Climate change - the next emerging risk for your business?

Responding to the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations

The signing of the Paris Agreement in December 2015, and the speed at which it was ratified, signals a step change in the way governments are addressing climate change. As national policies are put in place to accelerate the transition to a low carbon economy, companies and their leaders will find themselves at the heart of this change. Businesses need to be prepared to respond to emerging risks and opportunities generated by physical climate change and market and regulatory developments

In our view, the call for disclosure on how businesses are likely to be impacted and how they plan to respond strategically and tactically will only increase in the coming months. Climate change is an emerging risk that has short, medium and long term implications for businesses and needs to be on the radar of forward-thinking business leaders.

 

Here are 5 key questions you should be asking:

  1. Do you understand how climate change, and the subsequent policy response can financially impact your business?

  2. What is your current approach to climate issues versus where you want to be?

  3. Are you ready to respond tactically and strategically?

  4. Have you got the right data and systems in place?

  5. Are you in a position to meet investor requests for information?

 

Why businesses need to act

Physical climate risks as well as the risks arising from the low carbon transition (e.g. climate policy risks) are emerging risks that businesses should review.

 

The low carbon transition presents risks and opportunities

As the world transitions to a low carbon economy, policy, market and technology trends are emerging which present real risks and opportunities for market leaders. Government policy, such as the UK’s plans to shut down all coal-fired power stations by 2025, or China’s plans for a carbon market will have implications for businesses in energy-intensive industries. Market and technology trends such as the continuing growth of electric vehicles, advances in battery design and the declining costs of renewable energy should be understood and factored in by business leaders in such industries and in their supply chains.

Growing investor pressure for better climate information

Investors are waking up to the risks and opportunities that climate change brings. A major challenge for investors is the lack of good quality climate disclosures that are useful for them to base their investment decisions on. Such investors have been clear about their expectations and are willing to use their voting power to obtain improved information. For example, the Climate Action 100+  initiative, comprising 256 investors with USD28 trillion in Assets Under Management is mobilising to demand better climate disclosure from the companies they invest in. In our view, the call for disclosure on potential business impacts and management responses will only increase in the coming months. Climate change presents emerging opportunities and risks that have short, medium and long term implications for businesses and needs to be on the radar of forward-thinking business leaders.

Emerging regulatory pressure for improved climate disclosure

In June 2017, the G20 Task Force on Climate-related Financial Disclosure (TCFD) published its recommendations for how companies should publicly disclose climate-related financial risks and opportunities to the market and regulators in their financial filings. All companies with listed equity/debt within the G20 are included within the scope of the report, including asset owners (such as pension plans) and asset managers. Here is a summary we have produced for business leaders. The UK government is currently exploring how to include the TCFD’s framework in reporting legislation.

Physical climate impacts continue to have implications for businesses

Although the low carbon transition is underway, recent weather events suggest that businesses still have to deal with the increasingly frequent or severe physical impacts from climate change in the short to medium term. This has implications for all companies with physical assets; and is material for companies in sectors such as real estate, agriculture or transport. Companies whose value and supply chains are dependent on vulnerable sectors would also benefit from exploring what these changing weather patterns mean for their business.

ASDA, the British supermarket chain, commissioned PwC to review the risks to its supply chain and found that only 5% of its fresh produce would not be affected by climate change.

 

How we can help

In our experience, using the TCFD’s framework is a sensible way to start thinking about how your business deals with climate change as an issue.

TCFD Readiness Assessment Diagnostic Tool

In our experience, using the TCFD’s framework is a sensible way to start thinking about how your business deals with climate change as an issue. Our tool helps you understand the alignment of your public disclosures to the TCFD recommendations. It can be used to understand peer comparisons (see first image) and can also show the difference in disclosures between your annual report and other public disclosures (see second image). Leveraging our knowledge of the TCFD - PwC Partner Jon Williams is a member of the Task Force - and our experience of helping our clients manage climate issues, we will provide you with

  • insight on your performance benchmarked against your peers; and
  • strategic and tactical recommendations to position your business to address climate opportunities and risks.

Please get in touch with us, using the contact details below, to help you get started.

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Climate scenario analysis

Do you know how your business might be impacted and what the financial implications are?

Scenario analysis is a useful tool for understanding the climate implications for your business. This means applying a number of possible futures to your business to test strategic resilience and management response options. First movers will be able to align their businesses with emerging growth trends.

We believe that the low carbon transition presents every company with opportunities and risks. Explore our guide to scenario analysis to help inform your thinking. Our proprietary climate scenario models (covering physical and transitional impacts) can help you explore what climate change means for your business. Please get in touch to find out more.

Scenario analysis for financial institutions

As a financial institution, scenario analysis will require an additional lens to understand how your exposure to different sectors will be impacted from a risk and return perspective. Our climate scenario models extend to the financial sector through this additional lens. This allows translating of financial implications for different economic sectors into financial implications for your institution. If you’d like to explore this further, please get in touch using the contact details below.

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Why choose PwC?

Our experience with clients

We have worked with many clients to help them understand how climate change impacts their business through the use of scenario analysis. We’ve helped them understand how they could be financially impacted by physical and transitional risks and develop a strategic management response.

 

Our involvement with the TCFD

PwC Partner Jon Williams is a member of the TCFD and our firm has invested resources to support its work.  The team has been working closely with the TCFD throughout the development of the framework and recommendations, as well as with running the public consultation and monitoring of TCFD adoption rates.

 

Our climate expertise

PwC has in-depth expertise in climate change and sustainability, governance and strategy, risk and change management, technology, reporting and assurance. We believe that managing climate change as an issue should be integrated into existing governance structures, strategic approaches and risk frameworks. We will leverage the best combination of climate knowledge and skills alongside our traditional strengths to deliver for our clients.

 

 

Contact us

Jon Williams
Partner, Sustainability & Climate Change
Tel: +44 (0)20 7804 3978
Email

Stephanie Chang
Assistant Director, Sustainability & Climate Change
Tel: + 44 (0) 20 7804 6515
Email

Matthew Johns
Manager
Tel: +44 (0) 207 213 4076
Email

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