Guidelines onreportingclimate-related
information

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Guidelines on reporting climate-related information

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European Commission
Directorate-General for Financial Stability, Financial Services and Capital Markets Union
European Commission
1049 Bruxelles/Brussel
Belgium© European Union, 2019
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reproduction of individual photos, permission must be sought directly from the
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cover: © Fotolia

EUROPEAN
COMMISSION

Brussels, 17.6.2019
C(2019) 4490 final

COMMUNICATION FROM THE COMMISSION
Guidelines on non-financial reporting:
Supplement on reporting climate-related information

EN

EN

Important noticeThis communication has been prepared pursuant to Article 2 of Directive 2014/95/EU inorder to assist companies concerned to disclose non-financial information in a relevant,useful, consistent and more comparable manner. It is a supplement to the Guidelines on
Non-Financial Reporting adopted by the Commission in 2017 (C(2017)4234 final). This
communication provides non-binding guidelines, and does not create new legal obligations.
To the extent that this communication may interpret Directive 2014/95/EU, theCommission's position is without prejudice to any interpretation of this Directive that may
be issued by the Court of Justice of the European Union. Companies using these guidelines
may also rely on international, EU-based or national frameworks. This communication does
not constitute a technical standard, and neither preparers of non-financial statements nor any
party, whether acting on behalf of a preparer or otherwise, may claim that non-financial
statements are in conformity with this document.

1

Contents
1

2

Introduction ................................................................................................................................ 3
1.1

Why provide new guidelines on climate-related disclosures? ..................................... 3

1.2

Benefits for reporting companies ................................................................................ 4

How to use these guidelines ..................................................................................................... 5
2.1

General considerations ................................................................................................. 5

2.2

Materiality .................................................................................................................... 6

2.3

Climate-related risks, dependencies, and opportunities ............................................... 8

2.4

Structure of the proposed disclosures......................................................................... 11

2.5

Consistency with recognised reporting frameworks and standards ........................... 12
Recommended disclosures and further guidance ........................................................... 12

3
3.1

Business Model ......................................................................................................... 12

3.2

Policies and Due Diligence Processes ....................................................................... 13

3.3

Outcomes................................................................................................................... 15

3.4

Principal Risks and their Management...................................................................... 15

3.5

Key Performance Indicators ...................................................................................... 17

Annex I: Further guidance for banks and insurance companies .......................................... 26
Annex II: Mapping of Non-Financial Reporting Directive Requirements and TCFD
Recommended Disclosures ............................................................................................................. 35

2

1

Introduction
1.1

Why provide new guidelines on climate-related disclosures?

The 2015 Paris Agreement on Climate Change, the United Nations’ Sustainable Development
Goals and the Special Report of the Intergovernmental Panel on Climate Change (October
2018) all call for accelerated and decisive action to reduce greenhouse gas (GHG) emissions
and to create a low-carbon and climate-resilient economy. The EU has agreed ambitious
targets for 2030 regarding GHG emission reductions, renewable energy and energy
efficiency1, and has approved rules on GHG emissions from land use as well as emissions
targets for cars and vans. In 2018 the Commission published its strategic long-term vision fora prosperous, modern, competitive and climate-neutral economy by 2050.2
Companies and financial institutions have a critical role to play in the transition to a lowcarbon and climate-resilient economy. Firstly, an additional annual investment of €180
billion is already needed to meet the EU’s energy and climate 2030 targets, and further funds
will be needed to achieve climate neutrality by 2050. Many of these investments represent
significant business opportunities, and much of the funding will need to come from private
capital. Secondly, companies and financial institutions need to better understand and address
the risks of a negative impact on the climate resulting from their business activities, as well as
the risks that climate change poses to their business. Weather-related disasters caused arecord €283 billion in economic damages in 2017 and could affect up to two-thirds of theEuropean population by 2100 compared with 5% today. Better disclosure of climate related
information by companies can contribute to the implementation of the Sendai Framework for
Disaster Risk Reduction 2015-2030, which calls for governments to evaluate, record, shareand publically account for disaster losses.
In March 2018 the Commission published the Action Plan on Financing Sustainable Growth,with the aim of reorienting capital towards sustainable investment, managing financial risks
that arise from climate change and other environmental and social problems, and fosteringtransparency and long-termism in financial and economic activity.3 The publication of new
guidelines on the disclosure of climate-related information by companies is part of the ActionPlan.
A number of other actions in the Action Plan depend to some extent on companies disclosing
adequate sustainability-related information. This includes, for example, the proposed
regulations on the establishment of a framework (taxonomy) to facilitate sustainable
investment4, on sustainability disclosures by institutional investors and asset managers 5, andon carbon-related benchmarks.6

1

https://ec.europa.eu/clima/policies/strategies/2030_en
https://ec.europa.eu/clima/policies/strategies/2050_en3
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0097
4
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52018PC0353
5
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52018PC0354
6
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52018PC0355
2

3

Without sufficient, reliable and comparable sustainability-related information from investee
companies, the financial sector cannot efficiently direct capital to investments that drive
solutions to the sustainability crises we face, and cannot effectively identify and manage therisks to investments that will arise from those crises.
Corporate disclosure of climate related information has improved in recent years. However,there are still significant gaps, and further improvements in the quantity, quality andcomparability of disclosures are urgently required to meet the needs of investors and otherstakeholders.
In June 2017, the Task Force on Climate-related Financial Disclosures (TCFD), establishedby the G20’s Financial Stability Board, published recommendations to encourage financial
institutions and non-financial companies to disclose information on climate-related risks andopportunities.7 The TCFD recommendations are widely recognised as authoritative guidanceon the reporting of financially material climate-related information, and the Commission
encourages companies to implement them. A number of governments and financial regulators
around the world have expressed support for the recommendations and are integrating theminto their guidance and policy frameworks. Examples include Australia, Canada, Hong Kong,Japan, Singapore and South Africa, as well as some EU Member States.
This supplement integrates the TCFD recommendations, and provides guidance to companies
that is consistent with the Non-Financial Reporting Directive and the recommendations of the
TCFD.
The Technical Expert Group on Sustainable Finance, appointed by the Commission in June
2018, provided recommendations on climate-related disclosures and these guidelines are built
on those recommendations. These guidelines take account of stakeholder feedback on therecommendations of the Technical Expert Group on Sustainable Finance, and of the results ofa targeted online consultation carried out by the services of the European Commission in
February-March 2019.8
1.2

Benefits for reporting companies

Better disclosure of climate-related information can have benefits for the reporting company
itself, such as:

78increased awareness and understanding of climate-related risks and opportunities
within the company, better risk management, and more informed decision-making andstrategic planning;a more diverse investor base and a potentially lower cost of capital, resulting forexample from inclusion in actively managed investment portfolios and insustainability-focused indices, and from improved credit ratings for bond issuance andbetter credit worthiness assessments for bank loans;

https://www.fsb-tcfd.org/
https://ec.europa.eu/info/consultations/finance-2019-non-financial-reporting-guidelines_en

4

2



more constructive dialogue with stakeholders, in particular investors andshareholders;

better corporate reputation and maintenance of social licence to operate.
How to use these guidelines
2.1

General considerations

Companies should read this supplement together with the relevant national legislationtransposing the Non-Financial Reporting Directive (2014/95/EU), and if necessary the text of
the Directive itself.
They should also consider the Non-Binding Guidelines on Non-Financial Reporting
published by the Commission in June 20179, which contain 6 key principles for good nonfinancial reporting, namely that disclosed information should be: (1) material; (2) fair,balanced and understandable; (3) comprehensive but concise; (4) strategic and forwardlooking10; (5) stakeholder oriented; and (6) consistent and coherent. Those principles and theother sections of the Non-Binding Guidelines all apply as appropriate to this supplement.
Companies are also encouraged to read the recommendations of the Task Force on Climaterelated Financial Disclosures, and if relevant the supplementary guidance for the financial
sector and for companies operating in the sectors of energy, transport, material and buildings,
and agriculture, food and forest products.11
Like the general guidelines published in 2017, this supplement on climate-related reporting is
non-binding. Companies may chose alternative approaches to the reporting of climate-related
information, provided they meet legal requirements.
These guidelines recognise that the content of climate-related disclosures may vary between
companies according to a number of factors, including the sector of activity, geographicallocation and the nature and scale of climate-related risks and opportunities.
Methodologies and best practice in the field of climate-related reporting are evolving fast.
These guidelines therefore recognise that a flexible approach is necessary. Companies andother organisations are strongly encouraged to continue to innovate and further improveclimate-related reporting beyond the content of these guidelines. Companies should also
ensure that their approach to climate related reporting is regularly updated in line with thelatest scientific evidence.

