Operationalizing TCFD Recommendations

January 11, 2022

Dean Granoff

The Task Force on Climate Related Financial Disclosure (TCFD) offers organizations a common framework for assessing, managing and disclosing the financial dimensions of climate related risks and opportunities. Today, the reporting aspects of the TCFD’s recommendations are mainstreaming across business leadership and regulators, however less attention has been paid to the ways the framework can be operationalized at the corporate level. Yet, this is no small feat. Adhering to the guidance on transition risks alone has noteworthy challenges:

  1. The TCFD framework requires companies to marshal complex data from across their operations and value chains.
  2. Data must be synthesized to support key business processes across multiple organizational functions.
  3. Processes must be repeatable and dynamic to keep up with reporting cycles, business planning and idiosyncratic changes to data as organizations gather information.

Enterprise cloud computing offers an accelerated path to address these challenges by simplifying complex data problems, generating dynamic insights and driving collaboration across a variety of stakeholders.

Data is the Foundation

The TCFD’s recommendation for assessing the financial impact of climate related risks and opportunities is broadly organized into four areas that enable the disclosure recommendations. These areas - risk exposure, response to risk and opportunities, effectiveness of response, and linking it together - are governed by analytical processes that require sophisticated control of corporate data.

For transition risks, GHG emissions and resource data are the foundation for capturing exposure to climate related policy constraints and are included in the specific recommended “Metric” disclosures of the framework. Today, GHG accounting is a competency that many organizations lack.

For those that have built GHG accounting capacity, the TCFD framework requires more rigor than many of the standards that have historically driven carbon accounting for two reasons:

1. Risks can be in new places

Assessing emissions from the perspective of risk means that accounting practices that obfuscate exposure are irrelevant. For example, omission of scope-3 data may meet other voluntary or regulatory reporting standards but neglect to capture the most material sources of risk exposure for many industries and organizations. Uncovering financial risk requires a broader perspective into materiality than what many carbon accounting practices are used to providing.

2. Data quality is key to unlock opportunity

Emissions and resource data needs to be collected such that it can support a forward looking strategy. This means emissions data should have sufficient resolution to drive meaningful impact assessments, support a similar level of accurate forecasting, and be controllable enough to associate emissions sources to business processes as they are actually managed at the operational level.

Risk management and opportunity creation also requires layering financial data, as well as business performance data onto emission and resource metrics, in order to quantify existing and forward looking exposure. Typically, these data sources are siloed between sustainability, operational functions, finance, and external consultants. Without a systematic approach, the simple task of collecting the necessary data points across functional groups is subject to friction and error.

Turning Data Into Insight

Cross-functional data needs to be transformed into insights that support various decision making processes. This includes specific process disclosures outlined by the TCFD (risk management and governance) and the various functional groups that contribute to strategy creation. In this context, data needs to support actionable insights for capital planning, enterprise risk management, technical engineering or operational assessments, and sustainability initiatives. This creates a multiplier effect on the challenges of data silos as functional groups aren’t typically equipped to synthesize information to meet the needs of so many stakeholders.

Measuring effectiveness and driving continuous improvement requires insights to be dynamic in order to support ongoing reporting cycles and ensure confidence as new data is absorbed. In other words, all of the data collection and synthesis outlined prior is iterative. This is particularly important in the context of capital planning and budgeting where changes to the costs and returns of competing low-carbon technologies change rapidly, impacting both corporate planning and exogenous scenarios that the TCFD recommends incorporating in strategy assessments.

As the TCFD gains more adoption, organizations that struggle to meet the operational demands of the framework and internalize evolving information are likely to experience value erosion as peers balance transition risks, cost structure and customer demands more effectively in a transitioning economy.

Enterprise Decarbonization Software

Enterprise Decarbonization software platforms provide a practical solution for systematizing, organizing and automating the various components of managing and disclosing transition risk.

These solutions allow organizations to consolidate a climate agenda into a single source of truth, leapfrog capacity gaps, & operationalize the recommendations outlined by the TCFD by:

  1. Simplifying collection, control and calculation of key risk and opportunity metrics
  2. Enabling collaboration to bridge functional silos
  3. Unlocking dynamic insights that support risk management, strategic planning and governance processes

Doing so not only reduces the friction and overhead costs associated with TCFD reporting, but also enhances the accuracy and speed of actually transforming risks into opportunities.

SINAI’s inter-dependent modules allow corporations to onboard at any moment in their carbon journey and provide value at every step. See for yourself how our software combines climate finance methodologies to manage emissions reductions and costs, helping you better manage your corporate sustainability strategy and simplify reporting. Schedule a demo with us today!

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