB and an online aggregator for publicly available resources, events, and case studies relating to the TCFD. E-learning courses on making climate related financial disclosures were developed by CDSB and launched earlier this month. We encourage you and your colleagues to test your knowledge, and this provides an excellent introduction or refresher to climate-related financial disclosures.