9

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017XC0705(01)This does not prevent appropriate consideration of commercially-sensitive information. Relevant information
may be provided in broader terms that still convey useful information to investors and other stakeholders andmeets the overall transparency objective.
11
https://www.fsb-tcfd.org/wp-content/uploads/2017/12/FINAL-TCFD-Annex-Amended-121517.pdf
105

It is not the intention of these guidelines to encourage stand-alone climate reporting.
Companies are encouraged to integrate climate-related information with other financial andnon-financial information as appropriate in their reports.
The default location for the non-financial statement according to the Non-Financial Reporting
Directive is the company’s management report, although many Member States have taken up
the option of allowing companies to publish their non-financial statement in a separate report.
The TCFD proposes that its recommended disclosures should be included in the company’s
mainstream “annual financial filings”.12
Companies should in any case seek to ensure that climate-related information is easily
accessible for intended users. If companies make cross-references to other reports or
documents, this should be done in a simple and user-friendly way, for instance, by applying apractical rule of “maximum one ‘click’ out of the report”.
These guidelines are intended for use by companies that fall under the scope of the NonFinancial Reporting Directive.13 However, they may also be useful for other companies thatwish to disclose climate-related information.
2.2

Materiality

According to the Non-Financial Reporting Directive, a company is required to disclose
information on environmental, social and employee matters, respect for human rights, andbribery and corruption, to the extent that such information is necessary for an understandingof the company’s development, performance, position and impact of its activities.14 Climaterelated information can be considered to fall into the category of environmental matters.
As indicated in the Commission’s 2017 Non-Binding Guidelines on Non-Financial
Reporting, the reference to the “impact of [the company’s] activities” introduced a newelement to be taken into account when assessing the materiality of non-financial information.
In effect, the Non-Financial Reporting Directive has a double materiality perspective:-

The reference to the company’s “development, performance [and] position”
indicates financial materiality, in the broad sense of affecting the value of thecompany. Climate-related information should be reported if it is necessary for anunderstanding of the development, performance and position of the company. This
perspective is typically of most interest to investors.

-

The reference to “impact of [the company’s] activities” indicates environmental andsocial materiality. Climate-related information should be reported if it is necessary
for an understanding of the external impacts of the company. This perspective is

12

See Annex II “Mapping of Non-Financial Reporting Directive Requirements and TCFD Recommended
Disclosures”
13
Large public interest entities according to Directive 2013/34/EU with more than 500 employees.
14
Article 19a(1) of Directive 2013/34/EU (introduced by Directive 2014/95/EU, the Non-Financial Reporting
Directive).

6

typically of most interest to citizens, consumers, employees, business partners,
communities and civil society organisations. However, an increasing number ofinvestors also need to know about the climate impacts of investee companies inorder to better understand and measure the climate impacts of their investment
portfolios.
Companies should consider using the proposed disclosures in these guidelines if they decidethat climate is a material issue from either of these two perspectives.
These two risk perspectives already overlap in some cases and are increasingly likely to do soin the future. As markets and public policies evolve in response to climate change, thepositive and/or negative impacts of a company on the climate will increasingly translate intobusiness opportunities and/or risks that are financially material.
The materiality perspective of the Non-Financial Reporting Directive covers both financial
materiality and environmental and social materiality, whereas the TCFD has a financial
materiality perspective only.

Figure 1
The double materiality perspective of the Non-Financial Reporting Directivein the context of reporting climate-related information

7

When assessing the materiality of climate-related information, companies should consider alonger-term time horizon than is traditionally the case for financial information. Companies
are advised not to prematurely conclude that climate is not a material issue just because someclimate-related risks are perceived to be long-term in nature.
When assessing the materiality of climate-related information, companies should consider
their whole value chain, both upstream in the supply-chain and downstream.
Given the systemic and pervasive impacts of climate change, most companies under thescope of the Directive are likely to conclude that climate is a material issue. Companies that
conclude that climate is not a material issue are advised to consider making a statement tothat effect, explaining how that conclusion has been reached.
2.3

Climate-related risks, dependencies, and opportunities

Climate-related risks
Under the Non-Financial Reporting Directive, climate-related information should, to theextent necessary, include both the principal risks to the development, performance andposition of the company resulting from climate change, and the principal risks of a negative
impact on the climate resulting from the company’s activities. The proposed disclosures inthese guidelines reflect both these risk perspectives.
Unless otherwise stated in the text, references to risks should be understood to refer both torisks of negative impacts on the company (transition risks and physical risks – see below) andto risks of negative impacts on the climate.
Both of these kinds of risk – risks of negative impacts on the company and risks of negative
impacts on the climate – may arise from the companies own operations and may occur
throughout the value chain, both upstream in the supply-chain and downstream.
1) Risks of negative impacts on the climate
Some examples of risks of negative impacts on the climate are:


A company’s industrial production facility might directly emit greenhouse gases(GHGs) into the atmosphere.
The energy that a company buys to run its operations might have been produced fromfossil fuels.
The product that a company makes might require the consumption of fossil fuels, forexample in the case of cars that run on petrol or diesel.
The production of materials used by the company might result in GHG emissions
upstream in their value chain. This may be the case for companies that use materials
such as cement or aluminium in their production processes. Similarly, a company
producing or processing forest or agricultural commodities, including in sectors suchas food, apparel, or wood processing industries, could potentially be causing, directly
or indirectly, land use change including deforestation and forest degradation andrelated GHG emissions.
82) Risk of negative impact on the company
The risks of climate change for the financial performance of the company can be classified asphysical risks or transition risks.15
Transition risks are risks to the company that arise from the transition to a low-carbon andclimate-resilient economy. They include:







Policy risks, for example as a result of energy efficiency requirements, carbon-pricing
mechanisms which increase the price of fossil fuels, or policies to encouragesustainable land use.
Legal risks, for example the risk of litigation for failing to avoid or minimise adverse
impacts on the climate, or failing to adapt to climate change.
Technology risks, for example if a technology with a less damaging impact on the
climate replaces a technology that is more damaging to the climate.
Market risks, for example if the choices of consumers and business customers shift
towards products and services that are less damaging to the climate.
Reputational risks, for example the difficulty of attracting and retaining customers,
employees, business partners and investors if a company has reputation for damaging
the climate.

Generally speaking, a company with a higher negative impact on the climate will be more
exposed to transition risks.
Physical risks are risks to the company that arise from the physical effects of climatechange.16 They include:Acute physical risks, which arise from particular events, especially weather-related
events such as storms, floods, fires or heatwaves, that may damage production
facilities and disrupt value chains.
 Chronic physical risks, which arise from longer-term changes in the climate, such astemperature changes, rising sea levels, reduced water availability, biodiversity loss
and changes in land and soil productivity.

The exposure of a company to physical risks does not directly depend on whether or not thatcompany has a negative impact on the climate.

