Managing Risks and Opportunities in TCFD Reporting

🌿🔍 How Corporate Climate Change Mitigation Actions Affect the Cost of Capital Climate change mitigation is becoming a pivotal factor in determining the financial health of businesses. A recent study led by Yizhou Wang, Siyu Shen, Jun Xie, Hidemichi Fujii, Alexander Ryota Keeley, and Managi Shunsuke, published earlier in May 2024 in Corporate Social Responsibility and Environmental Management, sheds light on a critical aspect of this dynamic: how corporate climate actions influence the cost of capital. Key Findings: - Higher Emissions, Higher Costs: The study, which analysed data from approximately 2,100 Japanese listed companies between 2017 and 2021, reveals a clear correlation between corporate emissions and the cost of capital. Companies with higher carbon intensity face increased costs of equity, debt, and weighted average cost of capital. - Benefits of Transparency: Companies adhering to the FSB Task Force on Climate-related Financial Disclosures (TCFD) guidelines and transparently sharing climate-related information benefit from lower overall capital costs. While such disclosure is linked to an increased cost of debt, it concurrently lowers the cost of equity and overall capital, underscoring the financial benefits of transparency and accountability in climate actions. - Commitment vs. Action: Importantly, the study found that mere corporate commitment to climate change, as opposed to tangible climate actions, showed no significant impact on the cost of capital. This highlights the significance of actionable strategies over symbolic commitments. - Industry-Specific Impact: The relationship between climate mitigation actions and the cost of capital was notably stronger in industries where climate change is recognised as a material issue. This suggests that industry context plays a crucial role in how climate actions influence financial outcomes. Strategic Recommendations: - Adopt TCFD Guidelines: Aligning with TCFD recommendations and prioritising actionable climate strategies can lower your company's cost of capital. - Industry Focus: For sectors where climate change is a material issue, such as energy, utilities, and manufacturing, the financial incentives for robust climate actions are even more pronounced. - Move Beyond Commitments: Implementing concrete climate actions rather than just commitments can significantly enhance your financial standing. It's also important to note that as of 2024, the Task Force on Climate-Related Financial Disclosures (TCFD) has transferred its monitoring responsibilities to the International Sustainability Standards Board (ISSB). Conclusion: Proactive climate actions and transparent disclosures are not just ethical imperatives but also smart financial strategies. Access the article here: https://lnkd.in/gb-ke9PP What are your thoughts on the impact of climate actions on the cost of capital? Professor John Cole OAM Brendan Mackey John Thwaites Jacqueline Peel

My team has spent the better part of the last year helping companies get ready to comply with California's SB 261 - the climate risk reporting law going into effect January 1, 2026. This has been an incredible learning experience for my team and our clients. My key takeaways - climate risks and opportunities are starting to move from the abstract to the real. AND, we are just at the starting line in understanding and addressing those risks and opportunities. While it's early going, this is an important moment. For years, climate risks have been abstract. SB 261 starts to make it real. The law compels companies to pause and take stock of their exposure to physical and transition risks. For many companies, the first assessment will reveal that climate risk is not distant or abstract. For many companies, it is financial, strategic, and already showing up in operational impacts. I expect that this coming year will be less about describing mature resilience strategies, and more about building the foundation to understand climate risks and opportunities. For many, it will be the first structured climate-risk assessment they have completed. I believe the first disclosures under SB 261 will focus significantly on identifying risks. That means: • Recognizing where extreme heat, flooding, drought, wind, or wildfire could disrupt operations • Mapping exposure across companies' most critical operations • Understanding where insurance coverage may tighten or become cost-prohibitive • Assessing how climate fits within companies' broader enterprise risk management and disaster recovery processes and resilience strategies What comes next: 2028 and 2030 Companies will report again in 2028 and 2030. Those future cycles are likely to include more mature risk management programs, building on the learnings from this first reporting year. Over the next several years, we are likely to see companies move from simply identifying risks to taking concrete action: • Strengthening physical resilience of facilities • Integrating different climate scenarios into enterprise risk management to plan for resilience in the face of future uncertainty • Bolstering disaster recovery plans with climate hazards in mind • Strengthening operational redundancy where necessary • Factoring climate exposure into site selection • Revisiting insurance coverage • Assessing supply chain resilience January 1, 2026 is a moment when many companies will be considering climate change as a business risk and opportunity in a serious way for the first time. It is an opportunity for companies to focus on their most significant exposures and build resilience. It's also a chance to plan for future resilience and competitive advantage. #SB261 #ClimateRisk #Resilience #RiskManagement #Sustainability #CorporateGovernance #Adaptation

Your next climate report won’t just go to regulators. It’ll go to the entire market. That’s why the pressure to report is coming faster than your ability to prepare. When CSRD was announced, companies had nearly 24 months to get ready. California’s new climate laws give you just 18 — for disclosures that are arguably harder. SB 261 (risk disclosure) requires large companies doing business in California to publicly share their climate-related risks, governance practices, and mitigation efforts. It sounds simple — until you realize you have to assess and explain transition risk, supply chain dependencies, and physical climate risk across your entire operations. And it gets tougher: → You have to publish this report publicly → You need a third-party verifier → And it must follow TCFD or a similar standard It’s not just compliance. It’s scrutiny. Investors, customers, even your competitors, will see how seriously you’re treating climate-related risk. And they’ll make business decisions accordingly. If I were a CFO today, I’d be treating this like any other high-stakes financial disclosure. Start early. Audit your data flows. Understand your exposure. And bring sustainability and finance together at the table — because this isn’t just about meeting a requirement. It’s about protecting enterprise value.

