Chaire Energie & Prospérité Séminaire Innovations et régulation financières Séance du 24 janvier 2017 Présentation et discussion du Rapport de la Task force on Climate-Related Financial Disclosures (TCFD)
Task Force on C lim a te - r ela ted Financial D isc losur es Overview of Re por t and Implementation G u idan ce December 2016
Background • One of the most significant risk that organizations face today relates to climate change • Organizations incorrectly perceive the potential impact of climate change • Implications of climate change are not only long term and physical, but also short-term and financial • The expected transition to a lower-carbon economy affects most economic sectors and industries
Background • Policy-makers are concerned by the implications of climate change : – Mark Carney conference in London (September 2015) warned investors about risks related to climate change – COP21 in Paris (December 2015) : international agreement by 195 countries to limit the rise in temperature below 2°C. – G20 Finance Ministers and Central Bank Governors asked the Financial Stabilty Board to review how the financial sector can take into account the climate- related issues
B ACKGROUND The Financial S t a b ilit y Board ( FS B ) Industry Led and G e og r ap hi cal l y established the Task Force on C lim a t e - Diverse Task F or ce related Financial Disclosures (TCFD) o n The Task Fo r ce ’ s 32 international members, led b y December 4, 2015 to develo p Michael Bloomberg, include providers of c a pita l, recommendations for more efficient a nd insurers, large non-financial companies, a cc ounti ng and consulting firms, and credit rating a g en c i es . effective climate-related disclosures t h a t : ‒ could “ promote more in f o r med investment, credit, and in s u r a n c e underwriting decisions ” a nd, ‒ in turn, “would enable s t a keh o lder s to understand better t h e concentrations of carb o n - r ela t ed as s e t s in the financial sector an d the financial s y s t em ’ s exposures t o climate-related r is k s .”
T HREE P ROBLEMS : O NE S O L U T I O N In the current climate-related disclosure landscape, challenges are faced by : ‒ Issuers who generally have an obligation under existing law to dis c lo s e material risks, but lack a coherent framework to do so for climate-related r is k , ‒ Lenders, insurers, and i nv e s t ors who need decision-useful c lim a t e - r ela t ed risk information in order to make informed capital allocation and f ina n c ia l decisions, a nd ‒ Regulators who need to understand risks that may be building in t h e financial sy st e m The Task Force aims to provide the s o lut ion : a clear, efficient, and voluntary disclosure framework that improves t he ease of both producing and using climate-related financial d is c lo s u r es
C LIMATE -R ELATED R ISKS AND O PPO R T U NI T I E S Type C lim ate - R e l ate d R i s k s Type C lim ate - R ela t ed O pp o r t un i t i es Policy and L eg al ‒ Use of more efficient modes of t r a n s p or t Ef f i ci e n cy R es o u r c e ‒ Increased pricing of GHG e m is s ion s ‒ More efficient production and distribution pr o c e ss e s ‒ E nh a n c e d emissions-reporting oblig a t i o n s ‒ Use of r e c y c li n g ‒ Mandates on and regulation of existing products and s e r vice s ‒ More efficient buildin g s ‒ E x po s u r e to lit iga t ion ‒ Reduced water usage and c o n s um pt ion Te c hn ol og y Energy S o u rc e ‒ Lower-emission sources of ener gy Transition Risks ‒ S u bs t it u t ion of existing products and services with lower e m is s ion s ‒ S u ppo r t iv e policy in c e n t iv e s op t i on s ‒ E m er gence of new t ec hno l o gi es ‒ Unsuccessful investment in new t e c hn o lo g ie s ‒ Participating in carbon m a r k e t ‒ Upfront costs to transition to lower emissions t e c hn o lo g y M ark et s ‒ E n e r g y security and shift towards de c e n t r aliza t ion ‒ Changing customer be h av io r Products an d ‒ Develop and/or expand low emission goods and s e r vice s S erv i c es ‒ Uncertainty in market s ig n als ‒ Climate adaptation and insurance risk s o lu t ion s ‒ Increased cost of raw m at e r i al s ‒ R&D and inn o va t ion R ep utat i o n ‒ Diversify business a c t iv it ie s ‒ S h if t in consumer pr e f e r e n c e s ‒ S h if t in g consumer p r efer ence s ‒ S ti g m a ti z a ti o n of s e c to r ‒ New ma r k e t s Mark et s ‒ Increased stakeholder concern or negative stakeholder f eed b a c k ‒ Public-sector in c e n t iv e s A cu te ‒ C o mmun it y needs and in it ia t iv e s Physical Risks ‒ Increased severity of extreme weather events such as cyclones a nd floods ‒ Development b a nk s C hr o ni c ‒ Participate in renewable energy programs and a d o p t R e s ilie nc e ‒ Changes in precipitation patterns and extreme weather va r ia bilit y energy-efficiency m ea s u r e s ‒ Rising mean t e m pe r a t u r e s ‒ Resource s u bs t it u t e s / div e r s if ica t ion ‒ Rising sea le vels ‒ New a ss e t s and locations needing insurance c o ve r a g e