15This description of transition and physical risks is to a large extent based on the report of the Task Force on
Climate-related Financial Disclosures.
16
Further guidance on reporting physical risks can be found in Advancing TCFD Guidance on Physical Climate
Risks and Opportunities, EBRD and Global Centre of Excellence on Climate Adaptation
https://www.physicalclimaterisk.com/media/EBRD-GCECA_draft_final_report_full.pdf

9Dependencies on natural, human and social capitals
Many companies are dependent on natural capital.17 If the natural capital itself is threatenedby climate change then the company will be exposed to climate-related risks, especially
physical risks. Companies should therefore carefully consider their natural capitaldependencies when identifying and reporting on their climate-related risks. For example, anagricultural production company may be dependent on various natural capitals such as water,
biodiversity, and land and soil productivity, all of which are vulnerable to climate change.
Such a company would be expected to explain these dependencies when reporting on its
climate-related risks.
Many companies are also dependent on human and social capital, such as the skills andmotivation of employees, and the level of trust the company enjoys amongst external
stakeholders. Companies should integrate information on human and social capital as
appropriate in their reporting on climate-related issues. For example, employees may be
critical to the development of innovative low-carbon products and services.
Climate-related opportunities
Climate-related risks can often be converted into opportunities by companies offering
products and services that contribute to climate change mitigation or adaptation.
Climate change adaptation means anticipating the adverse effects of climate change andtaking appropriate action to prevent or minimise the damage they can cause. It includes
business opportunities such as new technologies to use scarce water resources more
efficiently, or the building of new flood defences.
Climate change mitigation refers to efforts to reduce or prevent GHG emissions. Examples ofbusiness opportunities associated with mitigation include renewable energy or thedevelopment of more energy efficient buildings and transport systems.
The taxonomy of sustainable economic activities, proposed by the Commission as part of the
Action Plan on Financing Sustainable Growth, aims to identify and classify climate-related
opportunities.
Figure 2 shows the relationship between climate-related risks and opportunities.

17

Further explanation and guidance regarding natural capital is available from the Natural Capital Coalition
https://naturalcapitalcoalition.org/

10Figure 2
Climate-related risks and opportunities

Climate-related risks and opportunities throughout the value chain
When reporting on their climate-related risks, dependencies and opportunities, companies
should, where relevant and proportionate, consider their whole value chain, both upstream
and downstream. For companies involved in manufacturing activities this means following a
product life cycle approach that takes account of climate issues in the supply chain and thesourcing of raw material, as well as during the use of the product and when the productreaches end-of-life. Companies providing services, including financial services, will alsoneed to consider the climate impacts of the activities that they support or facilitate.
When SMEs are part of the value chain, companies are encouraged to support them inproviding the required information.
2.4

Structure of the proposed disclosures

These guidelines propose climate-related disclosures for each of the five reporting areas listed
in the Non-Financial Reporting Directive: (a) business model (b) policies and due diligence(c) outcome of policies (d) principal risks and risk management and (e) key performanceindicators.
For each reporting area, the guidelines identify a limited number of recommended
disclosures. A company should consider using the recommended disclosures to the extent thatthey are necessary for an understanding of its development, performance, position and impact
of its activities.

11

Further guidance is provided after the recommended disclosures for each reporting area. The
further guidance consists of suggestions for more detailed information that companies may
consider including as part of the recommended disclosures. In addition, further guidance isprovided for banks and insurance companies in Annex I.
When deciding whether and to what extent they use the recommended disclosures and themore detailed suggestions included under further guidance, including the further guidance forbanks and insurance companies in Annex I, companies should take account of the principles
of good non-financial reporting contained in the Commission’s 2017 Non-Binding Guidelines
on Non-Financial Reporting, including the principles about disclosed information being:material; fair, balanced and understandable; and comprehensive but concise.
The scale of climate-related risks and opportunities that the company identifies will be an
important factor in deciding whether and to what extent they use the recommended
disclosures and the further guidance.
2.5

Consistency with recognised reporting frameworks and standards

Companies are encouraged to disclose information in accordance with widely accepted
reporting standards and frameworks to maximise comparability for their stakeholders. To
contribute to convergence at EU and global level, these guidelines refer to a number ofrecognised reporting frameworks and standards.
In particular, they incorporate the recommended disclosures of the Task-Force on Climaterelated Financial Disclosures (TCFD), which are themselves aligned with other principal
frameworks. The disclosures recommended by the TCFD are separately identified in theseguidelines. Annex II shows the disclosure requirements of the Non-Financial Reporting
Directive mapped against the recommended disclosures of the TCFD.
In addition to the TCFD, these guidelines also take particular account of the standards andframeworks developed by the Global Reporting Initiative (GRI), the CDP, the Climate
Disclosure Standards Board (CDSB), the Sustainability Accounting Standards Board (SASB)
and the International Integrated Reporting Council (IIRC) and of the EU Eco-Management
and Audit Scheme (EMAS).18
3

Recommended disclosures and further guidance
3.1

Business Model

It is very important for stakeholders to understand the company’s view of how climatechange impacts its business model and strategy, and how its activities can affect the climate,over the short, medium and long term. To adequately report on climate related matters,companies will need to take a longer term perspective than they normally do for financial
reporting.
18

The Corporate Reporting Dialogue is undertaking work to better align the climate-related disclosures of theIIRC, SASB, GRI, CDP and CDSB. Companies are advised to take account of this work when it is complete.

12The climate-related risks and opportunities of a company will depend on the type of its
activity, its geographic locations and its positioning in the transition to a low-carbon andclimate-resilient economy.
To appropriately incorporate the potential effects of climate change into their planning
processes, companies should consider how climate-related risks and opportunities may
evolve and their potential business implications under different conditions. One way to assess
such implications is through the use of scenario analysis.
Companies that do not appropriately consider their business model and strategy in light ofclimate change may both cause negative effects on the climate and experience negative
impacts on their business such as on the profit and loss statement, financing, future regulatoryburden, and “licence to operate”. On the other hand, identifying new climate-related
opportunities may strengthen the business model and earnings outlook of a company.
Table 1 - Disclosure on Business Model
Describe the impact of climate-related risks and opportunities on the company's businessmodel, strategy and financial planning. [Covers TCFD recommendation Strategy b)]
Describe the ways in which the company’s business model can impact the climate, both
positively and negatively.
Describe the resilience of the company’s business model and strategy, taking into
consideration different climate related scenarios over different time horizons, including atleast a 2°C or lower scenario and a greater than 2ºC scenario.19 [Covers TCFD
recommendation Strategy c)]19Companies are encouraged to consider a 1.5°C scenario, in light of the conclusions of the IPCC 2018 Special
Report. For further information on how to conduct a scenario analysis to assess the strategic resilience of acompany, see TCFD’s Technical Supplement “The Use of Scenario Analysis in Disclosure of Climate-related
Risks and Opportunities”
https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Technical-Supplement-062917.pdf.

13

Further guidance: Describe any changes in the company’s business model and strategy to addresstransition and physical risks and to take advantage of climate-related business
opportunities.
 Describe the company’s dependencies on natural capitals, such as water, land,
ecosystems or biodiversity that are at risk because of climate change.
 Describe how any changes in the company’s business model and strategy to address
climate change mitigation and/or adaptation will change the company’s human capitalneeds.
 Describe opportunities related to resource efficiency and cost savings, the adoption of
low-emission energy sources, the development of new products and services, accessto new markets, and building resilience along the value chain.
 Disclose how the company has selected scenarios.
 Describe how the company’s activities contribute to climate change via GHG
emissions, including from deforestation, forest degradation or land use change.
3.2

Policies and Due Diligence Processes

Governance and control systems are key to stakeholders’ understanding of the robustness of acompany’s approach to climate-related issues. Information on the involvement of the board
and management, in particular their respective responsibilities in relation to climate change,
informs stakeholders on the level of the company’s awareness of climate-related issues.
When describing the role of the board, the company may wish to make a reference to any
corporate governance statement that it is required to publish.
Stakeholders may also be interested in the company’s policies and any associated targets that
demonstrate its commitment to climate change mitigation and adaptation, and in its due
diligence processes. This will help stakeholders to understand the company’s ability to
manage its business to minimise climate-related risk, limit negative impacts on the climate
and maximise positive impacts throughout the value chain.
Policies and processes addressing climate-related topics may be separate from or integrated
into other policies and operational processes. Due diligence processes that take climate into
account, for example, might be integrated into the company’s risk management framework.
The company may want to explain its approach to managing climate-related issues and therationale for choosing that approach.
Table 2 - Disclosure on Policies and Due Diligence Processes
Describe any company policies related to climate, including any climate change mitigation
or adaptation policy.
Describe any climate-related targets the company has set as part of its policies, especiallyany GHG emissions targets, and how company targets relate to national and internationaltargets and to the Paris Agreement in particular.

