A key challenge in managing climate-related risk and meeting requirements such as those of the TCFD is the lack of relevant and reliable data. Businesses can’t manage what they can’t measure. Yet in relation to climate change risk, they are operating in a fragmented data landscape with missing or unreliable data points. Even where third parties produce emissions data, for example, this will be self-generated and may not be subject to any independent audit or assurance process. Organizations will need to have reliable information from suppliers along their supply chain. They will want to know about current GHG emissions, and plans for achieving future reductions. If suppliers are not aiming to become net-zero themselves, should alternative suppliers be sourced whose climate change goals are in closer alignment?
The messages from companies and investors is increasingly clear, better data is needed to inform strategy and business outcomes. As an example, Climate Action 100+ (CA100+) – an alliance of investors who manage more than US$40 trillion, coordinated by five global investor networks, including the Institutional Investors Group on Climate Change (IIGCC) – is asking for companies to curb emissions, enhance governance and improve climate-related disclosures. It is engaging with 100 “focus companies” in the Morgan Stanley Capital International All Country World Index (MSCI ACWI) global equity indexes with the highest direct and indirect emissions, and an additional 61 firms that present high levels of climate risk or opportunity.
Specifically, the CA 100+ initiative aims to fundamentally change corporate behavior, and can point to commitments secured from some of the world’s largest oil, gas and mining companies, which have agreed to enhance their climate change commitments in response to engagement campaigns by the initiative. CA100+ intends to provide enhanced corporate disclosure in line with the final recommendations of the TCFD and, when applicable, sector-specific Global Investor Coalition on Climate Change Investor Expectations on Climate Change to enable investors to assess the robustness of companies business plans against a range of climate scenarios, including well below 2 degrees Celsius, and improve investment decision-making.
To support this, CA100+ is engaged with companies to support them to improve the completeness of TCFD disclosure. This data will enable consumers of data, data distributors and providers to have access to data that they have increased confidence in to support investment decisions. The CA100+ initiative engaged with a number of key data providers through the “Technical Advisory Group,” including Transition Pathway Initiative (TPI), CDP, Coral Triangle Initiative (CTI), 2DII and InfluenceMap that provide various data points that help financial services companies form a view on climate action from companies.
The COVID-19 pandemic can be seen as a compressed version of a persistent climate-related event. Experiences gained now can be put to use in helping prepare for future climate change risks. For example, predicting how badly individual businesses will be affected by the COVID-19 pandemic involves understanding how suppliers down the line are affected – not just the first tier, but in the second and potentially the third tier too. Many organizations won’t have this information. Few, if any, will know all the constituents of their supply chain and the extent of their exposures. The reality of the knowledge gaps that currently exist was recently exposed by the 2019-2020 Australian wildfires. Some businesses were caught out by supply chain disruptions, unaware that they had connections to businesses operating in Australia.
As a result, organizations are becoming more aware of the need for effective third-party risk management (TPRM). Understanding the location of product and service suppliers is seen as increasingly important for enabling businesses to function as effectively as possible. Some geographies may be particularly vulnerable to climate change impacts. For example, research indicates that the southern US is entering a megadrought. Could businesses dependent on high water consumption be adversely affected? What impact might that have on the supply chain? Do businesses along that chain need to consider alternative supply options to protect themselves?