This growing attention is invigorated by recommendations of the Task Force for Climate change Financial Disclosures (TCFD). This taskforce is founded by the Financial Stability Board, which is chaired by Michael Bloomberg, and provides guidelines on how financial institutions should balance their financial impact as well as how to implement it in the governance and strategy of the organization. Additionally, the TCFD recommends that the balancing of climate-related risks and opportunities should connect to existing risk management methods. It should also use metrics and targets to ensure the possible impact on the organization is solid and substantiated.
Chairman Bloomberg of the TCFD indicates that, generally, transparency increases efficiency in markets, which in turn makes economies more stable and resilient. The task force focuses on transparency about climate-related risks and opportunities. Additionally, the Transparency Benchmark (TB), the initiative from the Dutch government to study transparency in (CSR) annual reports, announced that climate risk will be a prominent topic in their benchmark activities for the 2019 annual reports. Besides, increasing connections with climate risks are made by other, established, initiatives, like the EU Transparency Directive and the Carbon Disclosure Project (CDP). Climate adaptation is also picking up a prominent place in the EU Taxonomy. These developments, combined with the experiences gained by the COVID-19 outbreak, suggest that now is the time to get grip on this topic and secure in a sustainable way in how we manage risks in organizations.
But where do you start? With whom do you start? I will start with the latter question. Who in the organization should tackle this monster that has been discussed extensively already? For this topic, collaboration is of utmost importance. We are looking at initiating a collaboration between sustainability managers and risk managers. The former group has an interest in dealing with sustainability topics in a responsible manner, and the latter group wants to prevent the organization from having to deal with risks that were never picked up on the radar. Together, this duo can move the management to think about the topic of climate risks. Additionally, investor relations can help, as the importance of climate adaptation is becoming increasingly important for investors as well, for example, because of its addition to the EU Taxonomy.
What are we going to do? Climate change is studied on different levels and from different perspectives. Plenty of information is present about possible climate change scenarios. This initiating duo should research how these scenarios can be relevant for the organization, and what risks and opportunities this brings. The foundation of such an investigation is in current scientific data and scenarios. Especially the Intergovernmental Panel on Climate Change (IPCC) is publishing assessments of climate scenarios, future risks and possible impact. For involving these specified risks in the organization, the risk mainly depends on geographical location, the nature of operations and the product, raw materials, suppliers, disruption in the supply chain, customer base, and energy. Based on this first overview, management interest can be nourished.
After the initial scanning of the relevant scenarios, the insights on the actual connected risks and opportunities must be studied collaboratively. For example, if you look into the IPCC report and you read that the rivers in The Netherlands will be flooding more frequently and intensively, but you own a production facility on the floodplains of one of these rivers, what consequences would this bring along? And can any opportunities be identified?
