Disclosing Financial Impacts of Climate Risk

Is Your Organization Ready?

By Morgan Richmond and Rasika Savkar

Through 10-K filings and reports to boards of directors and shareholders, companies disclose a wide variety of risks to their business and infrastructure. The Task Force on Climate-related Financial Disclosures (TCFD)—chaired by Michael Bloomberg and established by the Financial Stability Board at the request of G20 Finance Ministers and the Central Bank of Governors—calls for companies to expand their thinking and reporting on risks to include climate-related risks to business, operations, and financial conditions. CDP (formerly the Carbon Disclosure Project) already has integrated TCFD recommendations into its disclosure requests, and it advocates for mandatory climate disclosures across G20 countries.

Climate change causes rising sea levels, longer frost-free seasons, more-frequent heat waves, increases in wildfires, more-intense storms and storm surges, ocean acidification, and greater variations in precipitation. In turn, the resulting climate impacts affect property values, agriculture production, labor productivity, supply routes, human health, energy prices, and economic growth and equity. Published in June 2017, TCFD’s recommendations press companies to assess climate-related risks like these and to disclose them alongside risks already identified in public financial disclosures and reports. To assess climate-related risks, the TCFD suggests that companies employ scenario analysis over a range of future climate and economic scenarios, including established scenarios predicting conditions in a world 2°C warmer than pre-industrial levels.

Meeting this call sets forth both a core challenge and an opportunity for companies transitioning into a future where climate-related events occur with a frequency and intensity never previously experienced, and where global efforts to reduce greenhouse gas (GHG) emissions reshape economies. According to TCFD, though companies may face challenges in incorporating climate change into their existing risk management frameworks, doing so can yield tangible benefits:

  • Early identification of business opportunities
  • Increased efficiency
  • More robust strategic planning
  • Reduced frequency of information requests
  • Increased investor and lender confidence resulting from fully integrating climate change risks into planning and disclosure activities

Incorporating climate risk analysis into mainstream financial reports, CDP reports, public-facing sustainability reports, and board and shareholder reports requires knowledge of climate science, climate and economic scenarios, GHG mitigation, adaptation and resilience strategies, and supply chain mapping and materiality assessment. Cadmus has helped numerous companies and municipalities assess, track, and mitigate climate-related risks and opportunities and has the expertise necessary to guide companies through the process of understanding and disclosing climate-related risks in alignment with the TCFD recommendations.

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