Task Force on
Climate-related
Financial Disclosures
Guidance on Risk Management
Integration and Disclosure

October 2020

Contents

A. Background and Purpose

1

B. Scope and Approach2

1. Companies in Scope2

2. Focus on Climate-Related Risks

2

3. Common Risk Management Language

3

C. Unique Characteristics of Climate-Related Risks

4

D. Integration in Practice: Key Principles and Initial Steps

6

1. Key Principles to Guide Integration of Climate-Related Risks

7

2. Initial Steps for Integrating Climate-Related Risks into Risk Management8

3. Key Takeaways

18

E. Disclosure of Risk Management Processes

19

1. Features of Decision-Useful Risk Management Disclosures

19

2. Examples of Risk Management Disclosures

21

Appendix 1: Climate-Related Risks and Potential Financial Impacts

35

Appendix 2: International Risk Management Frameworks

38

Appendix 3: Additional Information on Integration

39

Appendix 4: Glossary

46

Appendix 5: References

47

The Task Force gratefully acknowledges the work of Swiss Re’s Martin Weymann (Task Force Member), Nicholas Kitching,and Martin Strassner; the World Business Council for Sustainable Development’s Lois Guthrie and Luke Blower; and the
TCFD Secretariat’s Stacy Coleman, Silvia Iancu, and Julia Berthel in the development of this guidance.

The Task Force on Climate-related Financial Disclosures

A. Background and Purpose
Since the Task Force on Climate-related Financial
Disclosures (Task Force or TCFD) issued its
final recommendations in June 2017, it hasmonitored climate-related financial disclosure
practices and sought to identify and, whenpossible, address challenges in implementing
the TCFD recommendations.1 As part of thoseefforts, the Task Force identified specific issues
related to implementing its Risk Management
recommendation (see Figure A1), including
the following:• 75% of companies surveyed by the
TCFD indicated the Risk Management
recommendation is somewhat or very
difficult to implement and• several of these companies indicated they do
not have processes for identifying, assessing,or managing climate-related risks.2

Figure A1
Risk Management Recommendation

Table of Contents

Disclose how the company identifies, assesses,
and manages climate-related risks.

A.
Background and Purposea) Describe processes for identifying andassessing climate-related risks.

B.
Scope and Approachb) D escribe processes for managing
climate-related risks.

C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendicesc) D escribe how processes for identifying,assessing, and managing climate-related risks
are integrated into overall risk management.

In addition, the Task Force’s latest status
report shows companies’ disclosure of theirrisk management processes is lower thantheir disclosure of most other recommended
disclosures.3 Given this and the issues noted
above, the Task Force developed this guidance
to help address some of the issues companies

may face in implementing the Risk Management
recommendation.4 In particular, this guidanceis aimed at companies that are interested in
integrating climate-related risks into their existingrisk management processes and disclosing
information on their risk management processes
in alignment with the TCFD recommendations.
Companies with established risk management
processes for climate-related risks — regardlessof whether those processes are integrated
into broader or overall risk management
processes — may find Section E. Disclosureof Risk Management Processes useful fordisclosing information in alignment with the Risk
Management recommendation.
The remainder of this guidance is organized asfollows:
Section B. Scope and Approach. Describes thescope of this guidance to cover financial andnon-financial companies with a focus on climaterelated risks and the Task Force’s use of definedrisk management concepts and terms to ensure
consistency of the terminology used.
Section C. Unique Characteristics of
Climate-Related Risks. Describes the uniquecharacteristics of climate-related risks that areimportant to consider when integrating suchrisks into existing processes.
Section D. Integration in Practice: Key Principles
and Initial Steps. Explores the practicalities ofintegrating climate-related risks into existing risk
management processes.
Section E. Disclosure of Risk Management
Processes. Describes features of decision-usefulrisk management disclosures as well as examples
of companies’ disclosures.
Appendices. Provide further information
on topics covered in the guidance, includingtransition and physical risk definitions, additional
information to support integration, andreferences.

1

TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, June 29, 2017.

2

 s part of its 2019 status report, the Task Force conducted a survey to better understand companies’ efforts to implement the TCFD
A
recommendations and associated challenges. See the Task Force’s 2019 status report, pp. 56–57.

3

See the Task Force’s 2020 status report.

4In this document, the Task Force uses the term “companies” to refer to entities with public debt or equity and other organizations implementing
the TCFD recommendations.

1

The Task Force on Climate-related Financial Disclosures

B. Scope and Approach
The Task Force recognizes companies
implementing its recommendations comefrom various industries and use a wide rangeof practices and techniques to manage theirrisks. Some may use fully integrated, enterprisewide risk management processes while others
may use risk management processes that are
more focused on individual hazards. In thisguidance, the Task Force does not prescribe
specific risk management frameworks orapproaches as individual companies are
best positioned to determine this given theircircumstances. Instead, this guidance focuseson integrating climate-related risks into existingrisk management processes and disclosing
information on those processes.

Table of Contents“Incorporating climate change risks into
the existing risk management frameworkis likely to be the best way to ensure thatthe impact of climate change is properly
considered in decision making.” 5A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

1. COMPANIES IN SCOPE
In developing this guidance, the Task Forceconsidered the types of companies that might
benefit most from it. Based on the results of the
Task Force’s survey for its 2019 status report,
companies that found the Risk Management
recommendation difficult to implement andindicated they do not have processes for
identifying, assessing, or managing climaterelated risks were nearly evenly split between
financial and non-financial companies. As aresult, this guidance is intended to cover awide range of companies — from banks andinsurance companies to various types of nonfinancial companies, including energy; building
and materials; and agriculture, food, and forest
products companies. In addition, as with its
recommendations in general, the Task Force
expects this guidance to be useful to companiesof all sizes and located in various countries
around the world.

5

2. FOCUS ON CLIMATE-RELATED RISKS
In its 2017 report, the Task Force made fourrecommendations on climate-related financial
disclosures, described in Figure B1. Notably,
the Task Force’s recommendations related togovernance, strategy, and metrics and targets
ask companies to disclose specific informationon their climate-related risks and climate-related
opportunities, while the recommendation on risk
management focuses on climate-related risks.
Since the primary purpose of this guidance isto help companies with implementing the Risk
Management recommendation, its primary
focus is on climate-related risks. Nevertheless,the Task Force believes consideration of climaterelated opportunities is equally as important andrecognizes the execution of risk management
processes may facilitate the identification of

Figure B1
TCFD Recommendations
The Task Force’s recommendations on
climate-related financial disclosures, listed
below, are structured around four thematic
areas that represent core elements of how
companies operate: governance, strategy,
risk management, and metrics and targets.
Governance
Disclose the company’s governance aroundclimate-related risks and opportunities.
Strategy
Disclose the actual and potential impacts ofclimate-related risks and opportunities on thecompany’s businesses, strategy, and financial
planning where such information is material.
Risk Management
Disclose how the company identifies, assesses,
and manages climate-related risks.
Metrics and Targets
Disclose the metrics and targets used toassess and manage relevant climate-relatedrisks and opportunities where such information
is material.

