ERMSI Blog - Table 02 – 1200px - Navigating Climate-Related Financial Risk

Challenge

Context

Lack of guidance

Emerging space, with new learning required for both companies and external experts.
Limited guidance from frameworks / standard setters (e.g., TCFD recommends quantitative analysis, but provides very little guidance on how this should be conducted).
Different firms use different methodologies and processes.

Intensity of the data review and collection process

Modelling methodologies can be complex and dependent on many data inputs across every one of a company’s operating geographies or assets.
Data collection can be intensive and/or certain data inputs may be unavailable – companies may also not have capacity to complete data collection.
Lack of necessary data requires calculations to be built on several assumptions, introducing uncertainty.

Need to provide meaningful, tangible results for the company

Moving from a reporting exercise to implementation requires methods and results to be tailored to enable ease of integration into company processes.
There is a need to produce results that are meaningful to stakeholders and can also be practically incorporated into current strategy and business planning so as to lead to the highest possible impact.
Involving correct stakeholders from the outset (e.g., finance teams).

Complexity of climate disclosure frameworks and regulatory requirements

The regulatory landscape is fast evolving, and requirements under each framework can be complex.
Integrating climate impacts into financial statements and processes is a new space for both companies and external experts.

Emerging space, with new learning required for both companies and external experts.
Limited guidance from frameworks / standard setters (e.g., TCFD recommends quantitative analysis, but provides very little guidance on how this should be conducted).
Different firms use different methodologies and processes.

Intensity of the data review and collection process

Modelling methodologies can be complex and dependent on many data inputs across every one of a company’s operating geographies or assets.
Data collection can be intensive and/or certain data inputs may be unavailable – companies may also not have capacity to complete data collection.
Lack of necessary data requires calculations to be built on several assumptions, introducing uncertainty.

Need to provide meaningful, tangible results for the company

Moving from a reporting exercise to implementation requires methods and results to be tailored to enable ease of integration into company processes.
There is a need to produce results that are meaningful to stakeholders and can also be practically incorporated into current strategy and business planning so as to lead to the highest possible impact.
Involving correct stakeholders from the outset (e.g., finance teams).

Complexity of climate disclosure frameworks and regulatory requirements

The regulatory landscape is fast evolving, and requirements under each framework can be complex.
Integrating climate impacts into financial statements and processes is a new space for both companies and external experts.