This month, Domini officially signed a statement of support for the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). Domini seeks to serve our clients’ financial well-being while preserving and enhancing the environment and society through responsible asset management. We believe investors have an obligation to acknowledge and address the impact of their actions on financial, societal and environmental systems. Climate change is one of the most significant systemic risks we face, and the TCFD framework is a critical tool for assessing how this risk will affect corporate value. Most importantly, we expect that companies that use the TCFD framework to measure and disclose their climate-change readiness will take action to better manage these risks. These disclosures will help to make the business case for strengthening the resilience and integrity of Earth’s climate, a prerequisite for creating long-term value.
The creation of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures was announced in December 2015 by Mark Carney, chair of the organization and governor of the Bank of England. Eighteen months later, the TCFD released their recommendations for voluntary, consistent disclosures to help investors understand the material financial impacts of climate-related risks and opportunities on an organization. The TCFD framework recommends that companies consider four key areas where climate-risks should be analyzed: governance, strategy, targets and metrics, and risk management. The three main areas of risk they identify are physical risk, transition risk, and litigation risk. Because climate risks are particularly difficult to assess, a key recommendation of the Task Force is the use of scenario modelling. The Taskforce recommends that companies begin by reviewing risks under a 2-degree global warming scenario. Steve Lydenberg, a principal at Domini, wrote a paper on the use of scenarios for long-term risk management that was considered “required reading” by the members of the Taskforce as they developed their recommendations. We were also pleased to submit comments to the TCFD earlier this year.
The TCFD’s recommendations were presented to the G20 summit in Hamburg in July. The Task Force’s mandate has been extended through September 2018 to support and monitor adoption of disclosure guidelines by companies.