Parker Fitzgerald, Climate Change Risk Management in Financial Services, November 2019, p. 2.

2

The Task Force on Climate-related Financial Disclosures

Table of Contents
A.
Background and Purpose

opportunities. Climate-related opportunities may
arise as part of the development of responses
to specific climate-related risks — for example
operational and restructuring efficiencies anddevelopment of new products, services, andmarkets. In terms of defining climate-relatedrisks, this guidance uses the definitions includedin the Task Force’s 2017 report, as described inAppendix 1: Climate-Related Risks and Potential
Financial Impacts. In its 2017 report, the Task
Force divided climate-related risks into two major
categories — (1) risks related to the transition toa lower-carbon economy and (2) risks related tothe physical impacts of climate change.

management topics in this guidance. COSO’s
ERM framework provides a possible approachfor boards and management to use to identify
risks, manage such risks within a definedrisk appetite, and support the achievementof objectives. The framework describes
considerations around linking risk with strategy
setting and day-to-day activities and embedding
risk throughout a company’s culture andperformance management practices. The
framework is built around five components,
as described in Figure B2; and while all fivecomponents are relevant to managing risk,
this guidance focuses on the “Performance”
component, which aligns with the Task Force’s
Risk Management recommendation.

3. COMMON RISK MANAGEMENTLANGUAGE

Importantly, while this guidance uses concepts
from COSO’s ERM framework, it is intended foruse with other risk management frameworks aswell, such as ISO 31000 or company-specific risk
management frameworks and processes.
In addition, the Task Force recognizes companies
implementing its recommendations may besubject to specific laws and regulations that
affect how they operate — including how they
manage risk — and what information they
disclose. This guidance should not be seen as
superseding laws and regulations to which acompany is subject.

Since the guidance is intended for companiesof all sizes, from a wide range of industries, andlocated in various countries around the world,
the Task Force sought to frame the discussion ofrisk management processes using concepts froma well-recognized, international risk management
framework. As described in Appendix 2:International Risk Management Frameworks,
the Task Force uses the Committee of Sponsoring
Organizations of the Treadway Commission’s(COSO’s) enterprise risk management (ERM)
framework as the foundation for discussing risk

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks

Figure B2

COSO’s Risk Management Components
Figure B2

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
GOVERNANCE & CULTURE

Appendices

Governance sets the tone,
reinforcing the importance ofand establishing oversight
responsibilities for enterpriserisk management. Culture
pertains to ethical values,
desired behaviors, andunderstanding of risk in thecompany.

STRATEGY &OBJECTIVE-SETTINGPERFORMANCEREVIEW & REVISION

INFORMATION,
COMMUNICATION& REPORTING

ERM, strategy, andobjective-setting work
together in the strategicplanning process. A risk
appetite is established andaligned with strategy;
business objectives put
strategy into practice whileserving as a basis for
identifying, assessing, andresponding to risk.

Risks that may impact theachievement of strategy
and business objectives
need to be identified andassessed. Risks areprioritized by severity inthe context of risk
appetite. The company
then selects risk responses.

By reviewing performance, acompany can consider how
well the enterprise risk
management components
are functioning over time andin light of substantialchanges, and what revisions
are needed.

Enterprise risk management
requires a continual processof obtaining and sharing
necessary information, fromboth internal and externalsources, which flows up,
down, and across thecompany.

Executive Summary: Enterprise Risk Management — Integrating with Strategy and Performance, © 2017, Committee of Sponsoring
Organizations of the Treadway Commission (COSO). All rights reserved. Used with permission.
Note: Emphasis added to Performance component.

3
Executive Summary: Enterprise Risk Management—Integrating with Strategy and Performance, © 2017, Committee of Sponsoring

The Task Force on Climate-related Financial Disclosures

C. Unique Characteristics
of Climate-Related Risks
on the impacts of global warming of 1.5°C, theIntergovernmental Panel on Climate Change(IPCC) warned limiting the global averagetemperature to a maximum of 1.5°C requires“rapid and far-reaching transitions in land,
energy, industry, buildings, transport, andcities.” 7 Some of the possible implications
associated with different levels of warming
are shown in Figure C1.8

In integrating climate-related risks into their
existing processes, companies should consider
the unique characteristics of these risks as they
may affect how integration is accomplished.
In this section, the Task Force provides a brief
description of the wide-ranging implications ofclimate change and then highlights the uniquecharacteristics of climate-related risks.
In terms of the range of implications of climatechange, it is widely recognized that continued
emission of greenhouse gases will cause further
warming of the Earth and that warming above
2° Celsius (2°C), relative to the preindustrial
period, could lead to catastrophic economic
and social consequences.6 In its special report

These implications include potential impacts onhuman health, infrastructure, transportation
systems, energy, food, and water supplies.
For companies, this means climate change canaffect their facilities and operations, supply anddistribution chains, employees, and customers.

Figure C1Table of Contents

Possible Implications of Different Temperature Increases

A.
Background and Purpose

Warming by 2100

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

<2°C

3°C

5°C

Physical Impacts

1.5 °C

2 °C

Sea-level rise

0.3-0.6 m

0.4-0.8 m

0.4-0.9 m

0.5-1.7 m

Chance of ice-free Arctic summer

1 in 30

1 in 64 in 6 (63%)

6 in 6 (100%)

Frequency of extreme rainfall

+17%

+36%

+70%

+150%

Increase in wildfire extent

x1.4

x1.6

x2.0

x2.6

People facing extreme heatwaves

x22

x27

x80

x300

Land area hospitable to malaria

+12%

+18%

+29%

+46%

-10%

-13%

-23%

-45%

Stranded assets

Transition: fossil fuelassets (supply, power,transport, industry)

Mixed: some fossil fuelassets and somephysical stranding

Physical: uninhabitablezones, agriculture,
water-intense industry,
lost tourism

Food supply

Changing diets,
yield loss in tropics

24% yield loss

60% yield loss, 60%
demand increase

Economic Impacts

E.
Disclosure of Risk
Management Processes

Global GDP impact (2018: $80tn)

AppendicesFigure C1
6

IPCC, Fifth Assessment Report, Cambridge University Press, 2014.