14

Table 2 - Disclosure on Policies and Due Diligence Processes
Describe the board’s oversight of climate-related risks and opportunities. [Covers TCFD
recommendation Governance a)]
Describe management’s role in assessing and managing climate-related risks andopportunities and explain the rationale for the approach. [Covers TCFD recommendation
Governance b)]
Further guidance: Describe the company’s engagement with its value chain on climate-related issues,
explaining how it engages with upstream and downstream partners to promote climate
mitigation and/or adaptation.
 Explain how climate-related issues are integrated into the company’s operational
decision-making processes.
 Describe any public policy engagement on climate related issues undertaken by thecompany, including membership of any relevant organisations or interest groups.
 Describe whether, how and at what levels (in particular board and management) thecompany has access to expertise on climate-related issues, either from its own internal
capacity and/or from external sources.
 Describe any employee policies that are related to the climate, for example
investments in skills necessary for the transition to low-carbon technologies, ormeasures to ensure employees can perform theirs tasks safely in a changing climate.
 Describe whether and how the company’s remuneration policy takes account ofclimate related performance, including performance against targets set.
 Disclose any energy-related targets the company has set as part of its policies (seeSection 3.5).
 Explain the reasoning behind the selection of any climate-related targets used by thecompany.
 In the case of land sector companies, describe any targets related to GHG “sinks”(GHG absorption).
3.3

Outcomes

Disclosure of climate related policy outcomes helps stakeholders monitor and assess acompany’s development, position, performance and impact as a result of its policies. In
assessing its performance through target setting and reporting against the targets, thecompany demonstrates the consistency of its strategy, actions, and decisions related toclimate change.
Quantitative aspects, such as indicators supporting the analyses, are covered in Section 3.5
Key Performance Indicators of these guidelines.
Table 3 - Disclosure on Outcomes
Describe the outcomes of the company's policy on climate change, including the15

Table 3 - Disclosure on Outcomes
performance of the company against the indicators used and targets set to manage climate
related risks and opportunities. [Covers TCFD Metrics and targets c)].
Describe the development of GHG emissions against the targets set and the related risks
over time. [Covers TCFD Metrics and targets b)].
Further guidance:Describe how the performance of the company with regard to climate influences its
financial performance, where possible with reference to financial KPIs.
3.4

Principal Risks and their Management

It is very important for investors and other interested stakeholders to know how the company
identifies climate-related risks, the principal risks it has identified, and how it manages thoserisks.
Disclosures on risks should include risks of the company having a negative impact on the
climate and risks of climate change having a negative impact on the the company (transitionand physical risks), and whether and how the two are linked. Companies are advised to takeaccount of the risk definitions given in Section 2.3 when deciding what information todisclose regarding risks.
When disclosing information about climate-related risks, companies should consider longerterm time horizons than they traditionally use for financial risks.
Gaps in data and methodologies may in some cases make it difficult to present quantitative
information about climate-related risks, especially regarding longer time horizons. In suchcases, companies are encouraged to present qualitative information until these data andmethodological issues are adequately addressed.
Table 4 - Disclosure on Principal Risks and Their Management
Describe the company’s processes for identifying and assessing climate-related risks overthe short, medium, and long term and disclose how the company defines short, medium, andlong term.20 [Covers TCFD recommendation Risk management a)]
Describe the principal climate-related risks the company has identified over the short,medium, and long term throughout the value chain, and any assumptions that have been
made when identifying these risks. [Covers TCFD recommendation Strategy a)]. This
description should include the principal risks resulting from any dependencies on natural
capitals threatened by climate change, such as water, land, ecosystems or biodiversity.
20

The definition of short, medium and long term is likely to depend on the company’s business model and thelife cycle of its assets and liabilities.

16

Table 4 - Disclosure on Principal Risks and Their Management
Describe processes for managing climate-related risks (if applicable how they makedecisions to mitigate, transfer, accept, or control those risks), and how the company ismanaging the particular climate-related risks that it has identified. [Covers TCFD
recommendation Risk management b)]
Describe how processes for identifying, assessing, and managing climate-related risks areintegrated into the company’s overall risk management. [Covers TCFD recommendation
Risk management c)]. An important aspect of this description is how the company
determines the relative significance of climate-related risks in relation to other risks.
Further guidance:


















Describe any climate adaptation measures undertaken by the company as part of its
risk management process.
Give a detailed breakdown of principal climate-related risks by business activity.
Give a detailed breakdown of principal climate-related risks by geographical location.
Identify the locations that are critical to value chains, including operations, suppliers
and markets.
Describe how the company sets and applies limits to climate related risks, including
any triggers used to escalate issues to management attention.
Describe the processes for prioritising climate-related risks, including any thresholds
applied and indicate which risks across the value chain are considered mostsignificant.
Categorise the principal risks of climate change on the financial performance of thecompany according to whether they are transition risks (policy, legal, technological,
market and reputational risks) or physical risks (acute and chronic risks).
Disclose any risk mapping that includes climate-related issues.
Provide definitions of risk terminology used or references to existing risk
classification frameworks used.
Describe the frequency of reviews and analyses with regard to risk identification andassessment.
Describe the linkages between principal climate-related risks and financial KPIs.
Disclose how scenarios and/or internal carbon pricing are used for risk management
actions such as mitigation, transfer or adaptation.
Disclose the financial impacts of extreme weather events, including possible
indicators on days of business interruptions and associated costs, cost of repairs,
fixed-asset impairment, value chain disruptions and lost revenues.
Describe how the company’s performance is affected by weather variability, inparticular for companies sensitive to variability in temperature and precipitation.
3.5

Key Performance Indicators

According to the Non-Financial Reporting Directive, companies should disclose key
performance indicators relevant to their particular business. They should consider using
17

indicators to support their other climate-related disclosures, such as those related to outcomesor principal risks and their management, and to allow for aggregation and comparability
across companies and jurisdictions. Indicators should be integrated with other disclosures tosupport and explain the narrative. However, it is also considered good practice to publish an
additional table that presents all indicators in one place.
To meet the expectations of the TCFD, companies should disclose indicators and targets usedby the company to assess climate related risks and opportunities in line with their strategy
and risk management processes [Covers TCFD recommendation Metrics and targets a)].
The robustness and reliability of data is key to be able to use the information in decisionmaking processes. Where not apparent, companies should provide a description of and anychanges in the methodologies used to calculate or estimate the indicators.
Recommended indicators21
Subject to the company’s materiality assessment and in order to facilitate greatercomparability of disclosures of non-financial information by companies, companies should
consider disclosing the indicators in this section.

21

To enhance usability, in this section relevant further
each recommended indicator.

guidanceisprovided

immediately after

18

GHG emissions
This section contains four different indicators on GHG emissions: direct GHG emissions; indirect GHG emissions from the generation of acquired and consumed
electricity, steam, heat, or cooling; all other indirect GHG emissions that occur in the value chain of the reporting company; and GHG absolute emissions target.
Companies that decide to use any or all of these indicators should:- calculate their GHG emissions in line with the GHG Protocol methodology or the ISO 14064-1:2018 standard and, where appropriate, with the Commission
Recommendation 179/2013 for common methods on measuring GHG performance following a lifecycle approach (Organisation Environmental Footprint
and Product Environmental Footprint). This will allow for aggregation and comparability across companies and jurisdictions;- indicate the third-party verification/assurance status that applies to their reported scope 1, scope 2 and scope 3 GHG emissions.
KPI

Unit ofMeasureExampleRationale

Direct GHG emissions fromsources owned or controlled by thecompany (Scope 1)

Metrictons
CO2e22270 900
tCO2e

This KPI ensures companies are accurately
measuring their carbon footprints from directemissions.

