TCFD implementation webinar series - strategy with Unilever
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Many organisations currently face impacts from climate-related issues, with important implications for businesses, strategy, and financial planning. Improved disclosures on current and anticipated risks and opportunities can enhance an investors’ understanding of how strategic functions are likely to be impacted over the short, medium, and long terms. This presentation by CDSB and Unilever offers insight into the principles for effective strategy disclosure and what good practice looks like. Visit www.cdsb.net for more information.
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TCFD implementation webinar series - strategy with Unilever
- 1. February 20 | Tweet @CDSBGlobal TCFD implementation webinar: How to improve your TCFD strategy disclosures Gemma Clements, Project Manager, Climate Disclosure Standards Board Roger Seabrook, VP Finance, Marketing & Sustainability, Unilever Moderated by: Lesley McKenna, Climate Disclosure Standards Board
- 2. February 20 | Tweet @CDSBGlobal Q. How would you describe your understanding of the TCFD recommendations? I am an expert I am confident, but need to understand some elements I have some knowledge, but need support I have little knowledge TCFD Implementation Webinar Series
- 3. February 20 | Tweet @CDSBGlobal To create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting. Climate Disclosure Standards Board Board Technical Working Group
- 4. February 20 | Tweet @CDSBGlobal Climate Disclosure Standards Board 4 Reporting Requirements REQ-01 Governance REQ-07 Organisational boundary REQ-02 Management’s environmental policies, strategy and targets REQ-08 Reporting policies REQ-03 Risks and opportunities REQ-09 Reporting period REQ-04 Sources of environmental impact REQ-10 Restatements REQ-05 Performance and comparative analysis REQ-11 Conformance REQ-06 Outlook REQ-12 Assurance cdsb.net/Framework The CDSB Framework
- 5. February 20 | Tweet @CDSBGlobal Introduction to the TCFD
- 6. February 20 | Tweet @CDSBGlobal 6 Why? 6 • Lack of disclosures on the financial implications on the climate-related aspects; • Inconsistencies in disclosure practices; • Lack of context for information • Use of boilerplate, and non-comparable reporting; and • Lack of consistent information hinders investors and others from considering climate-related issues in their asset valuation and allocation processes. TCFD Implementation Webinar Series
- 7. February 20 | Tweet @CDSBGlobal 7 TCFD recommendations 7 Overview 1. Voluntary 2. Report climate-related financial disclosures in the annual financial filings (mainstream report) 3. Financial sector & high risk non-financial sectors 4. Transition risks & physical risks (and opportunities) 5. Scenario analysis & forward-looking information 6. Short-term, medium-term & long-term 7. Qualitative & quantitative disclosures Governance Strategy Risk Management Metrics and Targets TCFD Implementation Webinar Series
- 8. February 20 | Tweet @CDSBGlobal What are companies doing?
- 9. February 20 | Tweet @CDSBGlobal TCFD Status Report 2019 9 Key Themes and Findings Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors. More clarity is needed on the potential financial impact of climate-related issues on companies. Of companies using scenarios, the majority do not disclose information on the resilience of their strategies. Mainstreaming climate- related issues requires the involvement of multiple functions. TCFD Implementation Webinar Series
- 10. February 20 | Tweet @CDSBGlobal 10TCFD Implementation Webinar Series Analysis of disclosure Recommendation Recommended Disclosure Banking Energy Materials & Buildings Consumer Goods Average Disclosure Europe Asia Pacific Strategy a. Risks and opportunities 51% 57% 50% 50% 45% 59% 29% b. Impact on organization 55% 64% 65% 52% 47% 61% 44% c. Resilience of Strategy 20% 13% 12% 6% 9% 13% 5%
- 11. February 20 | Tweet @CDSBGlobal Core element: Strategy
- 12. February 20 | Tweet @CDSBGlobal 12 Governance Strategy Risk Management Metrics and Targets Disclose the organization’s governance around climate- related risks and opportunities. Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. Disclose how the organization identifies, assesses, and manages climate-related risks. Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. a) Describe the board’s oversight of climate-related risks and opportunities. a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. a) Describe the organization’s processes for identifying and assessing climate-related risks. a) Disclose the metrics used by the organization to assess climate- related risks and opportunities in line with its strategy and risk management process. b) Describe management’s role in assessing and managing risks and opportunities. b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. b) Describe the organization’s processes for managing climate- related risks. b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. c) Describe the resilience of the organisation’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario. c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management. c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. Strategy Disclose the actual and potential impacts of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. c) Describe the resilience of the organisation’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario. TCFD Implementation Webinar Series
- 13. February 20 | Tweet @CDSBGlobal Strategy Climate Disclosure Standards Board 13 Consider including a discussion of: • What do you mean by short-, medium- and long-term? • What material opportunities and risks have you identified for each? • What process(es) have you used to determine whether they will have a financial impact on your organisation? Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term.
