Suddenly, we find ourselves in a world with the distinct possibility of reaching consensus on achieving the ambitions of the Paris Agreement for the very first time. President elect, Joe Biden, has committed to returning the USA to the Paris Agreement on his first day in office, and 53% of the world’s emissions are covered by a Net Zero target indicative of the strong, decisive action we can expect on Nationally Determined Contribution updates at COP26 in November 2021.
And with this trend, transition risks and opportunities are burgeoning, with greater uptake in corporate front half disclosure, principally via the Task Force on Climate-related Financial Disclosures (TCFD) framework, becoming the vehicle for observing the consequential risks, opportunities and related metrics and targets of corporates.
However, the majority of company responses we are seeing to date, are qualitative disclosures. If corporates are quantifying risks, it is generally focused on the notional impact of a carbon price upon their operations. Though without quantification of the risks and opportunities, boards will find it hard to compare climate change against their wider enterprise risks; and for investors to make informed decisions about the allocation of their capital.
These findings are supported by the TCFD’s latest Scenario Analysis Guidance, where they have declared ‘quantification... is a necessary goal in a mature process.’