TCFD Maturity Assessment: Example 3 (Climate Scenarios)
In aligning to the TCFD recommendations on Governance, organisations will (amongst many things) are directed to implement the “World Economic Forum’s 8 principles on How to Set Up Effective Climate Governance on Corporate Boards”. From these 8 principles, Principle 4 – recommends that “The Board should ensure that Management assesses the short, medium and long-term materiality of climate-related risks and opportunities for the company on an ongoing basis. The Board should further ensure that the organization's actions and responses to climate are proportionate to the materiality of climate to the company..”
The TCFD recommend that in order to meet the guidance in principle 4, your organisation should consider the following question: Are climate scenarios conducted in such a way that the results can be used to inform the company's action or response to climate issues? The guidance then expands into further considerations in how your organisation can aim to meet such this principle. In collaboration with PWC, the WEF recommend that principle 4 can be addressed through 8 key measures which can be summarised as follows.
Climate related considerations in material risk assessments.
Verification process to ensure assessments are embedded.
Scale and alignment to the proportionality of issues impacting the business (there is an ongoing debate on the limitations of such a one sided measure and a need for context based sustainability. I trust that our TCFD maturity assessment will eventually augment the WEF guidance to include a 9th key measure* to include context based thinking whereby the organisation has a framework for monitoring impact metrics in a way which is defined, quantitatively managed and optimisable).
Consideration and suitability of time frames in materiality assessments.
Integration of materiality assessments in major decision points.
Inclusion of scenario arrays.
Climate scenario analysis frequency.
Climate scenarios as an effective informer to a strategic/tactical response.
TBC*
These 8 points above essentially framed as a series of probing questions which could help organisations understand their current status in aligning to Principle 4 of the WEF principles on effective climate governance. In fact, many organisations will today be assessing their status by only measuring up against the 8 points above which are essentially broad, but shallow. Inevitably asset owners & asset managers will be mindful of these tick-box exercises and it should be a strategic level risk if not a strategic level issue. How then do you close this risk?
Our TCFD Alignment maturity assessment is designed to help you as an organisation describe your current alignment with precision and appeal to the demands of asset owners and asset managers. In our assessment, you will see that each of those 8 points above will be scaled into 6 further individual areas of maturity where we would work with you to identify a precise status of TCFD alignment in your sustainable development initiatives. Accordingly, to address the above 8 points we would assess your TCFD alignment against a total of 48 validation statements, putting your organisation in a very strong position in front of asset owners. I wouldn’t simply interview your board and tick off a common opinion on points 1-8 above! The whole process cannot work like this without risking the organisations reputation and join the “greenwash rankings”. Note that we analyse over 300 statements for the Governance element alone. Whilst I appreciate that “more isn’t better”, we consider these validation statements as the absolute minimum to achieve integrity in your TCFD alignment.
As an example, let us consider the point 8 above - Climate Scenarios as an effective informer to a strategic/tactical response. We can now explode this out into our TCFD Aligned Maturity Assessment. The picture below will give you an example of how we use a structured approach to understand the process of verifying the incorporation of climate scenarios (in the context of WEF Governance recommendation). This was a difficult task because we have to delineate the climate scenario process as an informer to board decisions.
You can read the full argument for a TCFD alignment maturity assessment here where you will also understand the fragility and risks of following the TCFD recommendations at face value only.
We will soon be training consultants and organisations on becoming qualified in this assessment tool, so please do follow us on linkedin @sustainablefactors for an announcement when the training courses go live in 2022. Otherwise just reach out to me informally here if you would like to get your organisation assessed. By all means, feed back to me on which statements above are true for your organisation.