- 14. February 20 | Tweet @CDSBGlobal Strategy Climate Disclosure Standards Board 14 Consider including a discussion of the impacts on: • Products and services • Supply chain and/or value chain • Adaptation and mitigation activities • Investment in research and development • Operations (including types of operations and location of facilities) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
- 15. February 20 | Tweet @CDSBGlobal Strategy Climate Disclosure Standards Board 15 Disclose the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. Consider including a discussion of: • Have you used climate-related scenarios to inform the business strategy and financial planning? • What are the climate-related scenarios and associated time horizon(s) considered? • What are the implications of different policy assumptions, macro-economic trends, energy pathways, and technology assumptions used in climate-related scenarios to assess the resilience of the organisation’s strategies?
- 16. February 20 | Tweet @CDSBGlobal Strategy 16 What do investors want to know? Survey respondents identified the value of: • Having specific time horizons specified • Stronger and more clear connections to financial impacts and the long-term financial benefits • More clarity on the materiality assessment of climate-related risks TCFD Implementation Webinar Series Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material.
- 17. February 20 | Tweet @CDSBGlobal Unilever
- 18. TCFD Unilever January 2020 Strategy disclosure & Scenario analysis
- 19. TCFD and Unilever Why is Unilever committed to TCFD? • Commitment to sustainable living/business • Desire to engage with investors/financial markets • Start the journey to a level playing field of disclosure to enable markets to price climate risk
- 20. TCFD and Unilever How did Unilever get started? • Started with what we already had • Highlighted areas where we could improve vs TCFD framework • Focused on strategy and scenario analysis
- 22. Phase 1: General scenarios 2017 • Two simple, distinct & discrete scenarios based on different policy trajectories (no overlaps) • 2°C, transition impacts only • 4°C, physical climate impacts only • Three dates: Temperature outcome in 2100 … Our focus on impacts in 2030 … Unilever’s business in 2015 • Evidence-based for impacts & costs. Used surrogate or proxy data (e.g. carbon footprint data, commodity prices) & other assumptions to fill data gaps • Focus on P&L: sales, manufacturing & sourcing • No Unilever response: mitigation, adaptation or innovation. Gross impacts / unmitigated impacts. • Unilever absorbs cost increases • Drew on guidance from TCFD and others’ scenarios (IEA, IPCC)
- 28. Phase 2: Deep Dives 2018 - Soy • Yield estimation: We analysed multiple agriculture and climate models to provide a forecast range of expected yields in key growing regions • Price relationship: An econometric model was developed, based on an analysis of the soybean oil market and historical trends, to estimate the impact of climate-induced yield changes on future prices. This model considered the importance of co-products e.g. soybean meal, substitution potential e.g. with sunflower oil and industrial uses of soybean oil, as well as the impact of yield on price • Impact estimation: Future yields and price impacts were then translated into an estimated financial exposure from climate change for our business, using our forecast procurement volumes • “Our pilot analysis showed that soybean yields may increase over the 2030 and 2050-time horizon and that subsequent lower prices may then lead to small potential reductions in our procurement spend on soy. While the results may indicate a low financial risk to our business, we would need to consider a wider range of risk factors when determining our strategic response. Indirect risks from climate change, such as catastrophic events or external policy response and adaptation could also have an impact but were not included in our modelling”
- 29. Next steps …. • Continue the work on scenarios: - Tea - Palm Oil • Refine the approach: - Ease of completing the work, more fluency with internal resources - How to facilitate the discussions around the outcomes within the business teams to get the full value from the scenarios
- 30. February 20 | Tweet @CDSBGlobal Tips for implementation
- 31. February 20 | Tweet @CDSBGlobal Top tips for getting started with TCFD 31TCFD Implementation Webinar Series 1. Review what you are already disclosing and start from there 2. Look at what others are doing – similar and different businesses – talk to a few to learn from their experience … but be aware that starting points will differ 3. Think about your current view of the material impacts on your business 4. Consider a multi-functional team approach 5. Take small steps and don’t try to do everything in one go 6. Make a start!
- 32. February 20 | Tweet @CDSBGlobal Top tips for effective disclosure 1. Adopt the correct lens for looking at climate-related risks 2. Link financial and non-financial information 3. Utilise existing standards and metrics 4. Make as many of the 11 recommended disclosures are you can 5. Put it in your mainstream report 32TCFD Implementation Webinar Series
- 33. February 20 | Tweet @CDSBGlobal Where to learn more? tcfdhub.org CDP helps companies collect, report and structure their data. SASB will help companies understand what is material to their organisation. CDSB helps companies integrate the financially material information into their annual reports. 33 ww.cdsb.net/tcfdguide ww.cdsb.net/tcfdhandbook learn.tcfdhub.org ww.corporatereportingdialogue.com TCFD Implementation Webinar Series
- 34. February 20 | Tweet @CDSBGlobal Questions? Gemma Clements Climate Disclosure Standards Board With the contribution of the LIFE Programme of the European Union. Hosted by CDP Europe. Roger Seabrook Unilever info@cdsb.net
Hinweis der Redaktion
- The Climate Disclosure Standards Board is a consortium of 9 environmental and business NGOs. We were set up in Davos in 2007 with a mission to create the enabling conditions for material climate change and natural capital information to be integrated into the mainstream report.