7

IPCC, Summary for Policymakers: Global Warming of 1.5°C, October 2018.

8

 ontent in this figure is adapted from the CRO Forum’s The Heat Is On–Insurability and Resilience in a Changing Climate, January 2019.
C
The CRO Forum indicates its report “relies heavily on the [IPCC] for data and charts, drawn from SR15 and AR5 working papers.”

4

The Task Force on Climate-related Financial Disclosures

Based on economic models that have been
adapted to take a broader view of climate-related
risk — such as allowing for damage from tipping
points, extreme events, and socio-politicalconsequences of food crises, migration, andconflict — global GDP (gross domestic product)
could be significantly lower by 2100, especiallyat higher levels of warming.9 In addition toclimate-related physical risks, companies alsoneed to consider risks associated with society’s
responses to climate change and the transition
to a lower-carbon economy (climate-relatedtransition risks), which include policy changes,
reputational impacts, and shifts in market
preferences and technology. For example, thedevelopment and use of emerging technologies
such as renewable energy and battery storage
will affect the competitiveness of certain
companies, their production and distribution
costs, and ultimately the demand for theirproducts and services from end users.

Given the wide-ranging implications of climatechange in the short term and over the longer
term, assessing the associated risks involves
dealing with a set of complex variables andconnections, many of which operate at different
temporal and spatial scales. A critical aspect ofintegrating climate-related risks into existingprocesses involves taking into account theunique characteristics of these risks — describedin Table C1 — that might not be fully consideredin the existing processes. This is the casewhether climate-related risks are viewed as
stand-alone risks or drivers of existing risks.
Recognizing these unique characteristics isimportant for understanding how climaterelated risks may affect a company; andintegrating climate-related risks into existing risk
management processes often requires adjusting
existing processes to ensure these uniquecharacteristics are reflected.

Table C1
Table of Contents

Characteristics of Climate-Related Risks

A.
Background and Purpose

Different effects
based on geography
and activities

The effects of climate change and climate-related risks occur on local, regional,
and global scales with different implications for different businesses, products
and services, markets, operations, and value chains, among others.

B.
Scope and Approach

Longer time
horizons andlong-lived effects

Some climate-related risks exist and play out over time horizons that stretch beyond
traditional business planning and investment cycles. These risks and related impacts
may occur as a result of decades-long changes in driving forces (e.g., greenhouse gas
concentrations in the atmosphere) leading to climate-related physical or transition riskchanges over the short, medium, and long term.

Novel and
uncertain nature

Many of the effects of climate change have no precedent, limiting the ability to apply
statistical and trend analysis based on historical data. Climate change is a dynamic
and uncertain phenomenon and possible mitigation responses are also complex,
with many unknowns such as the development and deployment of critical technologies
and adaptation strategies as well as changing market and consumer behaviors.

Changing magnitudeand nonlinear
dynamics

Climate-related risks may manifest at different scales over time, with increasing
severity and scope of impacts. Climate systems may exhibit thresholds and tipping
points that result in large, long-term, abrupt, and possibly irreversible changes.10
Understanding the sensitivities of tipping points in the physical climate system, as wellas in ecosystems and society, is essential for understanding climate-related risks.

Complexrelationships andsystemic effects

Risks associated with climate change are interconnected across socioeconomic
and financial systems. Such interconnected risks are often characterized by knock-on
effects and systemic effects, requiring a multidimensional perspective to assess theshort-, medium-, and long-term implications for a company.

C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices9 ccording to the CRO Forum’s report (p. 14), “global GDP could be 25-40% lower by 2100 in a >3°C scenario versus baseline.” These estimatesA
are more severe than many other studies; however, the Network for Greening the Financial System (NGFS) — a group of 72 central banks andsupervisors — has indicated existing studies likely underestimate the risks associated with increased warming levels. In Climate Scenarios for Central
Banks and Supervisors, the NGFS describes damage estimates associated with 3°C of warming from several studies, which range from a loss of 2%
of global GDP to a loss of 25%. The NGFS indicates estimates vary for many reasons, such as the modeling approach used and whether impacts
are considered to directly affect growth rate. It also highlights few studies fully capture the potential risks of tipping points and most assume
socioeconomic factors such as population, migration, and conflict remain constant even at high levels of warming.

10

Lenton, T. M., et.al., “Climate Tipping Points–Too Risky to Bet Against,” Nature, Vol. 575, 2019.

5

The Task Force on Climate-related Financial Disclosures

D. Integration in Practice:
Key Principles and Initial Steps
This section describes principles the Task Forcebelieves should underpin the integration ofclimate-related risks into a company’s existingrisk management processes and outlines initialsteps that may help a company begin such an
integration. As mentioned previously, the Task
Force recognizes companies implementing its
recommendations come from various industries
and use a wide range of practices and techniques
to manage their risks. Some may use fully
integrated, enterprise-wide risk management
processes while others may use risk
management processes that are more focusedon individual hazards. While there are various

Figure D1

Figure D1

Common Risk Management Processes and Key Elements

Table of Contents

GOVERNANCE AND STRATEGY SETTING ELEMENTS

A.
Background and Purpose

Board Oversight

Risk Appetite

Operating Structures

Roles and Responsibilities

RISK MANAGEMENT PROCESS

B.
Scope and Approach

IDENTIFY new, emerging, andchanging risks that may affect acompany’s business objectives.
Identify
Risk

C.
Unique Characteristics
of Climate-Related Risks

IMPLEMENT RISK RESPONSE,
which involves accepting, avoiding,pursuing, reducing, or sharing risk
based on results of the risk
prioritization.

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes

ways companies manage their risks in terms oforganizational structure, roles and responsibility,
and the specific approaches and tools used,
there is a general set of overarching activities orprocesses and associated key elements that arecommon to risk management in most companies(even if referred to differently). Given thisgeneral consistency in overarching or common
risk management processes and key elements(see Figure D1), we refer to these throughout
the guidance when discussing the integrationof climate-related risks into risk management
processes.11

Risk Taxonomy

Assess andPrioritize
Risk

Implement Risk
Response(Manage Risk)

Risk Approaches*

ASSESS risks to understand theseverity of effects on businessobjectives.
PRIORITIZE risks to inform
decision-making on risk
responses.

Risk Criteria

Risk Tools

ELEMENTS SUPPORTING RISK MANAGEMENT PROCESS* Risk approaches include approaches used for identifying and assessing risks.

Appendices11 igure D1 is based on concepts included in COSO and WBCSD’s Enterprise Risk Management–Applying Enterprise Risk Management toF
Environmental, Social and Governance-Related Risks, October 2018.