D ISCLOSURE R ECOMMENDATIONS The Task Force developed four widely-adoptable recommendations o n climate-related financial disclosures that are applicable to organizations a c r o ss sectors and jur is dic t io ns . The recommendations are structured around four thematic areas that r ep r es en t core elements of how organizations o p e r ate : Go v e rn an ce The or g a ni z a t i on ’ s governance around climate-related risks a nd G o v ern a n ce oppo r tu nitie s S tr ate g y S t r a t egy The actual and potential impacts of climate-related risks a nd opportunities on the or g a ni z a t i on ’ s businesses, strategy, a nd financial p l a nni ng Ri s k M a n a gem en t Risk M an ag e m e n t The processes used by the organization to identify, assess, a nd manage climate-related r i s ks M et ri cs a n d Metrics and T ar g e ts T a r get s The metrics and targets used to assess and manage r e le va n t climate-related risks and oppo r tu nitie s
S CENARIO A N AL YS I S S c en a r io analysis is an important and useful tool for understanding the st r a t e gi c implications of climate-related risks and opp ort uni t i e s . The Task Force recommends that organizations describe the potential impact of dif f er en t scenarios, including a 2° c scenario, on their businesses, strategy, and financial planning. 1 Scenario analysis can help organizations consider issues, like climate change, that have the following c h a r a c t er i st i c s: ‒ Possible outcomes that are highly uncertain (e.g., the physical response of the climate and ecosystems to higher levels o f GHG emissions in the a t m o sp h er e) ‒ Outcomes that will play out over the medium to longer term (e.g., t imi n g , d i s t r i bu t i on , and mechanisms of the t r an s i t i on to a lower-carbon e c on omy ) ‒ Potential disruptive effects that, due to uncertainty and complexity, are s ub s ta n ti a l 2 S c e n a r i o analysis can enhance o r ga n i z a t i o n s ’ strategic conversations about the future by considering, in a more s t r u c t u r e d manner, what may unfold that is different from business-as-usual. I m po r t a n t l y , it broadens decision m a k e r s ’ t h i n k i n g across a range of plausible scenarios, including scenarios where climate-related impacts can be s i g n i fi c an t . 3 Scenario analysis can help organizations frame and assess the potential range of plausible business, strategic, and f i n a n c i a l impacts from climate change and the associated management actions that may need to be considered in strategic an d financial plans. This can lead to more robust strategies under a wider range of uncertain future c o ndi t i o n s. 4 S c e n a r i o analysis can help organizations identify indicators to monitor the external environment and better recognize w h e n the environment is moving toward a different scenario state (or to a different stage along a scenario path). This a ll o ws organizations the opportunity to reassess and adjust their strategies and financial plans a cc o r din g l y . 5 S c e n a r i o analysis can a ss i s t investors in understanding the robustness of o r ga n i z a t i o n s ’ strategies and financial plans and i n comparing risks and opportunities across or g an i z at i on s.
Two concluding remarks TFCD report based on two beliefs (hypotheses) : 1/ Informational efficient market hypothesis : disclosures (i.e. increased transparency) will lead to efficient capital-allocation decisions with respect to climate-related risks 2/ Non constraining recommendations to the business sector (i.e. soft law ) is the best way to reduce climate-related risks by improving governance and risk management.
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