How to Use TCFD to Build Investor Confidence

February 16, 2022

Climate change is rapidly rising on the agenda of major investors around the world. Pension funds, asset managers and other major capital allocators have recognized the financial materiality of the risks and opportunities associated with the transition to a net-zero economy and the physical impacts of a warming world. For investors, these financial impacts manifest through portfolio exposure to companies and assets they invest in, which is driving a need for more information on climate-related risks and opportunities. Investors are keen to know how these risks and opportunities are being managed and the true value of their holdings.

The Task Force on Climate-Related Financial Disclosures (TCFD) and its 11 recommendations provide a lens for investors to assess a company’s approach to climate change. The framework offers companies the tools to develop and communicate their approach in a standardized and comparable format. So how do companies use the TCFD to build investor confidence? We outline this below using the TCFD’s four thematic pillars: governance, strategy, risk management, and metrics and targets.

1. Governance: a board and management-level issue

The TCFD’s governance recommendations aim to help businesses identify how climate change needs to be treated as a board-level issue and how senior management should show leadership. Companies can use this guide to ensure their board members and associated committees have oversight of the company’s approach to climate change and allocate responsibility to senior executives. Having strong governance structures on climate change, including clear agendas and job descriptions, helps communicate to investors that the board and executives have a broad view of financial risks and opportunities. 

2. Strategy: a lexicon of climate risks and opportunities

The TCFD provides a lexicon of climate risks and opportunities for companies to identify and assess how they may be impacted by the transition to a net-zero economy and physical climate impacts. Often the first step of any corporate climate journey is showing investors they have taken a holistic view of how the business may be financially impacted. By comprehensively identifying these issues, companies can better align their strategic and financial planning with the management of climate-related risks and opportunities. This will allow businesses to show investors that a high level of awareness exists and effective steps are being taken to navigate a climate-impacted world and business landscape.

3. Risk Management: identifying and managing risks

The TCFD’s risk management guidance focuses on the processes a company uses to identify, assess and manage climate-related issues. These focus mainly on internal risk management processes and frameworks, but also include data and information collection, and engagement with suppliers. Companies can show investors how climate change is incorporated into their firm’s day-to-day operations and how effective internal systems will continually capture emerging risks and opportunities.

4. Metrics and Targets: measuring and monitoring progress

Lastly, the TCFD stresses the need for businesses to measure and monitor progress on climate risks and opportunities. Here, companies can use the TCFD’s crucial metrics and targets pillar and associated recommendations, which offer guidance on how to measure and quantify climate risk exposure and progress towards strategic objectives. By using robust and transparent metrics and targets to measure and manage material climate risks and opportunities, companies can help investors understand the strength and effectiveness of their efforts to quantify their climate response and resilience in a standardized format. This increased climate transparency and standardization gives investors the ability to compare companies against their peers, identify where progress is being made, and make more effective decisions about where to invest.

Want to get started? 

Where is your company on its TCFD journey? Wherever you are on your climate journey, we can help you to get started and increase investor confidence. Manifest Climate is a climate intelligence SaaS platform that combines cutting-edge technology, an industry-leading database of climate disclosures, and ongoing support from climate experts to deliver best-in-class climate guidance at scale. 

We provide an easier, faster, and more cost-effective way for organizations to build climate competency, stay on top of key climate trends and the climate-related performance of peers, understand how to improve their climate actions and disclosures and build resilience to the impact of climate change on their business. Reach out to us today and find out how we can support you in telling your unique climate story.