6

The Task Force on Climate-related Financial Disclosures

A general understanding of risk management
processes and how they relate to strategy isalso important context for this guidance. In thisregard, the Task Force highlights a concept from
COSO’s ERM framework, as described below.

Every organization — whether for-profit
or not — exists to create and preserve
value for its stakeholders; and value
is created, preserved, or eroded throughmanagement’s decisions across all
activities, from setting strategy andexecuting on business objectives
to operating the organization on a
day-to-day basis.12

Table of Contents
A.
Background and Purpose

The overarching purpose of risk management —in whatever form it takes — is to support
a company in achieving its strategy andbusiness objectives to create value for its
stakeholders. The primary purpose of
disclosing risk management processes is toprovide context for how the company thinks
about and addresses the most significant risks
to successfully executing its business objectives
and accomplishing its strategy.

1. K EY PRINCIPLES TOGUIDE INTEGRATION OF
CLIMATE-RELATED RISKSThe Task Force identified specific, key principles— shown in Table D1 — to help companies
achieve effective integration of climate-relatedrisks into existing risk management processes.
The Task Force further believes these key
principles are also useful for the ongoing
management of climate-related risks, which
is beyond the scope of this guidance.13
The key principles are woven into the discussion
in this section on integrating climate-relatedrisks into existing risk management processes.
The principles support climate change
considerations being included in the elementsof risk management processes consistently andproportionately, taking into account other risks
to which the risk management process applies.
Interconnections between climate-related risks
and other risks should be considered as part ofthe integration process and where the existingelements are applied to a limited business or
strategic planning horizon, integration shouldtake account of the longer time horizons overwhich climate-related risks might materialize.

B.
Scope and Approach

Table D1C.
Unique Characteristics
of Climate-Related Risks

Key Principles for Integration

D.
Integration in Practice:
Key Principles andInitial Steps

Interconnections. Integrating climate-related risks into existing risk management
requires analysis and collaboration across the company. The principle of interconnections
means all relevant functions, departments, and experts are involved in the integrationof climate-related risks into the company’s risk management processes and in the ongoing
management of climate-related risks.

E.
Disclosure of Risk
Management Processes

Temporal Orientation. Climate-related physical and transition risks should be analyzed
across short-, medium-, and long-term time frames for operational and strategic planning,which may require extending beyond traditional planning horizons.
Proportionality. The integration of climate-related risks into existing risk management
processes should be proportionate in the context of the company’s other risks, the materialityof its exposure to climate-related risks, and the implications for the company’s strategy.

Appendices

Consistency. The methodology used to integrate climate-related risks should be usedconsistently within a company’s risk management processes to support clarity on analysis
of developments and drivers of change over time.

12

COSO, Applying COSO’s Enterprise Risk Management — Integrated Framework, September 2004.

13

 he key principles for integration complement and should be read in conjunction with the TCFD’s “Fundamental Principles forT
Effective Disclosure.”

7

The Task Force on Climate-related Financial Disclosures

2. I NITIAL STEPS FOR INTEGRATING
CLIMATE-RELATED RISKS INTO
RISK MANAGEMENTThe Task Force’s guidance on integratingclimate-related risks into existing processes isorganized as a set of high-level, initial steps andis intended to support companies in identifying
important considerations for integration.14 In
addition, the Task Force views these initial steps— summarized below — as iterative rather thanstrictly sequential.
Step 1 – Ensure there is a general understanding
across the company of climate change concepts
and its potential impacts.
Step 2 – Identify the specific risk management
processes and elements that may need to be
adjusted for the integration of climate-related
risk as well as the functions and departments
responsible for those processes and elements.
Step 3 – Incorporate climate-related risks into theexisting risk taxonomy and risk inventory usedin the company. This includes mapping climaterelated risks to existing risk categories and types.
Step 4 – Adapt existing risk management
processes and key elements based on
information gained in the previous steps andthe characteristics of climate-related risk as
described in Section C. Unique Characteristics
of Climate-Related Risks.
These steps draw on guidance developed by
COSO and the World Business Council for
Sustainable Development (WBCSD) on integrating
environmental, social, and governance-relatedrisks into risk management processes(COSO-WBCSD guidance) as well as other COSO
documents and are meant to provide a starting
point for companies in thinking through the
integration of climate-related risks into existingrisk management processes.15 There are multiple
considerations related to integration a company
may need to explore; and some of these are
depicted in Figure D2. Those reflected in bold,blue text are described in this sub-section.

Table of Contents

Figure D2

A.
Background and Purpose

Figure D2Examples of Considerations Related to Integration

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Governance and Culture

Tools and Reporting

Board and management support (pre Step 1)

Adequacy of tools (Step 4)Training (Step 1)

Inclusion in internal risk reporting

Responsibilities for risk management (Step 2)

Adequacy of data and metrics

Climate change-related incentives

Managing limitations of data and tools

Subcommittee accountability

Climate-related risk disclosures

FPO

Risk Identification and Assessment

Strategy and Risk Appetite

Climate-related risks in risk inventory (Step 3)

Incorporation into risk appetite (Step 4)

Approaches updated for climate issues (Step 4)

Use of scenario analysis

Prioritization criteria reviewed (Step 4)Integration into strategic decisions

Materiality assessment of climate drivers

Implementation of risk tolerances

Integration into policies and proceduresManagement of breaches

Text in bold, blue font represents considerations described in this guidance, while text in regular font represents examples of otherconsiderations a company may need to explore as part of integration. These examples are not exhaustive.

14

 OSO’s Creating and Protecting Value: Understanding and Implementing Enterprise Risk Management (thought paper) provides anCapproach and steps for implementing enterprise risk management that could be adapted for integrating climate-related risks into
existing risk management processes. The approach and steps “are based on successful practices that companies have used to takean incremental, step-by-step approach to implementing enterprise risk management.” The thought paper provides initial steps acompany could take, including forming a management working group to oversee integration and inventorying the company’s existingrisk management practices.

15

 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

8

The Task Force on Climate-related Financial Disclosures

Importantly, before undertaking an effort assignificant as integrating climate-related risks
into existing risk management processes,
it is important to have board and senior
management support. The board and senior
management not only set the strategy of thecompany, they also set the “tone at the top” andculture of the company. Support from the board
and senior management is probably the single
most important success factor for an effort suchas this.16 Without this support, it may be difficult
to engage the people across the company as wellas other resources needed to work through theissues associated with integration.

