FSB Task Force on Climaterelated Financial Disclosures

Transcription

1 FSB Task Force on Climaterelated Financial Disclosures Focus on Physical Risk Curtis Ravenel Global Head of Sustainable Business & Finance, Bloomberg LP TCFD Secretariat May 2018

2 BACKGROUND G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to review how the financial sector can take account of climate-related issues. The FSB established the Task Force on Climaterelated Financial Disclosures (TCFD) to develop recommendations for more effective climaterelated disclosures that: could promote more informed investment, credit, and insurance underwriting decisions and, in turn, would enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system s exposures to climate-related risks. Industry Led and Geographically Diverse Task Force The Task Force s 31 international members, led by Michael Bloomberg, include providers of capital, insurers, large non-financial companies, accounting and consulting firms, and credit rating agencies

3 TRENDS INATMOSPHERIC CARBONDIOXIDE 3

4 10 HOTTEST YEARS ON RECORD Degrees C above mid 20th century mean 4

5 POST HURRICANESANDYMANHATTAN FLOOD MAPS Former Bloomberg Data Center Source: FEMA 5

6 S&P 500 INSURANCE INDEX SUMMER 2017 Hurricane Harvey 17 August $125 Billion Hurricane Irma 30 August $90 Billion Hurricane Maria 16 September $50 Billion 6

7 TCFD DISCLOSURERECOMMENDATIONS STRUCTURE The Task Force developed four widely-adoptable recommendations on climaterelated financial disclosures that are applicable to organizations across sectors and jurisdictions. The recommendations are structured around four thematic areas that represent core elements of how organizations operate: Governance Governance - The organization s governance around climaterelated risks and opportunities Strategy Risk Management Metrics and Targets Strategy - The actual and potential impacts of climate-related risks and opportunities on the organization s businesses, strategy, and financial planning Risk Management - The processes used by the organization to identify, assess, and manage climate-related risks Metrics and Targets - The metrics and targets used to assess and manage relevant climate-related risks and opportunities 7

8 FOCUS ON FINANCIAL IMPACT The Task Force focused on financial impact of climate-related risks and opportunities on an organization, rather than the impact of an organization on the environment. Transition Risks Policy and Legal Technology Market Reputation Physical Risks Acute Chronic Risks Strategic Planning Risk Management Financial Impact Opportunities Opportunities Resource Efficiency Energy Source Products/Services Markets Resilience Revenues Expenditures Income Statement Cash Flow Statement Balance Sheet Assets & Liabilities Capital & Financing 8

9 PHYSICAL RISK IN THE TCFD ACUTE Increased severity of extreme weather events such as cyclones and floods CHRONIC Changes in precipitation patterns, extreme variability in weather patterns, rising mean temperatures, rising sea levels Reduced revenue from decreased production capacity (e.g., transport difficulties, supply chain interruptions) Reduced revenue and higher costs from negative impacts on workforce (e.g., health, safety, absenteeism) Write-offs and early retirement of existing assets (e.g., damage to property and assets in high-risk locations) Increased operating costs (e.g., inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants) Increased capital costs (e.g., damage to facilities) Reduced revenues from lower sales/output Increased insurance premiums and potential for reduced availability of insurance on assets in high-risk locations 9

10 EXAMPLES OFCLIMATE-RELATEDPHYSICALRISKMETRICS 10

11 TCFD SCENARIO ANALYSIS RECOMMENDATION Scenario analysis is an important and useful tool for understanding the strategic implications of climate-related risks and opportunities. The Task Force recommends that organizations describe the resilience of their strategy, taking into consideration different climate-related scenarios, including a 2 C or lower scenario. Strategy Disclose the actual and potential impacts of climate-related risks and opportunities on the organization s businesses, strategy, and financial planning. Recommended Disclosure c) Describe the resilience of the organization s strategy, taking into consideration different climate-related scenarios, including a 2 C or lower scenario. Guidance for All Sectors Organizations should describe how resilient their strategies are to climate-related risks and opportunities, taking into consideration a transition to a lower-carbon economy consistent with a 2 C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks. Organizations should consider discussing: where they believe their strategies may be affected by climate-related risks and opportunities; how their strategies might change to address such potential risks and opportunities; and the climate-related scenarios and associated time horizon(s) considered. 11

12 COMPARISON OFSIGNPOSTS INPHYSICALRISKSCENARIOS Source: IPCC 12

13 BLOOMBERG SCENARIOANALYSIS EXAMPLE 2 Celsius Scenario Risks & Opportunities Limited Mitigation Scenario Risks & Opportunities Risks Impact quantification Timeline Risks Impact quantification Timeline Transition Policy and Legal <1% impact on business Europe: 1-3 years Other: 4-10 years Transition Policy and Legal No discernible quantified impact Europe: 1-3 years Other: 4-10 years Technology <1% impact on costs associated with renewable energy technology 4-7 years Technology <5% decrease in costs avoided from using renewable energy technology 4-7 years Market 20% increase in sustainable business and finance-related R&D 1-7 years Market Revenue loss mitigated by other market changes 4-10 years Reputation <1% impact on business 7-10 years Reputation No discernible quantified impact 1-10 years Physical Acute 10% increase in capital investment at key facilities 1-10 years Physical Acute 15% increase in capital investment at key facilities 1-10 years Chronic <1% of an impact on business 4-7 years Chronic <1% of an impact on business 4 7 years Opportunities Impact quantification Timeline Opportunities Impact quantification Timeline Resource efficiency and energy source Additional $10 million in avoided energy costs 4-7 years Resource efficiency and energy source <1% increase in avoided energy costs 8-10 years Products and services 20% increase in revenue from sustainable finance products 1-7 years Products and services <5% increase in revenue from sustainable finance products 4-7 years Markets 10% increase in revenue from tools for sustainable markets 4-7 years Markets <1% increase in total product revenue 7-10 years Resilience No discernible quantified impact 1-10 years Resilience <1% increase in value of physical assets 7-10 years 13

14 PHYSICAL RISK RESOURCES 14

15 EXPOSURE OF POWER PLANTS TO EXCESSIVE HEAT 15

16 BENEFITS OFIMPLEMENTING THERECOMMENDATIONS Some of the potential benefits associated with implementing the Task Force s recommendations include: easier or better access to capital by increasing investors and lenders confidence that the company s climate-related risks are appropriately assessed and managed more effectively meeting existing disclosure requirements to report material information in financial filings increased awareness and understanding of climate-related risks and opportunities within the company resulting in better risk management and more informed strategic planning proactively addressing investors demand for climate-related information in a framework that investors are increasingly asking for, which could ultimately reduce the number of climaterelated information requests received Secretariat@fsb-tcfd.org to learn more about supporting the TCFD 16

17 TIMELINE FOR THE TASK FORCE S WORK The Task Force is working with industry associations and other organizations to promote and monitor adoption of the TCFD recommendations and will submit a report to the FSB in September Timeline Third Quarter 2017 Fourth Quarter 2017 First Quarter 2018 Second Quarter 2018 Third Quarter 2018 Jul 7-8: TCFD report presented at G20 Summit Q3 2018: Submission of monitoring report Jun 29: Issuance of final report Q Q3 2018: Implementation monitoring Q Q3 2018: Outreach and engagement Q Q3 2018: 500 Public Supporters 17