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TCFD Implementation Webinar Series - Metrics and Targets with Danone
This document summarizes a webinar on implementing the TCFD recommendations for climate-related financial disclosures. The webinar discusses metrics and targets, a core element of TCFD. It provides tips on disclosure including making qualitative and quantitative reports using existing standards and metrics. A representative from Danone discusses their process for implementing TCFD across strategic planning, operations, and finance to identify risks and opportunities and set targets.
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TCFD Implementation Webinar Series - Metrics and Targets with Danone
- 1. February 20 |Tweet @CDSBGlobal TCFD implementation webinar: How to improve your TCFD metrics and targets disclosures Sundip Jadeja, Technical Manager, CDSB Marie-Pierre Bousquet, Science Based Targets Implementation Director, Danone
- 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 0% 10% 20% 30% 40% 50% 60% 70% Banking Insurance Energy Materials & Buildings Transportation Ag., Food & Forest Technology and Media Consumer Goods Average Metrics and Targets recommendations reporting by industry: 2018 reporting a. Climate-Related Metrics b. Scope 1,2,3 GHG Emissions c. Climate-Related Targets
- 11. February 20 |Tweet @CDSBGlobal 11TCFD Implementation Webinar Series Analysis of disclosure 0% 10% 20% 30% 40% 50% 60% 70% Asia Pacific Europe Middle East and Africa North America South America Average Metrics and Targets recommendations reporting by industry: 2018 reporting a. Climate-Related Metrics b. Scope 1,2,3 GHG Emissions c. Climate-Related Targets
- 12. February 20 |Tweet @CDSBGlobal Core element: Metrics and targets
- 13. February 20 |Tweet @CDSBGlobal 13 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. TCFD Implementation Webinar Series
- 14. February 20 |Tweet @CDSBGlobal Climate Disclosure Standards Board 14 Metrics and Targets Disclose the metrics used by the organization to assess climate- related risks and opportunities in line with its strategy and risk management process. Consider including a discussion of: • Which performance metrics are used to assess and manage financially material climate-related risks and opportunities? • Does the company measure climate-related opportunities, such as revenue from products and services designed for a lower-carbon economy?
- 15. February 20 |Tweet @CDSBGlobal Climate Disclosure Standards Board 15 Metrics and Targets Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. • Scope 1, 2 and 3 emissions • Absolute vs intensity Eni Annual Report 2018
- 16. February 20 |Tweet @CDSBGlobal Climate Disclosure Standards Board 16 Metrics and Targets Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Consider including: • Whether the company’s GHG emissions calculated in line with the GHG Protocol methodology • If the industry has established any generally accepted GHG efficiency ratios that may warrant disclosure • GHG emissions disclosures from historical periods • Discussion of the related risks
- 17. February 20 |Tweet @CDSBGlobal Climate Disclosure Standards Board 17 Metrics and Targets Describe the targets used by the organization to manage climate- related risks and opportunities and performance against targets. Consider including: • Whether the disclosures specify if targets are: o Absolute or intensity based? o The time frames over which they apply? o The base year from which progress is measured?