1. UNDERSTAND CLIMATE CHANGE CONCEPTS

Foundational

For companies where climate-related risks have not traditionally been discussed or explicitly
addressed as part of existing risk management processes, it is important to ensure there is a basic
level of understanding across the company of climate change concepts and its potential impacts.
For example, it may helpful to define key terms and outline some of the significant climate change
hazards and general impacts to allow management and others involved in managing risk to connect
the general effects of climate change to more specific implications for the company. Figure D3
provides a sample of climate change hazards, key vulnerabilities, and key risks based upon the
IPCC’s Fifth Assessment Report.17

Figure D3
Table of Contents

Sample of Climate Change Hazards

A.
Background and Purpose
B.
Scope and Approach

Sea level rise, coastal flooding

Extreme heatDrought

Key Vulnerabilities: Highexposure of people, economic
activity, and infrastructure in lowlying coastal zones

Key Vulnerabilities: Increasing
urban populations of the elderly,
very young, and people withchronic health problems subject
to higher temperatures

Key Vulnerabilities: Existingwater shortages and constraints
on increasing supply

Key Risks: Death, injury, anddisruption to livelihoods, foodsupplies, and waterC.
Unique Characteristics
of Climate-Related Risks

Key Risks: Increased mortality
and morbidity during periods ofextreme heat

Key Risks: Insufficient watersupply, yielding severe harm andeconomic impacts

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

16

COSO, Creating and Protecting Value: Understanding and Implementing Enterprise Risk Management, January 2020.

17

IPCC, Emergent Risks and Key Vulnerabilities, 2014.

9

The Task Force on Climate-related Financial Disclosures

2. IDENTIFY PROCESSES AND FUNCTIONSKey Principle

An important aspect of integrating climate-related risks into existing processes is to understandhow risk management and strategic planning tie together and who the key stakeholders are. In thisregard, it may be helpful to review key governance, strategy setting, and risk management elements(Figure D1, p. 6) and then identify the various functions involved in risk management activities that
support strategic planning (Figure D4).18

Figure D4

Figure D4

Illustrative Strategic Planning Cycle
Year
Function

Activities

Key Elements

Board /
Management

Sets strategy and defines
short-, medium-, and longterm goals and plans

Risk appetite

Finance / Risk
Management

Risk metrics and data

Creates financial andcapital allocation plans

Operations /Business
Areas

Table of Contents

Risk inventory

Risk management tools

Creates operational plans
to support strategies
within financial constraints

Risk assessments
Risk responses

Implements risk
management plans

A.
Background and Purpose

Risk reporting

Ongoing identification, assessment, and management of risks

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks

This type of information may help a company in identifying key risk management elements andthe functions and departments responsible for various aspects of the company’s risk management
process. Such information is useful for determining the key stakeholders needed for risk
identification, assessment, and management processes.

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

3. UPDATE RISK TAXONOMY

Key Principle

Using a common risk taxonomy — a set of consistently defined risk categories and sub-categories —helps companies identify, assess, and manage their risks.19 Part of integrating climate-related risks
into existing processes involves determining whether such risks will be treated as stand-alone risks,cross-cutting drivers of existing risks, or a combination of both and then appropriately incorporating
the risks into the company’s risk taxonomy. The way in which climate-related risks are integrated into
existing risk management processes may depend in part on the risk categories or sub-categories
that have already been defined. Commonly used risk categories include financial, operational, andstrategic; however, most companies have additional risk categories as well.

18

F igure D4 is adapted from the COSO-WBCSD guidance (see p. 19).

19

 risk taxonomy refers to how a company organizes risks consistently across the company and establishes “parent-child” relationships
A
between broad risk categories and specific sub-categories.

10

The Task Force on Climate-related Financial Disclosures

The Task Force believes, in most situations, climate-related risks are drivers of existing risks(i.e., risk factors) and focuses on such treatment in this guidance. To start, companies may benefit
from mapping climate-related risks to their existing risk categories. For example, events associatedwith climate change may increase the cost of raw materials, which is an existing risk for many
companies (see Figure D5).

Figure D5

Sample of Risk Categories, Risk Types,
and Climate-Related Risks
Category

Type (Sub-Category)

Climate-Related Risks

Financial• Credit Risk

• Creditworthiness is eroded and interest rates riseas lenders consider escalating business risks related
to climate change• Liquidity Risk
• Tax Strategy

Operational• Supply Chain• Raw Material Availability• Business Continuity

Table of Contents
A.
Background and Purpose• Costs increase from taxes or fees on carbon
emissions• Supply chain disruptions occur because of droughts
or extreme weather impacts in supplier regions• Costs increase on raw materials due to sustainable
forestry practice requirements• Changing weather patterns and increased natural
disasters disrupt operations

Strategic• Competition• Changing Customer Preferences• Shift in customer preferences toward products thatare produced with lower emissions or that produce
lower emissions

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

Once a company has determined how climate-related risks fit into the existing risk taxonomy andrisk categories, it should consider updating its risk inventory, which lists the risks the company faces
and generally includes the major risk categories along with standard definitions of the risks.20 A risk
inventory may also include a description of the impact of each risk, possible risk responses, and a riskowner. As a company works through integration and staff become more familiar with climate-relatedrisks, updating the risk inventory may occur more frequently than usual in the beginning stages.

4. ADJUST RISK MANAGEMENT ELEMENTS
E.
Disclosure of Risk
Management Processes
Appendices

Key Principle

The fourth step is to adapt existing risk management processes and associated elements based on
knowledge gained through the previous steps and on the unique characteristics of climate-relatedrisks. To provide a general idea of how a company might begin the process of adjusting its risk
management processes and associated elements, the Task Force outlines considerations related torisk appetite, risk identification and assessment, and risk management tools.
Risk Appetite
Risk appetite refers to the types and amount of risk, on a broad level, a company is willing to accept
in pursuit of value. Risk tolerance is defined as the boundaries of acceptable variation in performance
related to achieving business objectives. Once set, risk appetite and risk tolerance become the20 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

11

The Task Force on Climate-related Financial Disclosures

boundaries for acceptable decision-making.
Boards and management typically set therisk appetite for a company when considering
strategy and business plans, as the two are often
intertwined.21 Figure D6 outlines important
aspects of a company’s risk appetite that should
be considered when integrating climate-relatedrisks.22 For example, consideration of climaterelated risks and opportunities may affect acompany’s strategic plans in terms of the types
and amounts of risks it is willing to accept as well
as new products and services it plans to develop.
Adjusting a company’s risk appetite may be an
iterative process as the board and management
become more familiar with climate-related risks
and opportunities and how those issues factor
into their strategic thinking.
Risk Identification and Assessment:
Time Horizons

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
AppendicesFigure D6
Considerations for Adjusting Risk Appetite
Approach to Setting Risk Appetite
Risk appetite is defined at a high level (top down),
based on a company’s core values and strategic
ambition, and rooted in the business context.
Risk appetite considers the types of risks (e.g.,
strategic, operational, financial) the company needs totake or avoid in order to achieve its strategic ambition.
A company is typically willing to take on a net total
amount of risk, which can be allocated to eachcategory of risk to align with the company’s corevalues and strategy.
Risk capacity is the maximum amount of risk thata company can absorb in the pursuit of strategy andbusiness objectives. It considers liquidity, stakeholder
relationships, capabilities, and other factors.