Alignment with Other
Reporting Frameworks
TCFD Metrics and Targets,
CDP Climate Change
Questionnaire, GRI 305,
CDSB Framework, SASB,EMASEU Policy
Reference
EU emissions
trading system(ETS)
2030 climate &energyframework

Further guidance:- Companies should disclose 100% of their Scope 1 GHG emissions. This will help to improve the quality of other companies’ GHG emissions reporting. If a
company cannot collect reliable data for a proportion of its Scope 1 GHG emissions, it should make a reasonable estimate for that proportion in order to arrive
at a figure for 100%. In that case, the company should also disclose (1) the % of emissions for which reliable data have been collected and the % of emissions
that have been estimated, (2) the reasons why reliable data could not be collected for a proportion of the emissions and (3) the methodology used to estimate
the proportion of emissions for which reliable data could not be collected.
- Companies should, where appropriate, consider disclosing a breakdown of Scope 1 GHG emissions by country or region (including the EU), by businessactivity, and by subsidiary. E.g.: Scope 1 GHG emissions in country/region X 42 260 tCO2e, in country/ region Y 54 180 tCO2e.

22

A carbon dioxide equivalent or CO2 equivalent (CO2e) is a metric measure used to compare the emissions from various greenhouse gases on the basis of their global-warming
potential, by converting amounts of other gases to the equivalent amount of carbon dioxide with the same global warming potential.

19

KPI
Indirect GHG emissions from thegeneration of acquired andconsumed electricity, steam, heat,or cooling (collectively referred toas “electricity”) (Scope 2)

Unit ofMeasureMetrictons CO2e

Example632 400
tCO2e

Rationale
This KPI ensure companies are measuring
emissions from purchased or acquired
electricity, steam, heat, and cooling.

Alignment with Other
Reporting Frameworks

EU Policy
Reference

TCFD Metrics and Targets,
CDP Climate Change
Questionnaire, GRI 305,
CDSB Framework, EMAS

2030 climate &energyframework

Further guidance:- If necessary, companies should state whether there are any sources (e.g. facilities, specific GHGs, activities, geographies, etc.) of Scope 2 GHG emissions
within their selected reporting boundary for which GHG emissions could not be collected or estimated, and the reasons for this.
- Companies should, where appropriate, consider disclosing a breakdown of Scope 2 GHG emissions by country or region (including the EU), by businessactivity, and by subsidiary. E.g.: Scope 2 GHG emissions in country/ region X 98 654 tCO2e, in country/region Y EU: 126 480 tCO2e.

KPIAll indirect GHG emissions (notincluded in scope 2) that occur inthe value chain of the reporting
company, including both upstream
and downstream emissions (Scope
3)

Unit ofMeasureMetrictons CO2e

ExampleRationale

Alignment with Other
Reporting Frameworks

EU Policy
Reference

4 383 000
tCO2e

For most companies, the majority ofemissions occur indirectly from value chain
activities. This KPI helps to gauge thethoroughness of companies’ accounting
processes and to understand how companies
are analysing their emissions footprints.

TCFD Metrics and Targets,
CDP Climate Change
Questionnaire, GRI 305,
CDSB Framework, EMAS

2030 climate &energyframework

Further guidance:- Scope 3 should account for emissions from activities that occur “downstream” and “upstream” from the company’s own operations.
- Companies should not exclude any activity that would compromise the relevance of the reported Scope 3 GHG emissions inventory. The GHG Protocol
Corporate Value Chain (Scope 3) Accounting and Reporting Standard and Annex H of ISO 14064-1:2018 provide criteria for determining relevance.
Companies should explain any excluded categories in their Scope 3 GHG emissions disclosure. When SMEs are part of the value chain, companies areencouraged to support them in providing the required information.

20

KPI

Unit of Measure

GHG
Metric tons CO2e achieved or %absolute
reduction, from base year
emissionstargetExample20% reduction inabsolute emissions,equivalent to a 1 500 000tCO2e reduction by 2025
from 2018 base year

Rationale

Alignment with
Other Reporting
Frameworks

EU Policy
Reference

Target setting provides direction andstructure to environmental strategy.
This KPI helps to understandcompanies' commitments to
reducing emissions and whether thecompany has a goal towards which itis harmonising and focusing
emissions-related efforts.

TCFD Metrics andTargets, CDP Climate
Change Questionnaire,
GRI 103-2 and 305,
CDSB Framework,
SASB, EMAS

2030 climate &energyframework

Further guidance:- Companies should describe whether their target(s) relate(s) to their Scope 1, Scope 2 and/or Scope 3 GHG emissions either in full or in part.
- Companies should describe the development of GHG emissions against the targets set (see Section 3.3 Outcomes).
- Companies should consider setting targets for 2025 or 2030 and review them every five years. They may also consider setting a target for 2050 to align with
the Paris Agreement.
- Companies should, where appropriate, consider disclosing GHG emissions targets by country or region (including the EU), by business activity, and by
subsidiary.
- Companies may consider disclosing an additional intensity target expressed in metric tons CO2e per business metric or % reduction of intensity metric, frombase year (e.g. 8% reduction in relative emissions, equivalent to a reduction of 350 tCO2e per EUR 1 million turnover by 2025 from 2018 base year).

21

Energy
Unit ofMeasureKPI
Total energy consumption
and/or production fromrenewable and nonrenewable sources

MWh

ExampleRationale292 221 MWh consumed
from renewable sources;
1 623 453 MWhconsumed from nonrenewable sources

Energy consumption and production
accounts for an important proportion of
GHG emissions.

Alignment with Other
Reporting Frameworks
TCFD Metrics andTargets, CDP Climate
Change Questionnaire,
GRI 302, CDSB
Framework, SASB,EMASEU Policy
Reference
2030 climate &energyframework;
EnergyEfficiency
Directive

Further guidance- Fuels consumed as feedstock are not combusted for energy purposes and should not be included in calculations for this indicator.
- Include a breakdown of the different sources of renewable energy. Renewable sources of energy are those that can be naturally replenished on a humantimescale, such as wind, solar, hydro, geothermal, biomass, etc. This definition excludes all fossil fuels (coal, oil, natural gas) and nuclear fuels. Waste energy
should not be included if it is derived from fossil fuels.23- When disclosing non-renewable sources of energy, make a distinction between low carbon sources and other sources of non-renewable energy.

KPI

Energy efficiency
targetUnit of Measure

Percentage

ExampleRationale

Alignment with Other
Reporting Frameworks

EU Policy
Reference

6,5 % improvement
by 2025 from 2018base year for
product, output or
activity.

This KPI helps data users understand thecompanies’ ambition to use energy more
efficiently, which can reduce its energy
costs and lower GHG emissions. It
provides further background as to how
the company aims to achieve its
emissions reduction targets.

TCFD Metrics andTargets, CDP Climate
Change Questionnaire,
GRI 103-2 and 302,
SASB , EMAS

2030 climate &energyframework;
EnergyEfficiency
Directive

Further guidanceCompanies should describe progress against the energy targets set (see Section 3.3 Outcomes).
23

Definition of “renewable energy” from the CDP Climate Change Reporting Guidance 2018.

22

KPI

Unit of Measure

ExampleRationale

Alignment with Other
Reporting Frameworks

EU Policy
Reference

Renewable energy
consumption and/or
production target% increase of the
proportion ofrenewable energy
consumed / produced
from base year

13% increase of the
proportion of renewableenergy consumed by2025 from 2018 baseyear

This KPI helps data users understandthe companies’ ambition to produce
or consume energy with lower GHG
emissions.

TCFD Metrics andTargets, CDP Climate
Change Questionnaire,
GRI 103-2 and 302,
EMAS

2030 climate &energyframework;
Renewable
Energy Directive

Further guidance- Companies should describe progress against the energy targets set (see Section 3.3 Outcomes).

Physical risks
KPI
Assets committed
in regions likely to
become more
exposed to acute or
chronic physicalclimate risks

Unit ofMeasureExampleRationale

Alignment with Other
Reporting Frameworks

EU Policy
Reference

Percentage

15% ofbookvalue ofexposedreal assets

Extreme weather events can result in interruptions to or
limitations on production capacity or early curtailment ofoperating facilities. The value of assets in areas exposed toincreased weather informs the potential implications for asset
valuation. It is important to observe this KPI in conjunction
with disclosures regarding the company’s adaptation strategies
and policies.