- 18. February 20 |Tweet @CDSBGlobal Metrics and Targets 18 What do investors want to know? Survey respondents identified the value of: • How the targets set by a company relate to its strategy, and in being able to track and understand a company’s performance • Historical performance data • Disclosure of the calculation methodology • More robust normalization factors to facilitate comparability TCFD Implementation Webinar Series Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
- 19. February 20 |Tweet @CDSBGlobal Climate Disclosure Standards Board 19 Metrics and Targets Existing standards and guidance
- 20. February 20 |Tweet @CDSBGlobal Danone
- 21. February 20 |Tweet @CDSBGlobal Benefits of TCFD recommendations 21TCFD Implementation Webinar Series Unique international framework on how to disclose risks & opportunities linked to climate change Clarified expectations from financial community (investors, regulation authorities of financial markets) and civil society Enabling comparison of information in mainstream reports among different companies CDP climate change questionnaire in line with TCFD recommendations Contributing to raise awareness on climate change impact Resilience of business model Transition risks and opportunities Transformation needed to a low carbon economy
- 22. February 20 |Tweet @CDSBGlobal Why? 22TCFD Implementation Webinar Series As a leading Food & Beverage company, natural capital preservation is key. Resilience of DANONE business model is a main strategic priority. DANONE is actively engaged in the transition to low-carbon economy. Recommendations are in line with EU and French regulatory frameworks Transparency = credibility and reputation
- 23. February 20 |Tweet @CDSBGlobal How? 23TCFD Implementation Webinar Series A multi-stakeholders process Using different methodologies and tools In 2018 Registration document: § 2.7 Risk factors
- 24. February 20 |Tweet @CDSBGlobal What? 24TCFD Implementation Webinar Series
- 25. February 20 |Tweet @CDSBGlobal 25TCFD Implementation Webinar Series What? Scope 1 Scope 2 Scope 3
- 26. February 20 |Tweet @CDSBGlobal Tips for implementation
- 27. February 20 |Tweet @CDSBGlobal Tips from Danone 27TCFD Implementation Webinar Series Implementing TCFD recommendations is a journey. You have to start from somewhere ! Engage internally Strategic planning, Operations, Procurement, Finance,…teams, to identify hot spots. Define relevant KPIs Set targets Mesure progress against them Disclose in meanstream reports and CDP Climate change.
- 28. February 20 |Tweet @CDSBGlobal Tips from Danone 28TCFD Implementation Webinar Series How to get internal buy-in ? Set the appropriate governance involving potentially impacted functions. Make Finance teams aware of sustainability issues and climate change related risks and opportunities. KPIs used in your disclosures should be relevant for business purpose and decison- making process
- 29. February 20 |Tweet @CDSBGlobal Top tips for effective disclosure 1. Make holistic disclosures 2. Qualitative and quantitative reporting 3. Disclose using existing standards and metrics 4. Make as many of the 11 recommended disclosures are you can 29TCFD Implementation Webinar Series
- 30. 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. 30 ww.cdsb.net/tcfdguide ww.cdsb.net/tcfdhandbook learn.tcfdhub.org ww.corporatereportingdialogue.com TCFD Implementation Webinar Series
- 31. February 20 |Tweet @CDSBGlobal Questions? Sundip Jadeja Climate Disclosure Standards Board With the contribution of the LIFE Programme of the European Union. Hosted by CDP Europe. Marie-Pierre Bousquet Danone info@cdsb.net
Editor's Notes
- #4 Thank you Lesley and thank you to everyone for joining us today. Firstly, a quick introduction to the Climate Disclosure Standards Board (CDSB) CDSB = a consortium of 9 environmental and business NGOs, including the Sustainability Accounting Standards Board (SASB) and the World Economic Forum. 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 Some of the members from our Technical Working Group can also be seen on screen
- #5 So why are we here today? CDSB has a framework for reporting environmental & climate change information Consists of 7 guiding principles (the how) and 12 reporting requirements (the what) Framework is fully aligned with the TCFD recommendations and principles – in fact, TCFD was developed based on the CDSB Framework and other leading reporting frameworks Therefore, complimentary to existing reporting provisions (such as CDP, GRI, SASB) and existing regulations – framework is referenced in EU’s Non-Financial Reporting Directive and stock exchange guidance globally
- #6 Moving onto the TCFD Guidelines…
- #7 I assume everyone is at least aware of TCFD, but a reminder for us all as to why this is critical Per the graph on the right there are a range of pathways we may end up going down in relation to policy response to global warming and thus the actual warming impact. And without companies being transparent its difficult to ascertain how they might be impacted by different climate pathways. Generally speaking, there is: A lack of disclosure on climate-related financial information by companies Even if there are disclosures, reporting is inconsistent, there is a lack of context and often boilerplate and non-comparable information is disclosed This lack of consistent information hinders investors and other stakeholders from considering climate-related issues in their decision-making processes
- #8 The Task Force for Climate-Related Financial Disclosures (TCFD) was set up in 2015 to develop voluntary, consistent climate-related financial disclosures to be included in the mainstream report for use by companies in providing information to investors, lenders, insurers, and other stakeholders. TCFD considers both physical and transition risks, as well as opportunities, associated with climate change and what constitutes effective financial disclosures across different industries. The recommendations are for companies to take a forward-looking approach considering climate-related risks over different timeframes with inclusion of both qualitative and quantitative disclosures – particularly relevant for today’s session on Metrics and Targets
- #9 Before moving onto the core part of today’s session, let’s have a look at how companies have got to on TCFD-aligned reporting so far per the most recent TCFD status report from 2019
- #10 TCFD’s 2019 Status Report had four key findings: despite support for the TCFD rising by more than half since September 2018, 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.
