Climate risk and decarbonisation have become front-of-mind topics over the past twelve months, as there has been a huge shift in investor and customer sentiment and introductions of new regulatory requirements. As we look to the future, focusing specifically on the technology, media and telecommunications sectors, we aim to answer some key questions – such as how will this affect your organisation, and how can you plan ahead?
In our latest ‘Future of TMT' virtual event, we explored themes such as the Task Force on Climate-related Financial Disclosures (TCFD) framework and where climate risk and decarbonisation responsibilities should sit within an organisation. I was joined by my colleagues Bridget Beals and Simon Weaver, who are both Partners and Co-Heads of our Climate Risk and Decarbonisation Strategy team. They offered their expertise and practical guidance from their experience working with TMT organisations.
The TCFD is a framework that was created by global leaders to assist economic markets in the revolution that climate risk is creating. It guides public companies and other organisations to effectively disclose their climate risks and opportunities, using their existing reporting processes – allowing more effective risk assessment, capital allocation and strategic planning. But why do we need it?
Reflecting on Bridget’s thoughts from the virtual event, there is a view from some of the top business communities that as we move towards a lower carbon economy, the conflation of this change could drive a systemic risk across our market, both in physical and regulation risk. These changes and new consumer behaviours could create a continued impact across the economy, starting with financial institutions – similar to what we saw in the financial crisis in 2008. The TCFD aims to help organisations to avoid these risks by guiding them through what it is that they need to disclose.
In order to best embrace the TCFD framework, we would encourage corporate organisations not to view the TCFD as a disclosure exercise, but as a chance to really get stuck in and embed climate risks and opportunities in their overall business strategy. This will allow a more comprehensive planning which will shift from short term three to five-year cyclical planning, to longer ten to fifteen-year strategic planning horizons. There are several ways that you can start to plan for the longer-term.
One of the ways that has been working for clients in the TMT sector, who are thinking about their future climate risks and opportunities over the long-term, is through scenario analysis. Throughout the COVID-19 pandemic, a lot of organisations have become familiar with scenario analysis as they plan beyond the next one to three-years and think further into the future. One of the key things when conducting scenario analysis is to have confidence in the outputs you receive at the end of it.
A way to ensure that you are confident in the results is to create real world scenarios. We have seen a lot of organisations run very simple scenarios, all the way up to 2050, which can easily be challenged by the board, who, as a result, could choose not to drive the strategic response that is required. One key way in which we assist with this is by pulling together the different elements of data: the scientific data, macroeconomic data and the global economic data, and we evaluate what this mean for the supply and demand drivers in your organisation. We do this in a pragmatic and measured way, so that you’re confident in what you’re presenting to the board, and therefore more likely to receive their backing to proceed with implementing the actions.
In one example, we have worked with a telecoms client who had several cell towers. We looked at the ways in which future weather changes – such as hurricanes, thunderstorms, and heavy rainfalls could impact these towers, and assessed whether they were resilient to these climate shifts.
Now you know some of the ways that you can support your organisations’ climate risk and decarbonisation strategies – but who in the organisation should be leading this? Several years back, there may have been a small team of more junior colleagues who would deal with these topics. But now, the responsibility is at board level – ideally either with the CEO or CFO.
Although the main responsibility would lie within the C-suite, the impact also reaches across the entire organisation – and so a cross-functional team will need to be working on this too. As Simon pointed out during the session, one of the biggest challenges we see organisations facing is whether they put climate risk and decarbonisation into their risk, strategy or investor relations teams. But the solution is to bring all of those teams together, reporting to one of the senior stakeholders we mentioned before.
This is a complex topic, but the key is to tackle it piece by piece – particularly in your first year of planning. Create a roadmap of activities and start to move forwards and demonstrate that you are taking action – as this is what your lenders and investors are going to want to see in the initial stages.
To discuss this topic further please contact us. To find out how we can help you with your decarbonisation and climate risk strategies, you can find more information on our website. If you’d like to join our next ‘Future Of’ event, which will focus on the ‘Future of Talent’ in the TMT sectors, please contact Sarah.Noel@kpmg.co.uk who will register you.