"From our experience, we believe that comprehensive climate-related disclosures benefit companies beyond just regulatory preparedness."
Established by the Financial Stability Board (FSB) the Task Force On Climate-Related Financial Disclosures (TCFD) is committed to market transparency, focusing on the successful adaptation of its climate-related recommendations by companies in the financial and non-financial sectors.
As part of its recent assessment, the TCFD reviewed publicly available reports of over 1,400 companies from five regions and eight industries to better understand current climate-related financial disclosure practices and their evolution.
Furthermore, the Task Force conducted a survey of companies’ implementation of the TCFD recommendations over the past five years as well as investors’ views on the usefulness of climate-related financial disclosure. These findings appear in the TCFD’s latest Status Report, published in October this year.
In a case study, offering an insurance company’s perspective on TCFD implementation, Aviva highlighted that it began disclosing in alignment with the TCFD recommendations in 2017, based on the TCFD draft recommendations at the time.
Since then, the insurer has aimed to be a leader in climate-related disclosures, becoming the first major insurer worldwide to target net zero by 2040 as well as publishing its portfolio warming, climate-related risk analysis, and transition plan.
Discussing how Aviva has supported the implementation of the TCFD recommendations, the development of a set of key metrics using the TCFD framework was noted. Used as guidance for climate value at risk, absolute carbon emissions, weighted average carbon intensity, investment in green assets, portfolio warming potential, monitoring sovereign holdings, and weather-related losses. These key metrics were used to create the insurer’s Climate Transition Plan, help define and monitor its climate-related risk appetite, and set targets such as its net zero by 2040 goal.
This development of metrics has also enabled Aviva to implement a remuneration metric, which has resulted in 5% of Aviva’s 2021-2023 Long Term Incentive Plan now being linked to the percent reduction in carbon intensity of shareholder assets.
Aviva claims these developments have led to ‘more engaged board discussions over the past two to three years’ as well as boosting the insurer’s climate-related response to become an ‘important part of our strategy because public disclosure of climate-related information requires a level of robustness similar to that of disclosed financial figures’.
While discussing the main barriers faced by companies with regard to climate-related information, Aviva highlighted that the data and methodologies for producing climate-related metrics over extended time horizons are still ‘relatively immature’. The insure felt that it was ‘understandable’ that boards get nervous when it comes to new disclosures without the usual level of assurance.
The insurer advised other companies beginning to address climate-related risks and opportunities not to wait until the data and methodologies are perfect before starting the disclosure journey.
Aviva suggested providing transparency from the get-go by disclosing climate-related plans, challenges, and areas where further work is needed.
For companies in jurisdictions where TCFD-aligned reporting is not yet mandated, Aviva still recommended starting as soon as possible ‘where practicable’. For instance, all companies should be able to start disclosing their governance of climate-related risks and opportunities, or at least how they are changing their governance structure to encompass the topic of climate.
Based on Aviva’s own experience offering climate-conscious products, the insurer felt that transparency and leadership in publishing climate-related disclosures can help companies to attract additional business.