The urgency of assessing the impact of climate change
The pandemic caused by the coronavirus has resulted in an industrial slowdown. In 2020, factories and companies around the world have ceased operations or, at best, temporarily halted them.
However, despite the global slowdown, neither confinement nor the economic and industrial slowdown have given climate change any respite. In fact, greenhouse gases continue to grow at a worrying rate.
Pressure is growing for companies to transparently assess and report on their impact on climate change. Add to that the fact that the transformation of business models in response to the pandemic may significantly alter the environmental impact of their operations, and one can conclude that most companies have compelling reasons to urgently analyze their climate change risks and opportunities.
Climate change in the reporting of financial and non-financial information
All non-financial reporting frameworks (GRI, SASB, DJSI…) include environmental performance as a fundamental pillar of their governance and transparency recommendations.
If we focus on climate change and its potential impact on the viability of the organization, we propose as a starting point the recommendations of the TCFD (Task Force on Climate-Related Financial Disclosure). This working group has developed a series of recommendations for integrating an understanding of the risks and opportunities arising from climate change into business strategy, as a basis for subsequently facilitating the reporting of its management to stakeholders.
TCFD establishes four main axes (divided into eleven areas) for the disclosure of non-financial information related to climate change:
- Governance: management oversight of risks and opportunities.
- Strategy: detection of risks and opportunities, impact of risks and different scenarios.
- Risk management: processes for the identification, evaluation and management of risks.
- Metrics and targets: analysis for risk and opportunity assessment, GHG emissions metrics and exposure targets.
The purpose of these recommendations is simply to ensure that the company provides relevant and substantiated information on the risks related to the sustainability of its operations. If this information is not presented or is presented incorrectly or incompletely, your stakeholders’ opinion of your long-term economic viability will be negatively affected.
TFCD is therefore a proposal that incorporates the principles of the ESG (environmental, social and governance performance) approach, which is currently considered the reference model for assessing the economic sustainability of organizations in its broadest sense. In other words, we are faced with a practical example of integrated reporting of financial and non-financial information where the materiality of non-financial aspects (in this case, environmental) is determined based on their impact on the economic viability of the company.
Climate risk management as part of a company’s comprehensive sustainability strategy
The TCFD recommendations are a very useful tool for understanding the opportunities and risks derived from climate change for our organization, defining and monitoring our objectives and evaluating the results of our decisions.
These recommendations, together with the regulatory frameworks and the SDGs, make up an integral process of sustainability management within companies, the complexity of which requires the appropriate information management tools, all in a context of digitalization and technological innovation that must provide added value to the reporting of non-financial information.
Careful monitoring of performance metrics, reliable risk management and proper communication with stakeholders are key factors in achieving objectives. At LARAGON we support our customers in these projects by providing experience and the most appropriate digitization solutions.
Laragon is a member of the Spanish Group for Green Growth, thus contributing to the promotion of public-private collaboration in the field of environmental challenges.