Managing Climate Financial Risk

What should be included in a good climate report?

To properly price and manage climate-related risk, financial institutions need to produce reliable and comparable climate reports based on consistent and relevant data.

To help them build these reports, the Climate Financial Risk Forum published their Climate Disclosures Dashboard 2.0. explaining what relevant metrics to include and providing real-world examples.

The disclosures fall within 5 categories:

• Transition risks to understand and assess companies' exposure to these risks and assess the impact on their valuation and financial performance.
• Physical risks to assess the vulnerability of companies' assets and supply chains to climate events and their financial consequences.
• Financed emissions and portfolio alignment to comply with most regulatory requirements and identify industry best practices regarding decarbonisation in each portfolio.
• Financing the transition to assess the contribution to the emergence of new technologies and market practices needed to transition the economy to net zero.
• Engagement to reflect not only the influence of investors over companies' management to climate action but also their commitment to partnerships with peers and policy advocacy.

These guidelines are notably based on existing frameworks from the Taskforce on Climate-related Financial Disclosures (TCFD), the Glasgow Financial Alliance for Net Zero (GFANZ), and the Transition Plan Taskforce (TPT).

They only target climate-related disclosure but embrace a double materiality approach, enabling investors to disclose on both the impact of climate change on them and their impact on climate change.