Building ESG: How to assess climate related risk? ________________________________________ The goal of climate risk assessment is to provide decision-makers with the information they need to plan for and manage the risks and opportunities associated with climate change. Here's an overview of some of these factors which any investor or lending institutions should assess: 1. Sectoral analysis: This involves analyzing the potential physical, transition and reputation risks associated with the industry in which the company operates. 2. Governance and strategy: This involves evaluating the company's governance structure and management of climate-related risks and opportunities. Factors that may be considered include the company's a. Climate-related Policies b. Procedures c. Business model d. Governance mechanism (ESG Committee) e. Sustainability performance 3. Financial analysis: This involves assessing the potential impact of climate-related risks on the company's financial performance, including its ability to generate revenue and manage costs. This may involve analyzing the company's exposure to physical and transition risks, as well as the financial implications of policy and regulatory changes related to climate change. 4. Disclosure and reporting: This involves evaluating the company's climate-related disclosures and reporting practices. This may include an assessment of the quality and comprehensiveness of the company's climate-related disclosures, as well as its alignment with reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). (Disclaimer: Views are personal, should not be related to organisations view) Please feel free to comment your view and please feel free to share the article #buildingEsg #circulareconomy #sustainablefinance #sustainabilityreporting #esgreporting #esgstrategy #esgrisk #climaterisk #climatechangeaction #climaterisks #india #emissions #esgdata #scope3emissions #greenertogether

✨ Assessing climate risk today secures the rewards of tomorrow. The following report by Tata Consultancy Services shows how climate action shifts from compliance to value creation. It outlines frameworks for embedding climate risk across all business functions. 𝘏𝘦𝘳𝘦 𝘢𝘳𝘦 𝘵𝘩𝘦 𝘴𝘯𝘪𝘱𝘱𝘦𝘵𝘴 𝘧𝘳𝘰𝘮 𝘵𝘩𝘪𝘴 𝘪𝘯𝘴𝘪𝘨𝘩𝘵𝘧𝘶𝘭 𝘱𝘪𝘦𝘤𝘦. 📘 Introduction to Climate Risk Integration: → Integration turns compliance into long-term resilience. → AASB S2 embeds climate risk in decision-making. → Climate risks drive innovation and transformation. → Integration builds transparency and investor confidence. → Collaboration and technology enable effective adaptation. 💼 Value of Integrating Climate Risk: → Strengthens financial resilience and performance. → Builds stakeholder trust through transparency. → Improves access to sustainable finance. → Unlocks new markets and innovation. → Enhances IT systems for better data and reporting. 👥 Leadership and Governance Roles: → Board ensures compliance and strategic oversight. → CEO aligns purpose and resources with climate goals. → CFO links climate risk with financial outcomes. → CRO integrates risks into enterprise frameworks. → CHRO develops skills and climate-linked KPIs. 📜 Frameworks and Regulatory Landscape: → TCFD guides global climate disclosures. → ISSB and IFRS S2 standardize reporting globally. → AASB S2 mandates phased reporting in Australia. → EU and UK lead with strong climate regulations. → TNFD adds biodiversity and nature risk focus. ⚙️ Climate Risk Management Framework: → Embeds climate risk within ERM systems. → Uses scenario analysis for future resilience. → Integrates risk identification, response, and review. → Builds culture of climate awareness and collaboration. → Applies data tools for monitoring and insights. 💡 Business Value Areas: → Strengthens preparedness for climate disruptions. → Enables better, scenario-based decisions. → Reduces compliance and litigation risks. → Boosts investor trust through credible disclosures. → Drives growth via low-carbon opportunities. 🧩 Integration Challenges and Enablers: → Balancing profit with long-term resilience is tough. → Data and literacy gaps slow progress. → Technology and regulation add complexity. → Clear KPIs and governance enable success. → Leadership ensures sustained transformation. 🚀 Way Forward: → Build enterprise-wide climate literacy. → Assess maturity in risk and strategy. → Progress through phased improvement. → Use digital tools for data-driven action. → Collaborate to accelerate low-carbon growth. 😉 With this information at hand, how do you plan to integrate climate risk into your business?

With California Rule SB261 requiring climate-related financial risk disclosures by Jan 1, 2026, many companies are revisiting their #TCFD reports. But compliance is just the beginning. Based on market observations, KPMG US has identified ways to unlock more value from climate risk assessments. For example: ✅ Strengthen the business case for decarbonization ✅ Integrate climate risk into ERM programs ✅ Align one assessment with multiple regulations (ISSB, CSRD, CDP) The opportunity? Go beyond disclosure to drive strategic, operational, and financial impact. Climate risk isn’t just a reporting exercise, it’s a lens for smarter decision-making. How is your organization approaching climate risk assessments? I’d love to hear your insights in the comments below. You can read more about all five of these strategies in our blog post here: https://lnkd.in/e6SksAfG #KPMGSustainability #KPMG #EnvironmentalResilience #SustainabilityStrategy #CaliforniaRule261 #ESG #Decarbonization