- The 7 principles and 12 requirements of the CDSB Framework 7 guiding principles (the how) 12 reporting requirements (the what) Fully aligned with the TCFD recommendations and principles – and the TCFD was developed based on the CDSB Framework and other leading reporting frameworks Therefore, complementary to existing reporting provisions (CDP, GRI, SASB) and existing regulations Referenced in the EU NFRD guidance and stock exchange guidance globally
- The TCFD was set up in 2015 to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. They specifically considered the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. What makes the TCFD different?
- Now before we dive into the details, let’s take a look at the four key themes and findings that emerged from the report. The 2019 Status report tells us that, despite support for the TCFD rising by more than half since last September, companies are still finding it a challenge to implement the recommendations resulting in insufficient disclosure for investors. More clarity is needed on the potential financial impact of climate-related issues, the majority of companies do not disclose information on resilience and, finally, mainstreaming climate-related issues requires the involvement of multiple functions. Given the urgency of the situation and the scale of the challenge, these findings are concerning. The financial risks that climate change presents to the global economy are enormous. In fact, the United Nations states that delays in tackling this issue could cost companies nearly $1.2 trillion over the next 15 years. In the upcoming slides, we’ll explore these key themes in more detail, discuss some of the most significant statistics from the report and action needed moving forward. 78% aligned with at least 1 of the recommendations disclosures 4% of companies aligned with at least 10 of the recommended disclosures
- Here you can see a snapshot of disclosure by industry and region. We have chosen to focus on bank, energy, materials and buildings and consumer goods. The TCFD also covers insurance, ag, food and forest, technology and media and transportation. The Banking industry generally had the highest percentages across the recommended disclosures. However, other industries had higher percentages for specific recommended disclosures (Energy and Building and Materials) for Strategy b). The greatest increase in the percentage of companies disclosing relevant information from 2016 to 2018—10%—was found for disclosure of climate-related risks and opportunities (Strategy a) and the impact of climate-related risks and opportunities on the company’s businesses, strategy, and financial planning (Strategy b). However, the percentage of companies disclosing information on the resilience of their strategies, taking into consideration different climate-related scenarios, including a 2°C or lower scenario (Strategy c) increased only 3% over the same time period. Average disclosure is XXX. Given the timing of this webinar, we can assume most attendees are based in Europe and Asia Pacific and for this reason I have focussed on these two regions. A full breakdown of disclosure across all regions can be found in the second status report.
- Pop out core element
- These are some key takeaways on what constitutes decision-useful information from an investor survey on TCFD disclosures conducted by one of our board members, SASB. It is useful her in terms of what is the nature of disclosures required by investors. Do these reasonate with you?
- So how are we doing against our USLP targets? I’m delighted to report that for more than 80% of our targets we are on track, and that we are making good progress in all three big goals of our sustainable living plan. Let me give you the headlines for each.
- Thank you Roger, Now let’s turn to top tips for implementation. Roger, perhaps you could talk us through your top tips
- These are 7 top tips for developing and refining climate-disclosures. 1. We have found in reviewing reports that some report preparer are confused by the orientation For TCFD, we are looking at the impact of the climate on the business not the converse. 2. Disclosures are interconnected and mutually reinforcing. Ensuring the connectivity of information is key. This includes linking financial and non-financial finroamtion. 3. We found governance disclosures muddled. Explain how the board exercises its oversight function of climate risks and how this differs from managers’ roles and responsibilities. This is a distinction between climate leadership and management – both are important hence the two recommended TCFD disclosures. 4. The process for assessing materiality was often absent from disclosures. We found that beyond scope 1 and 2 emissions, climate-related disclosures differs from company to company and within indsutries. There are existing standards and metrics that can be used to help make your TCFD disclosures. You don’t drive a car with three wheels instead of four [may change analogy], why would try to tell your story of how you are identifying, assessing and managing climate risks to investors without giving them the full picture The annual report is aimed principally at investors. It allows you to put climate-related information on the same level of rigour as financial information. It allows you to make key linkages there. If it is in the mainstream report it matters. Overall, we are moving along the TCFD implementation path with more companies and disclosures, let’s keep going, learning-by-doing and refining our evolving practice. Don’t let the perfect be the enemy of the good when making your climate-related financial disclosures. This is an evolving area. Now I will turn back to Katie on what next?
- Now that we have identified some top tips, we would like to share with you a snapshot of the ample resources that are available to help you implement the TCFD recommendations.