A key consideration in integrating climate-related
Risk capacity provides a set of boundaries forrisks into existing risk management processes
defining meaningful risk appetite and tolerance.
relates to the time horizon over which risks are
identified and assessed and whether that time
horizon is sufficiently long-term to take accountof the range of climate-related risks. Under its Strategy recommendation, the Task Forceasks companies to describe the climate-related risks and opportunities they have identified overthe short, medium, and long term. As a result, a company’s risk management process should support
the identification of risks that may arise in the long term as well as the short and medium term.
However, based on a 2017 WBCSD study, the time horizon for many companies’ risk identification
and assessment processes is typically two to five years, with some companies using a longer time
horizon of five to ten years given their longer investment time frames.23
Recognizing some climate-related risks may have implications for a company beyond five or ten years,
the Task Force encourages companies to consider the appropriate time frames when identifying
and assessing climate-related risks as well as potential approaches to support the identification andassessment of longer-term climate-related risks (as described in Table D2, p. 13, and Table D3, p. 14).
Risk Identification and Assessment: Approaches
A company’s existing approaches to identifying and assessing risks may warrant adjustment toensure those approaches sufficiently address the unique characteristics of climate-related risks.
For example, in companies where risk identification is performed separately by individual businessand operations areas, such an approach may miss certain climate-related risks, especially ones thatare interconnected across socioeconomic and financial systems. To surface these types of risks, acompany may want to consider bringing together multidisciplinary teams to work together.
To help companies think about possible adjustments to their identification and assessment
approaches, the Task Force outlines some of the unique characteristics of climate-related transition(Table D2, p. 13) and physical risks (Table D3, p. 14), respectively, as defined in its 2017 report anddescribes possible approaches and metrics companies may want to consider when incorporatingclimate-related risks into their existing processes.24 Many of the characteristics included in the tables
below tie back to those described in Table C1 (p. 5).

21

 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

22

Adapted from the COSO-WBCSD guidance (see p. 34).

23

 orld Business Council for Sustainable Development, Sustainability and Enterprise Risk Management: The First Step Towards Integration,
W
January 18, 2017.

24

See Table A1-1 (p. 36) for the Task Force’s definitions of climate-related transition and physical risks.

12

The Task Force on Climate-related Financial Disclosures

Table D2

Transition Risks and Identification
and Assessment Approaches

Policy and Legal

Type

A.
Background and Purpose

Technology

Table of Contents

Characteristics

Approaches

Possible Metrics• Differences in local, regional,
and global requirements andincentives• Tracking of regulatory
developments• Financial impact of carbon pricing
and emission trading• Assessment of impact ofregulation, including implications
across operations, supply chains,
and jurisdictions• Asset write-off, asset impairment,
and retirement cost

• Novel and uncertain effects
of policy and legal actions acrossjurisdictions• Complex relationships
connecting different regulatory
developments across different
actors and departments• Novel technologies, capabilities,
and applications• Maturity and readiness oftechnology• Cost of supply, rate of return,
return on investment, andpayback periods for different
technologies• Cost-benefit analysis associatedwith key technologies• Product development
effectiveness and cost

• Analysis of organizational skills,
knowledge, and capabilities
associated with key technologies• Time to market and research anddevelopment success rate

• Mapping of dependencies andenabling conditions(e.g., investment, policy)• Number of and effectivenessof collaborative research
relationships• Scenario analysis focused ontechnological development, use,
deployment, and impact• Number of patents• Analysis of trends in supply anddemand for products
and services• Market size

• Complex relationships amongmarket conditions, economics,
and policy environment

Market• Novel dynamics and signals fromsupply-demand relationships
affecting raw materials, products,
and services

Reputation

Appendices• Number of lawsuits brought
forward• Technology assessment andforecastingC.
Unique Characteristics
of Climate-Related Risks

E.
Disclosure of Risk
Management Processes• Scenario analysis focused onpolicy environment, sequence,timing, and relationships• Number of relevant policy
measures and development
timelines• Uncertain role of different
solutions and technologies overtime, for different uses, and indifferent contexts

B.
Scope and ApproachD.
Integration in Practice:
Key Principles andInitial Steps• Cross-functional,
multidisciplinary collaboration to
identify risks and implications• Number of nodes of influenceconnecting key policy
developments• Nonlinear relationships affecting
demand and costs• Comparison of company’s
position and strategy tocompetition• Capabilities across peers• Growth potential• Commodity, product, and service
pricing• Market coverage and share index• Complex relationships among
policy, consumers, and societal
context• Engagement with customers
and suppliers• Opportunity and threat index• Identification of merger andacquisition targets• Revenue mix and sources• Magnitude of severity and scopeof impact can rapidly change,
often enabled by the internet andsocial media• Use of social media, customer
feedback, and market research
to track customer sentiment andchanging preferences• Share price change• Novel nature of responses andreactions as societal awarenessand understanding shifts• Evaluation of employee
engagement and satisfaction• Customer loyalty and retention
level (e.g., net promoter score)• Identification of relationships
between events and news andbusiness and financial impacts• Changes in customer satisfaction• Interconnected issues driving
impacts and actions• Product portfolio index• Competitors’ market positions• Employee satisfaction level• Media and social media sentiment• Number of new customers• Independent rankings and ratings

13

The Task Force on Climate-related Financial Disclosures

Table D3

Physical Risks and Identification
and Assessment Approaches
Type

Characteristics

Approaches

Possible Metrics• Uncertain timing, scope, andseverity of impacts of extreme
weather events• Use of expert input
from meteorologists,
oceanographers, and climate
and atmospheric scientists• Number of locations, facilities,business lines, etc. exposed
or affected