TCFD Metrics andTargets, all 450a.1 SASB
codes within selectindustries

EU Adaptation
Strategy

Further guidance:- Companies are advised to disclose the sources or methodology they have used to identify regions more exposed to physical climate-related risks.

23

Products and services
KPI
Percent turnover in the reporting year from products
or services associated with activities that meet thecriteria for substantially contributing to mitigation ofor adaptation to climate change as set out in theRegulation on the establishment of a framework tofacilitate sustainable investment (EU taxonomy).
And / or
Percent investment (CapEx) and/or expenditures(OpEx) in the reporting year for assets or processes
associated with activities that meet the criteria for
substantially contributing to mitigation of or
adaptation to climate change as set out in theRegulation on the establishment of a framework tofacilitate sustainable investment (EU taxonomy).

Unit ofMeasureExample12.5% (turnover) from products orservices associated with activities
that substantially contribute to
mitigation of or adaptation toclimate change

Percentage
8% (CapEx) in products associatedwith activities
that substantially contribute to
mitigation of or adaptation toclimate change

Rationale

These KPIs provide useful
information to investors whoare interested in companies
whose products and services
substantially contribute to
mitigation of or adaptation toclimate change whilst notsignificantly harming anyother of the EU’s
environmental objectives.

EU Policy
Reference

Proposed
Regulation on theestablishment of aframework tofacilitatesustainable
investment
Commission action
plan on financing
sustainable growth

Further guidance- Companies should report on this indicator if and when the proposed Regulation on the establishment of a framework to facilitate sustainable investment (EUtaxonomy) is approved. In assessing whether an activity substantially contributes to the two EU objectives of mitigation of or adaptation to climate change
while not significantly harming any other of the EU’s environmental objectives, companies should take account of all relevant criteria and conditions set out
in the Regulation.

24

Green Finance

KPI

Unit ofMeasureClimate-related Green Bond Ratio:
Total amount of green bonds outstanding (at yearend) divided by (a 5-year rolling average of) total
amount of bonds outstanding
and / or,
Percentage
Climate-related Green Debt Ratio:
Total amount of all green debt instruments
outstanding (at year-end) divided by (a 5-year rolling
average of) total amount of all debt outstanding.

ExampleRationale

20% ofbonds

This KPIs helps companies
communicate how their low-carbon
transition plan is supported by debt
financing activities and how capitalis raised for existing and new
projects with climate benefits.

Alignment with
Other Reporting
Frameworks
ISO/CD 14030-1
Green bonds -Environmental
performance of
nominatedprojects andassets (DRAFT)EU Policy
Reference

Commission action
plan on financing
sustainable growth

Further guidance:- The total amount of green bonds or green debt should only include bonds and debt instruments issued according to a potential EU Green Bond Standard if andwhen such a standard is approved, or according to any other broadly recognised green bond framework, such as the Green Bond Principles and the Green
Loan Principles. Companies should specify the green bond framework applied.
- For bond issuers that have issued bonds that are not listed instruments (e.g., as private placements), the breakdown of listed and unlisted should be disclosed.
- Companies should also consider providing future targets related to these KPIs.

25

In addition to the above indicators, companies should also consider the following:---

Sector-specific indicators relevant for the particular industry. Companies from sectors
including but not limited to energy, transportation, materials, real estate, andagriculture should refer to the TCFD’s supplemental guidance for non-financialgroups and other climate-related reporting frameworks to ensure comparability ofreported KPIs across sectors and companies.24
Indicators on related environmental issues. Companies whose business models are
dependent on natural capitals threatened by climate change may need to discloseindicators related to those natural capitals (e.g. water, soil productivity or
biodiversity). Companies with adverse impacts on the climate as a result of land usechange including deforestation and forest degradation should consider disclosing
indicators on these matters.25
Indicators on related human capital and social issues, such as training and recruitmentof employees.
Indicators related to opportunities. Companies engaging with a transition to a lowcarbon and climate-resilient economy, aligned with key EU policies26, carrying out
climate change mitigation / adaptation activities that could translate into opportunities
for the company should consider disclosing KPIs that reflect such efforts. Examples ofthese could be revenues from low-carbon products, revenues from product or services
applying to the circular economy model, and R&D expenditures in circular economy
production.

24

TCFD (2017): Implementing the Recommendations of the Task-Force on Climate-related Financial
Disclosures, https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Annex-062817.pdf. Other
reporting standards and frameworks providing industry-specific KPIs on climate-related issues include the
CDP Climate Change, Water Security and Forests Questionnaires, the GRI 305: Emissions 2016 and GRI 302:
Energy 2016 standards or the SASB industry standards.
25
Additional
guidance
can
be
found
in
The
NaturalCapitalProtocolToolkithttps://naturalcapitalcoalition.org/protocol-toolkit/ and in the Commission Recommendation 179/2013 forcommon methods on measuring GHG performance following a lifecycle approach (Organisation
Environmental Footprint and Product Environmental Footprint).
26
Such as the Circular Economy Package, the Renewable Energy Directive, the Energy Efficiency Directive, the
EU Emission Trading Scheme or the Clean Transport Package. For more details, see
https://ec.europa.eu/clima/policies/strategies/2050_en.

26

Annex I: Further guidance for banks and insurance companies
The requirements of the Non-Financial Reporting Directive apply to large listed companies,
banks, and insurance companies. The Directive imposes the same requirements on allcompanies under its scope, regardless of the sector in which they operate. It therefore does
not impose additional requirements on banks and insurance companies compared to othercompanies.
The proposed disclosures in Section 3 are for all companies that fall under the scope of theNon-Financial Reporting Directive, regardless of their sector of activity, including banks andinsurance companies. Banks and insurance companies should look at the recommended
disclosures under Section 3 from the particular perspective of their business activities,
including lending, investing, insurance underwriting, and asset management activities.27 Thisannex aims to help banks and insurance companies in this exercise, and contains further
guidance for them to consider using, where proportionate, when disclosing the information
recommended under Section 3.
This annex does not address other financial sector companies, such as asset managementcompanies or pension funds, because they do not fall under the scope of the Non-Financial
Reporting Directive. Such companies may nevertheless find some of the proposed disclosuresin this annex useful.
The Action Plan on Financing Sustainable Growth places a particular emphasis on thesystemic importance of the financial sector in enabling the transition to a low-carbon andclimate-resilient economy. Unlike most other companies, banks and insurance companies areboth providers and users of climate-related information. Banks and insurance companies may
exacerbate climate-related risks if their investments and insurance underwriting policies
support economic activities that contribute to climate change via GHG emissions, includingfrom deforestation, forest degradation or land use change. Conversely, they can promote thetransition to a low-carbon and climate resilient economy and increase awareness of thetransition by integrating an evaluation of the potential impact on climate change of theirprospective investments, loans, and insurance contracts into their policies and procedures.
Where appropriate the further guidance set out below makes a distinction between disclosuresthat may be relevant to all banks and insurance companies, and disclosures that would only be
relevant to a particular business activity (lending, investing, insurance underwriting or asset
management).

28

Financial institutions should read and use these proposed disclosures with due regard for any legal
requirements regarding confidentiality.

27

1Business Model

Banks and insurance companies should consider including the following information as partof the recommended disclosures on Business Model under Section 3:--

2

How climate-related risks and opportunities of the investment, lending and insurance
underwriting portfolios might affect the financial institution’s business model.
Whether and how the institution takes into consideration that its counterparties takeclimate-related risks and opportunities into account.
How the assessment of climate-related risks and opportunities are factored into
relevant investment, lending and insurance underwriting strategies and how eachstrategy might be affected by the transition to a lower-carbon economy.
Insurance underwriting activities: how the potential impacts from climate change
could influence policyholder, ceding company, reinsurer and their selection by the
insurance company.

