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Verizon, NRG, Oliver Wyman share tips on TCFD scenario planning and reporting

Scenario planning graphic

More than 1,000 global leaders have announced their support for recommendations from the Task Force on Climate-related Financial Disclosures as part of their climate action plans. But many organizations are still grappling with how, exactly, to do this.

TCFD reporting offers a standardized framework for companies to disclose information on climate-related financial risk to their investors and stakeholders who seek greater corporate transparency. The core elements of the TCFD framework include: governance; strategy; risk management; metrics; and targets. 

During last week’s GreenBiz webcast "How Businesses Can Overcome Barriers to Achieving Climate Goals," three corporate sustainability leaders offered insights for how businesses can best adopt TCFD recommendations into their carbon reduction strategies. 

In particular, TCFD reporting expands the scope of climate-related financial transparency, considering issues related to both corporate social responsibility and risk management, noted Edwin Anderson, partner with management consulting firm Oliver Wyman.

Businesses are exposed to two types of climate risks: physical and transition. Physical risk refers to climate-related events such as natural disasters, while transition risk encompasses the financial costs associated with institutional changes required to decarbonize, Anderson said. In the TCFD framework, these risks are assessed through a climate-scenario analysis, a methodology companies use to set science-based targets in line with their climate goals and to provide insight into climate change’s potential opportunities and risks.

Most senior executives are sympathetic to the problems that the world faces, and you have to face the roles and metrics they rely on.

Greg Kandankulam, senior manager of sustainability at NRG Energy highlighted the importance of engaging a third-party expert to aid scenario-planning. "Don’t be afraid to get external on your scenario process," he said during the webcast. "Sometimes, institutional thinking doesn’t provide everything you need." 

Using the TCFD framework, NRG developed its own scenario, then received recommendations from the International Energy Agency and Intergovernmental Panel on Climate Change, Kandankulam said.

He also emphasized collaboration with individuals on the governance team to increase the likelihood of buy-in. 

"Direction from the board and CEO helps," Kandankulam said. "As the TCFD conversation evolved between 2017-2018, we approached leadership with a body of work and engaged with institutional investors to discuss how important it is, what decision-making is useful, and what stakeholders will be looking for in credibility and disclosure. A collaborative process engenders a greater level of buy-in on a management and executive level."

Emily Bosland, director of ESG reporting and engagement at Verizon, said there was value gained from speaking to investors during the report preparation process. 

After conducting a scenario analysis using IEA’s Sustainable Development Scenario, Verizon drew on the TCFD recommendations to include this disclosure in its recent sustainability reporting: "Even with growth in electricity usage, carbon prices and electricity prices, Verizon is resilient in a carbon policy environment that is aligned to 1.5-2 degrees Celsius." (The company aims to achieve carbon neutrality by 2035 for its Scope 1 and Scope 2 emissions.)

Verizon plans to reach its carbon goal by reducing its corporate emissions across all its operation, investing in renewable energy and buying carbon offsets. It is also using tactics such as adopting newer, energy-efficient technologies and optimizing the temperature control of its data centers, Bosland said.

At the end of the webcast, speakers shared their closing thoughts on best practices for businesses to adopt the TCFD disclosure recommendations. Bosland reiterated Kandankulam’s advice that receiving outside help is useful if feasible. Likewise, Kandankulam expanded on his previous point about prioritizing internal collaboration, advising listeners, "Start canvassing your companies and start finding those champions — risk, strategy, investor relations, get them to understand why this is important and necessary."

Finally, Anderson underscored the effectiveness of explaining the value of TCFD disclosure to executives through monetary terms.

"Pull it back to dollars and cents. Not because it matters most, but because that’s the lever they require to pull," he said. "Most senior executives are sympathetic to the problems that the world faces, and you have to face the roles and metrics they rely on."

This article was updated July 22 to correct several inaccuracies related to Verizon's comments. It was updated again on July 29.

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