Acute• Different effects basedon events (e.g., cyclones,
hurricanes, floods, drought)
and geography• Changing magnitude andnonlinear impacts associatedwith events• Complex relationships andinterconnections between
factors and variables that
influence weather events• Stress testing to assess
sensitivity and resilience of key
business units and activities• Forecasting using historical
data and lookback studies• Scenario analysis focused on
frequency, intensity,and location of extreme
weather events• Hazard mapping andcatastrophe modeling• Duration of event• Projected or identified loss
or damage to business facility,
supply chain, etc.
• Projected or identified costof business interruption,
repairs, etc.
• Projected or identified impact
on sales and consumer
behavior• Insurance costs

Table of Contents• Longer time horizons
associated with certain climatechanges (e.g., sea level rise)
Chronic

A.
Background and Purpose
B.
Scope and Approach• Different effects based on
events and geography

C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices• Changing magnitude andnonlinear impacts associatedwith tipping points andthresholds• Use of expert input
from meteorologists,
oceanographers, and climate
and atmospheric scientists• Scenario analysis focusedon potential impacts andimplications of chronic physicalclimate change• Hazard mapping andcatastrophe modeling• Projected or identified impact
on revenues and expenditures• Changes in operating andcapital costs• Changes in market behavior• Projected or identified impact
on sales and consumer
behavior• Insurance costs

As noted in the tables above, scenario analysis is a useful tool for risk identification and assessmentof climate-related risks, especially for those risks where the timing is uncertain and difficult to assess.
In its 2017 report, the Task Force emphasized the importance of using scenario analysis to assess
potential business, strategic, and financial implications of climate-related risks.25 The Task Force also
issued The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (technicalsupplement) in 2017 to provide additional guidance to companies on using climate-related scenario
analysis. In 2020, the Task Force issued guidance on scenario analysis to provide practical, processoriented ways companies may use climate-related scenario analysis — to extend and deepen theguidance in its technical supplement.26 Also see Section 3. Scenario Analysis in Appendix 3: Additional
Information on Integration for more information.

25

See Section D. Scenario Analysis and Climate-Related Issues in the Task Force’s 2017 report.

26

TCFD, Guidance on Scenario Analysis for Non-Financial Companies, October 29, 2020.

14

The Task Force on Climate-related Financial Disclosures

Risk Identification and Assessment: Prioritization Criteria
A company’s assessment of its risks is fundamental to its prioritization of those risks and managementof (response to) the most significant ones. Many companies use a traditional “likelihood and impact”
approach to gauge the severity or materiality of their risks. To prioritize their risks, companies may use
the severity of the risks as determined by the intersection of their likelihoods and impacts
and then evaluate the severity of the risks relative to risk appetite.
Given some of the unique characteristics of climate-related risks, companies may want to consider
expanding their prioritization criteria to include “vulnerability” and “speed of onset.” Theseprioritization criteria are defined as follows:27• Vulnerability refers to the susceptibility of a company to a risk event in terms of the company’s
preparedness, agility, and adaptability. Vulnerability is related to impact and likelihood — the more
vulnerable the company is to the risk, the higher the impact is if the event occurs. If risk controls are
not in place and operating as designed, then the likelihood of an event increases.
• Speed of onset refers to the time that elapses between the occurrence of an event and the point
at which the company first feels its effects. Knowing the speed of onset is often useful whendeveloping risk response plans.

Table of Contents

Using “vulnerability” as part of the prioritization criteria is relevant for climate-related risks becausesuch risks are often unpredictable; however, a company can build in adaptability mechanisms to
respond to or absorb risk. For example, in the 1980s, a large oil company (Shell) diversified its portfolio
and used scenario planning to prepare and adapt to potential oil price fluctuations that were generally
considered unforeseeable.28 “Speed of onset” is also relevant for climate-related risks. As an example,
consider the time frame in which a company’s operations could be affected by severe flooding —immediately or within a matter of hours. For risks such as this, it may be important to recognize thespeed of onset so that actions can be taken to mitigate the impact of these risks if they do occur.

A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices27

 hese definitions are based on COSO’s Risk Assessment in Practice, pp. 6–7. In the COSO guidance, vulnerability and speed of onset areTdescribed as assessment criteria, whereas similar criteria are described in the COSO-WBCSD guidance as prioritization criteria.

28See the COSO-WBCSD guidance, p. 51.

15

The Task Force on Climate-related Financial Disclosures

Figure D7 shows an illustrative example of how a company might apply the vulnerability and speedof onset criteria, along with likelihood and impact criteria, to its risks in order to prioritize them. As
shown in the figure, a company’s risks are plotted based on likelihood (y-axis) and impact (x-axis), withthe most likely and largest impact risks occupying the upper right quadrant. Based on the likelihoodand impact scores alone, risk number 3 is the top risk facing the company — closely followed by risk
number 4. However, when one considers the scores for vulnerability and speed of onset, risk number 1
becomes the top risk given the company’s high vulnerability to the risk and its rapid speed of onset.

Figure D7

Illustrative Heat Map Based on Prioritization Criteriat Map Based on Prioritization Criteria
5
10

n

11

LIKELIHOOD

3

S

1

Supply chain disruption

4.8

3.7

3.8

4

2

Customer preference shift

4.1

3.3

3.5

2

3

Copper price rise >10%

4.3

4.7

2.3

4

4

Work stoppage > 1 week

4.4

4.5

4.1

3

5

Economic downturn

4.0

3.7

3.5

2

6

Supplier consolidation

3.8

4.2

3.2

1

7

Local competitors enter

3.9

4.5

3.6

1

8

New substitutes available

4.5

3.6

4.2

1

9

Cost of capital rise >5%

2.9

4.0

2.9

3

10

Tighter emission standards

3.4

4.6

2.9

1

11

Exchange rate ﬂuctuations

2.7

4.1

2.7

4

n

...

...

...

...

...

20

Impairment of assets

1.6

2.7

1.6

1

8

n

20

n
n

A.
Background and Purpose

n
n
n

1

2

3

4

5
I = Impact L = Likelihood V = Vulnerability S = Speed of Onset

IMPACT
LEGEND

D.
Integration in Practice:
Key Principles andInitial Steps

V

2

2

C.
Unique Characteristics
of Climate-Related Risks

L

1

n

Table of Contents

B.
Scope and ApproachI65!"#$%&'*-

Risk

4

9

4

#

3

7

ILLUSTRATIVE RATING SCALES FOR CRITERIA

Dots represent risk #1 - #n

Dots represent risk #1 - #n
Dot size reﬂects speed of onset:

Rating

ImpactLikelihood

Vulnerability

Speed of Onset

5

ExtremeFrequent

Very High

Immediate

4

Major

Likely

High

Rapid

3

Moderate

Possible

MediumMedium2

Minor

Unlikely

Low

Slow

1

Incidental

Rare

Very Low

Very Slow

Dot size and color reﬂect speed of onset:
Very Low

Low

MediumHigh

Very High

Adapted from COSO’s Risk Assessment in Practice, October 2012, pp. 4–7 and 16

m COSO’s Risk Assessment in Practice, October 2012, p 16.