Policies and Due Diligence Processes

Banks and insurance companies should consider including the following information as partof the recommended disclosures on Policies and due diligence processes under Section 3:
-

-

-

-

-

28

How the financial institution encourages better disclosure and practices related toclimate-related risks to improve data availability and any effort to increase theawareness of counterparties, and more generally of customers, of the relevance ofclimate-related issues as part of their lending, investment, and insurance underwriting
processes, including for example by means of specialty climate-related risk advisory
services.
Any stewardship activities related to the financial institution’s climate strategy such as
engagements with companies, outcomes, and proxy voting (e.g. resolutions filed or
supported).
Any investment, lending and insurance underwriting portfolio contributing to climatechange mitigation and adaptation and any relevant target in this respect, e.g. in termsof insurance revenues related to energy efficiency and low carbon technology.
Investment activities: how climate-related issues are considered as drivers of value inthe financial institution’s investment decision process.
Insurance underwriting activities: whether specific climate-related products are underdevelopment, such as the underwriting of risks of green infrastructure and naturebased solutions.28
Insurance underwriting activities: whether any of the company’s life products
incorporate climate considerations in the modelling of biometric risks (Life).

http://ec.europa.eu/research/environment/index.cfm?pg=nbs

28

-

-

-

3

Insurance underwriting activities: whether the insurance company is part of publicprivate partnerships to promote awareness raising about climate-related risks, disasterrisk resilience and/or climate adaptation investments.
Asset management activities: how climate-related considerations are embedded insuitability assessments in order to understand customers’ preferences and awarenessregarding climate-related risks and opportunities.
Asset management activities: how the financial institution ensures that its climaterelated performance is aligned with the climate strategy of its clients.
Asset management activities: the targets associated with climate-related exposure ofassets under management across asset classes (e.g. equity / bonds / infrastructure / realestate / structured products / MBS /derivatives).
Outcomes

Banks and insurance companies should consider including the following information as partof the recommended disclosures on Outcomes under Section 3:-

4

The development trend of the amount of carbon-related assets in the different
portfolios against any relevant target set and the related risks over time.
The development trend of the weighted average carbon intensity for the different
portfolios against any relevant target set and the related risks over time. Financial
institutions should disclose the changes in the sector and geographic allocation of theirinvestments compared to the previous reporting year and explain the impact of thesechanges on the average weighted carbon intensity of their portfolios.
Risks and Risk management

Banks and insurance companies should consider including the following information as partof the recommended disclosures on Risks and risk management under Section 3:---

Whether risk management processes, including internal stress testing, consider
climate-related risks.
Any exposures in the different lending, investment and underwriting activities tosectors perceived as contributing to climate change, which might create reputationalrisks for the financial institution.
The climate related risks identified in the different lending, investment or underwriting
activities and how the financial institution assesses and manages those risks.
The exposure of financial assets, non-financial assets and assets under management toprincipal climate-related risks and provide with a breakdown of those risks in physicaland transition risks.
How the financial institution has assessed the exposure of financial assets and nonfinancial assets to climate-related risks under different climate-related scenarios.

29

-

-

-

-

Characterisation of their climate-related risks in the context of traditional industry risk
categories such as credit risk, market risk and operational risk.29
How climate-related risks could affect overall solvency needs of insurance companies
and banks’ present and future regulatory capital requirements. For that purpose, banks
may use the outcomes of their own internal capital adequacy assessment process (seeArticle 73 of Directive 2013/36/EU), and insurance companies may use the results ofthe calculations carried-out in their Own Risk and Solvency Assessments (see Article
45 of Directive 2009/138/EC and Article 262 of Commission Delegated Regulation(EU) 2015/35), and the outcome of stress testing and sensitivity analysis (see Article
295.6 of Commission Delegated Regulation (EU) 2015/35), in particular when thosetechniques make use of climate related data.30
Lending activities: volume of the collateral highly exposed to climate-related risks andthe impact of the selected scenarios on its value.
Lending activities: volume of real estate collateral by energy efficiency rating
according to energy performance certificates. In particular, volume of real estatecollaterals highly exposed to transition risk, including collateral with the lowest
energy efficiency ratings in comparison to total collaterals.
Lending activities: volume of real estate collaterals highly exposed to physical risk incomparison to total collaterals.
Insurance underwriting activities: processes for identifying and assessing climaterelated risks on re-/insurance by geography, business division, or product segments.
Insurance underwriting activities: mitigating actions, such as reinsurance treaties or
hedging strategies put in place by the institution to reduce climate-related risks and theeffect of any change in such techniques.
Insurance underwriting activities: the amount of carbon-related underwriting
exposures in terms of insurance revenues.

29

Examples of Climate Risks across Insurance Operations and Activities: International Association of Insurance
Supervisors 2018 https://www.iaisweb.org/page/supervisory-material/issues-papers/file/76026/sif-iais-issuespaper-on-climate-changes-risk.
30
In light of regulatory developments in the prudential area, banks and insurance companies should ensure
consistency between the disclosed information required by prudential rules and any other information
disclosed in general purpose reports.

30

5

KPIs

In disclosing indicators related to GHG emissions, banks and insurance companies should focus on their Scope 3 GHG emissions, despite the wellknown challenges. Scope 1 and Scope 2 GHG emissions (direct emissions and indirect emissions from the generation of purchased energy) are likely
to be small when compared to other indirect emissions (Scope 3).
Where relevant and proportionate, the reported Scope 3 GHG emissions of banks and insurance companies should include not only theircounterparties’ Scope 1 and 2 emissions, but also their counterparties’ Scope 3 emissions. When SMEs are part of the value chain, banks andinsurance companies are encouraged to support them in providing the required information.
When disclosing key performance indicators relevant to their particular business and in supporting their other qualitative climate-related disclosures,as recommended under Section 3, banks and insurance companies should consider disclosing the following indicators:
Unit ofMeasureAmount or percentage of carbon-related
assets in each portfolio in M€ or as apercentage of the current portfolio
value.31
Weighted average carbon intensity ofeach portfolio, where data are available
or can be reasonably estimated.32

M inreportingcurrency /percentage
tCO2e/ Mrevenues inreporting

31

KPI

32

ExampleRationale€20 m or 20% carbon-related
assets of bank’s equity portfolio

Show awareness of the exposureof portfolio to sectors affected tovarying degrees by climaterelated risks and opportunities.
Show awareness of the exposureof portfolio to sectors affected tovarying degrees by climate-

A bank reports the carbon
intensity of its equity portfolio
in terms of tCO2e per € m using

Alignment with
Other Reporting
Frameworks
TCFD Common
CarbonFootprinting andExposure Metrics
TCFD Common
CarbonFootprinting and

EU Policy
Reference
2030 climate& energy
framework
2030 climate& energy
framework

The TCFD recognises that the term carbon-related assets is not well defined. Entities need to use a consistent definition to support comparability. The TCFD suggests defining
carbon-related assets as those assets tied to the energy and utilities sectors under the Global Industry Classification Standard, excluding water utilities and independent power
and renewable electricity producer industries.
Financial institutions should disclose the changes in the sector and geographic allocation of their investments compared to the previous reporting year and explain the impact ofthese changes on the average weighted carbon intensity of their portfolios. Financial institutions are advised to review the relevance and utility of this indicator on an annual
basis, in light of rapid advances in the development of scenario analysis methodologies and decision-useful, climate-related risk indicators.
The TCFD acknowledges the challenges and limitations of current carbon footprinting indicators, including that such indicators should not necessarily be interpreted as risk
indicators. The TCFD recognises that some asset managers may be able to report weighted average carbon intensity for only portion of the assets they manage given data

31

KPI

Volume of exposures by sector ofcounterparty.

Unit ofMeasurecurrency
Reportingcurrency% of thetotal risk
exposure

ExampleRationale

third-party carbon data.

related risks and opportunities.

€1 250 m in energy sector
accounting for 17% of total
investments

Show the concentration of
exposures towards high-carbon
and low-carbon sectors.

Alignment with
Other Reporting
Frameworks
Exposure Metrics

EU Policy
Reference
EU Low
CarbonEconomyRoadmap

Lending and Investment Activities
KPI
Credit risk exposures and volumes ofcollateral by geography/country oflocation of the activity or collateral,with an indication of those countries/
geographies highly exposed to physicalrisk.
Volume of collaterals related to assets
or activities in climate change
mitigating sectors.

Unit ofMeasureReportingcurrency% of thetotal
volume ofcollaterals

ExampleRationale€750 mShow the concentration of exposuresand collateral in countries andgeographies highly exposed to physicalrisks.