- #11 Focussing on the metrics and targets element of the recommendations (the focus of today’s webinar), per the 2019 status report less than half of companies on average produced disclosures on metrics and targets generally - nearly 50% of companies on average disclosed on climate-related metrics, while only a 1/3 on average produced GHG emissions metrics. Looking at a selection of sectors, ‘Materials & Buildings’ was been the best performers, with the Consumer Goods, Banking and Energy sectors close behind. That being said, even though the Insurance sector disclosed the least on average, we do have an example of an insurance company’s disclosures on metrics and targets in our TCFD Good Practice Handbook.
- #12 Geographically, I expect most of our participants will be from Europe and Americas for this session and the status report found that European companies on average outperformed across the board. Our TCFD Good Practice handbook again has examples of good practice by companies from a number of different companies
- #13 Hopefully that’s given you a flavour of where things are – lets now move onto the actual recommendations themselves
- #14 Metrics and Targets element of the recommendations ask companies to disclose the metrics and targets companies use to assess and manage relevant climate-related risks and opportunities Reminder that unlike Governance and Risk Management, Metrics and Targets disclosures only need to be produced in the mainstream annual report where it is deemed material Also keep in mind that each of the four elements of the recommendations should be considered together and not as separate elements.
- #15 First recommendation: Companies should disclose the metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process In order to do this, you should be thinking about the performance metrics you use to assess and manage financially material climate-related risks and opportunities. For example, a specific climate-related risk may have been identified, for which processes have been put in place to manage the risk. As part of this, disclose the metrics you will be using to assess and manage this risk. Similarly, as part of the company’s strategy, climate-related opportunities may have been identified, such as products and services designed for a lower-carbon economy. Disclose the metrics that the company uses to monitor how you are progressing with taking advantage of the opportunity.
- #16 Second recommendation is for companies to disclose their scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and related risks At a high level, scope 1 emissions refer to all direct emissions from the activities of an organisation such a fuel combustion on site such as gas boilers and fleet vehicles. Scope 2 covers indirect emissions from electricity purchased and used by the organisation. Scope 3 covers all other indirect emissions from the activities of the organisation, for example business travel, procurement and waste. This is often the greatest share of emissions. I have pulled out some of the KPI’s from the Italian oil and gas company Eni’s 2018 annual report. The extract only includes scope 1 emissions generated from different sources, but the full table covers scope 2 and 3. You should try to also include the metrics for prior year periods in order to illustrate to users the overall trend of the metric in question. This point applies to all the metrics, not just GHG emissions. In this example, Eni discloses its absolute Scope 1 emissions. Absolute meaning the total emissions in each year from its various sources. They also include an intensity metric, in this case the carbon efficiency index tonnes of carbon dioxide per barrel of oil equivalent – which is basically a relative measure of carbon dioxide against a base. So for example, an asset manager might disclose emissions per Assets under Management or a real estate company might disclose emissions per square foot of real estate owned, alongside their absolute emissions to aid investors and allow comparability with peer companies by using a normalised base.
- #17 Some further things to consider: have your GHG emissions been calculated using the GHG protocol methodology, and if so, have you referenced this. Again this allows users to aggregate and compare across organisations and jurisdictions. Consider including sector specific efficiency ratios applicable to your company, as we discussed on the previous slide – again to aid comparability Finally, this is not about simply producing the numbers. You should also be providing narrative on what the numbers mean for your business and what the related risks are.