12% of collaterals

Show the volume of green collaterals,e.g. with lower carbon exposure.

Alignment with
Other Reporting
Frameworks

EU Policy
Reference
EU Low
CarbonEconomyRoadmap

2030 climate& energy
framework

availability and methodological issues. Reporting entities may provide other carbon footprinting and exposure indicators included in the TCFD supplemental guidance for thefinancial sector along with a description of the methodology used (TCFD annex p. 43).

32

Volume of financial assets funding
sustainable economic activities
contributing substantially to climate
mitigation and/or adaptation (absolute
figures and compared to total
exposures) according to the EU
taxonomy.
Total amount of the fixed income
portfolios invested in green bondcertified according to a potential EU
Green Bond Standard if and when sucha standard is approved, or according to
any other broadly recognised green
bond framework (at year-end) dividedby (a 5-year rolling average of) total
amount of holdings in fixed income
portfolios.

Reportingcurrency% of thetotal risk
exposure
Percentage
and total
amount in-Reporting
currency€650 m accounting for 12%of lending portfolio

Show the concentrations of green
investments and their resilience toclimate change.

Green bonds compared tovanilla bonds underwritten
or emittedThis indicator demonstrates
commitment to green finance and theinvestor’s strategy and transition path
towards alignment with a well below
2°C scenario.
It helps demonstrate track-record andforward-looking data can underpin theinvestor’s transition strategy with arobust key-performance indicator.

EU Low
CarbonEconomyRoadmap

The proposed
draft version of
ISO 14030(October 2018)
on green bonds
already requires
reporting on thisindicator.

Upcoming
EU eco-labelon green
financial
products.33

Insurance underwriting activities
KPI

Breakdown of underwriting exposure bylines of business to economic sectors(life / non-life / reinsurance).

33

Unit ofMeasureExampleRationale

Alignment with
Other Reporting
Frameworks

Reportingcurrency

Amount and % of net premiums
written and of technical provisions as
in Directive 2009/138/EC derivingfrom infrastructure insurance frompolicyholders in the energy sector.

Demonstrate awareness ofcurrent economic exposureand concentration (if any) inindustries that are impacted
by climate change in varying
degrees.

EU Taxonomy
SASB
Directive
2009/138/EC(Solvency II)

EU Policy
Reference
2030 climate& energy
framework

European eco-label currently being developed by the European Commission with support from the EC’s Joint Research Centre (JRC)33

Percentage of products incorporatingclimate-related risks into theunderwriting process for individual
contracts (life / non-life / reinsurance).

Number and value of climate-related
underwriting products offered (Non-life/ reinsurance).
The company has developed a specificoffering for geographic areas
particularly exposed to extreme weather
events, and discloses quantitative
information around the uptake of the
product.
Maximum Expected Loss from natural
catastrophes caused by climate change(life / non-life / reinsurance).

Total losses attributable to insurance
payouts from (1) expected natural
catastrophes and (2) non-expectednatural catastrophes, by type of eventand geographic segment (net and grossof reinsurance).

0-100%

Products could be related to a specific
type of risk or to a segment of theclientele with particular exposure toclimate risks.

Demonstrate productportfolio resilience toclimate change.

Reportingcurrency
NumberThe company has developed a
specific offering for geographic areas
particularly exposed to extreme
weather events, and discloses
quantitative information around theuptake of the product.

Demonstrate ability tocapture opportunities
deriving from climatechange mitigation andadaptation.

Reportingcurrency

Reportingcurrency

A company discloses its Net
Maximum Expected Loss by peril andregionBased on Occurrence Exceedance
Probability (OEP) in billion EUR.
Perils include hurricanes, floods,
wildfires and droughts.
A company discloses the key resultsof its natural catastrophe risk
management.

SASB

N/A

2030 climate& energy
framework

2030 climate& energy
framework
EU
Adaptation
Strategy

Demonstrate risk
management maturity andbusiness resilience toadverse conditions.

SASB FN-IN450a.1,
AODP
ASTM

2030 climate& energy
framework
EU
Adaptation
Strategy

Demonstrate risk
management maturity andbusiness resilience toadverse conditions.

SASB FN-IN450a.2,
GRI 201-2

2030 climate& energy
framework

34

Asset Management activities

KPI
Breakdown of assets under management bybusiness sector across asset classes (equity /bonds / infrastructure / real estate / structured
34
products / MBS / derivatives).

34

Unit ofMeasureExampleReport the net
Reporting asset value incurrency equity broken
down by industry.

Rationale

Alignment with
Other Reporting
Frameworks

EU Policy
Reference

Demonstrate awareness of current
economic exposure and concentration (ifany) in industries that are impacted byclimate change in varying degrees.

EU Taxonomy
EIOPA
SASB FN-IN410a. GRI 201 -2

2030 climate& energy
framework

The amounts per industry, and/or sector of counterparty, as defined in financial filings. Specify definitions used.
Report high-level sector exposure based on the Statistical classification of economic activities in the European Community (NACE) – one-digit codes. In particular, report
exposure to high-carbon intensive sectors - A, B, C, D, E, F, H.
The entity should disclose its exposure to at least the 10 largest industries by monetary amount of exposure, or to industries representing at least 2 percent of the overallmonetary exposure.

35Annex II: Mapping of Non-Financial Reporting Directive Requirements and TCFD
Recommended Disclosures
The disclosures proposed in this supplement correspond to the requirements of the NonFinancial Reporting Directive (NFRD) and are also designed to integrate the recommended
disclosures of the TCFD.
The graphic below illustrates how this supplement allocates each of the TCFD recommended
disclosures to a disclosure requirement of the NFRD. This represents one option for crossreferencing the TCFD recommended disclosures with the disclosures required by the NFRD.
Since the NFRD and TCFD use different terms and concepts, this cross-referencing can bedone in other ways. Companies may wish to consider other options and are encouraged toexperiment further in this regard.
Figure 3
Mapping of NFRD Requirements and TCFD Recommended Disclosures

NFRD Elements

Risk Mgmt.

Strategy

Governance

Policies and Due
TCFD Recommended
Business Model
Diligence
Disclosures
Processesa) Board’s oversightxb) M anagement’s rolexa)

Climate-related risks andopportunitiesb)

Impact of climate-relatedrisks and opportunitiesc)

Resilience of theorganization’s strategya)Processes for identifying
and assessing

Principal Risks
and Their
Management

Key
Performance
Indicatorsxxb) Processes for managing
c)Metrics & Targets

Outcomes

Integration into overallrisk managementa) M etrics used to assessb) GHG emissionsc) Targets

Companies that are subject to the requirements of the NFRD and that seek to implement the
TCFD recommendations may wish to consider the following:36

The TCFD proposes that its recommended disclosures are published in the company’s“annual financial filings”35. The NFRD allows Member States to permit companies topublish their non-financial statement in a separate report under certain conditions, and amajority of Member States have taken up this option. If a company subject to the NFRD
wants to the meet the recommendations of the TCFD regarding the location of its climaterelated disclosures, it should publish these disclosures in its management report.



The materiality perspective of the NFRD covers both financial materiality andenvironmental and social materiality, whereas the TCFD has a financial materiality
perspective only. In principle therefore, information considered material from theperspective of the TCFD should also be material from the perspective of the NFRD.

The TCFD states that its recommended disclosures related to Strategy and to Metrics andTargets should be subject to a financial materiality assessment. The TCFD does not,however, state that a materiality assessment should apply to its recommended disclosureson Governance and Risk Management, implicitly proposing that its disclosures on
Governance and Risk Management should be made irrespective of materiality. Therefore,
a company wanting to implement the TCFD recommendations may need to disclose
certain information even if that information is not required according to the NFRD.

35

Implementing the Recommendations of the TCFD - Appendix 2 Glossary: Financial Filings refer to theannual reporting packages in which organisations are required to deliver their audited financial results under
the corporate, compliance, or securities laws of the jurisdictions in which they operate. While reporting
requirements differ internationally, financial filings generally contain financial statements and otherinformation such as governance statements and management commentary.

37

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