- #18 The final recommendation focuses on the targets part of metrics and targets – describe the targets used to manage climate-related risks and opportunities and the performance against those targets The point here is around transparency for the user – so first is the target absolute or based on intensity? Second the time frames over which the targets apply. Again, this should be linked to the relevant risk or opportunity – if you’ve identified a likely risk in the next 15 years, the timeframe of the target should be related. Third, be transparent on the base year from which progress is measured against the target e.g. reducing carbon emissions by 90% by 2030 using a 2015 base level is very different to using a 1995 base level.
- #19 Always keep in mind that information being disclosed should be decision-useful for users A key user of climate-related information are investors. Our friends at SASB have surveyed some investors to understand what they consider to be decision useful TCFD disclosures Investors want to know how the targets set relate to the company’s strategy and they value being able to track and understand progress against the target You can do this by including historical performance data to show trends and progress over time i.e. include prior year comparatives, ideally for multiple years Include the methodology used to calculate the metrics. This enhances the comparability of performance data across similar companies Inclusion of more robust normalisation factors facilitates comparability, by this I mean relative values in addition to absolute values
- #20 One point to keep in mind whether you are starting out on developing climate-related metrics and targets or building on what are already doing is to not reinvent the wheel. It’s far easier to draw on existing standards on metrics reporting For example the annex to the TCFD recommendations on implementing the recommendations includes 50 illustrative metrics examples for different industries and sectors Similarly the Better Alignment Project as part of the Corporate Reporting Dialogue has mapped reporting conducted under CDP, GRI and SASB against the 50 illustrative metrics under TCFD Therefore if you’re already reporting under any of those standards, you can use those for your TCFD reporting purposes. Most of the indicators under CDP, GRI and SASB are already TCFD aligned and where they are not, the Better Alignment Project outlines what you need to do to be TCFD aligned This should hopefully be easier for you as the preparer, and ultimately means its more useful for users if companies are producing more standardised metrics
- #22 Resilience of business model Transition risks and opp’s Transformation needed to a low carbon economy
- #23 Transition: portfolio (White Wave), not only in its opretaions but also in its supply chain
- #30 The TCFD disclosure recommendations should be viewed holistically and connected with the other information in the mainstream report. The metrics disclosed should tie back to your strategy, risk management processes and even governance – don’t just disclose generic climate-related metrics that aren’t material or relevant for your business Reporting should be both qualitative and quantitative – particularly relevant for metrics and targets. You need to include the numbers, but you also need to be disclosing the narrative, be it explaining how the metrics support the company’s risk management process or performance against an identified opportunity, as well as narrative on methodology Lack of comparability can limit the decision-usefulness of disclosures. Beyond scope 1 and 2 emissions, metrics typically different from company to company, even within the same industry. Even when the same metric is used, they are often normalised on different basis. So where possible use existing standards and metrics to make your disclosures. Finally, make as many of the 11 disclosures as possible, but don’t let perfect be the enemy of the good. We recognise that this is an evolving space, and sector-specific good practice on metrics is still being developed. So try and disclose what you can, report what the limitations may be and how you hope to progress in future reporting years.
- #31 Nadine: - Now that we have identified some top tips from the good practices in this year’s disclosure cycle, we would like to share with you a snapshot of the ample resources that are available to help you implement the TCFD. We suggest you start with our twin resources – the guide and handbook. We also wish to draw your attention to the Corporate Reporting Dialogue’s Better Alignment Project report (being launched tomorrow) – this will be of particular interest in the context of the 50 illustrative metrics from the TCFD and how a report preparer can use CDP, SASB or GRI metrics to make some of the quantitative disclosures suggested by the TCFD. It also shows how the five leading framework and standard setters, including SASB and CDSB are collectively aligned to the TCFD principles for effective disclosures and recommended disclosures. It provides a mapping of how we fit together in the context of climate. The World Economic Forum’s climate governance principles, our implementation guide and this good practice handbook are examples of what you will find on the TCFD Knowledge Hub. The Hub is powered by CDSB and an online aggregator for publicly available resources, events, and case studies relating to the TCFD. E-learning courses on making climate related financial disclosures were developed by CDSB and launched earlier this month. We encourage you and your colleagues to test your knowledge, and this provides an excellent introduction or refresher to climate-related financial disclosures.