E.
Disclosure of Risk
Management Processes
Appendices

16

The Task Force on Climate-related Financial Disclosures

Risk Management Tools
Companies may need to consider whether new risk management tools are needed to support
management of climate-related risks or whether existing tools can be adjusted to reflect the uniquecharacteristics of these risks. New or adapted risk management tools could be used to support theidentification, assessment, and management of (response to) climate-related risks; and examples ofsuch tools are briefly described in Table D4. Table A3-1 (p. 43) in the appendix provides an expanded
version of the table below, with information on additional tools.

Table D4

Overview of Various Tools and Their Application
to Climate-Related Risks
Tool

Description

Application

Process

Economic
Scenario
Generator

Models that simulate possible
future states of economies andfinancial markets based on risk
factors to identify unexpected but
plausible outcomes

Test valuation models under abroad range of possible economic
and financial conditions(e.g., considering climate change
and socioeconomic factors)• Risk Identification

HazardMaps

Location-level information on
the extent or severity of perils
using assumptions on thefrequency, severity, and location
parameters of primary eventsand dependencies with secondary
perils29

Present peril event scenarios
based on current and potential
future states considering theimpact from climate change, which
will result in different frequency
and severity of events affecting
certain locations• Risk Identification

B.
Scope and Approach

HorizonScanning

Systematic and proactive
approach to risk identification
based on available information

Identifying various climate-related
risk types across different spatial
and temporal scales• Risk IdentificationC.
Unique Characteristics
of Climate-Related Risks

Probabilistic
Modeling

General. Systems modeling thatinvolves probabilistic inputs,
processes, and outputs

Numerical weather andclimate predictions that allow a
representation of uncertainties,
a reduction of systematic biases,
and improved representation of
long-term climate variability• Risk Assessment

Catastrophe Models. Probabilistic
models based on deep
understanding of the physicalparameters that define a natural
hazard (e.g., wind speeds) andcharacteristics of the exposures(e.g., location)

Estimate potential losses fromnatural catastrophes• Risk Assessment

A process for identifying andassessing potential implications ofa range of plausible future states
under conditions of uncertainty

Explore and develop anunderstanding of how the climaterelated risks and opportunities
might plausibly impact a company
over time

Table of Contents
A.
Background and Purpose

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Scenario
Analysis

29• Risk Assessment• Risk Assessment• Risk Identification• Risk Response• Risk Identification• Risk Assessment• Risk ResponseT hird-party service providers and some reinsurers provide hazard maps. For example, see Swiss Re’s CatNet®.

17

The Task Force on Climate-related Financial Disclosures

3. KEY TAKEAWAYS
As described in the sub-sections above,
integrating climate-related risks into existingrisk management processes involves building
a shared understanding of climate change
concepts and risks across the company andadapting existing processes to account for
the unique characteristics of climate-relatedrisks. Providing an exhaustive set of steps andconsiderations for ensuring climate-related risks
are appropriately incorporated into existingprocesses is beyond the scope of this guidance.
Instead, this guidance is intended to help
companies begin thinking about and taking
initial steps toward integration.

section are a core part of the key takeaways.
The Task Force views the key principles as thebasis upon which companies can confirm they
have effectively integrated climate-related risks.
As highlighted in this section, identifying,assessing, and managing climate-related risks
requires involvement from various functions anddepartments within a company given the broad
implications of climate change. The Task Forcebelieves the considerations involved in adapting
existing risk management processes to address
climate-related risks can serve as a catalyst to
evolve a company’s risk management processes
in general and better deal with a range of current
and emerging risks.

In Table D5, the Task Force highlights the key
takeaways related to integrating climate-relatedrisks into existing processes. Notably, the key
principles described at the beginning of thisTable D5
Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Key Takeaways
Common Understanding. Before beginning efforts to integrate climate-related risks into existingprocesses, it is useful to ensure there is a basic level of understanding across the company ofclimate change concepts and its potential impacts.
Interconnections. Integrating climate-related risks into existing risk management requires
analysis and collaboration across the company. The principle of interconnections means all relevant
functions, departments, and experts are involved in the integration of climate-related risks into thecompany’s risk management processes and in the ongoing management of climate-related risks.

Temporal Orientation. Climate-related physical and transition risks should be analyzed acrossshort-, medium-, and long-term time frames for operational and strategic planning, which may
require extending beyond traditional planning horizons.
Proportionality. The integration of climate-related risks into existing risk management processes
should be proportionate in the context of the company’s other risks, the materiality of its exposure
to climate-related risks, and the implications for the company’s strategy.

Consistency. The methodology used to integrate climate-related risks should be used consistently
within a company’s risk management processes to support clarity on analysis of developments anddrivers of change over time.

18

The Task Force on Climate-related Financial Disclosures

E. Disclosure of Risk
Management Processes
In this section, the Task Force provides guidanceon disclosing information aligned with its Risk
Management recommendation as well as someexamples of how different companies disclose
information that addresses one or more of
the recommended disclosures included under
the Risk Management recommendation, as
shown in Figure E1. In addition, the Task Forcehopes to address a misinterpretation of its Risk
Management recommendation, which surfaced
as part of the work on its 2019 status report.30

Figure E1
Risk Management Recommendation
Disclose how the company identifies,
assesses, and manages climate-related risks.
a) Describe the company’s processes for
identifying and assessing climate-related risks.

Table of Contentsb) D escribe the company’s processes for
managing climate-related risks.

A.
Background and Purposec) D escribe how processes for identifying,assessing, and managing climate-relatedrisks are integrated into the company’s
overall risk management.

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

As part of its 2019 status report, the Task Force
conducted a survey to better understandcompanies’ efforts to implement the TCFD
recommendations and associated challenges.
The top-cited issue for the Risk Management
recommendation was that for companies
with climate-related issues integrated into
existing risk management processes, making
a separate or explicit climate-related financial
disclosure is challenging. In follow-up discussions
on this issue, the Task Force learned somecompanies interpreted the recommendation
as indicating that they should have separate
processes for managing climate-related risks
or that disclosure of these processes should
be separate from the disclosure of broader
risk management processes of which they

are a part.31 These companies also indicatedexamples of disclosure where a company’s
management of climate-related risks isembedded or integrated into overall risk
management processes would be helpful.
To address companies’ concerns that
implementing the Risk Management
recommendation requires separate processes
for climate-related risks or the developmentof “stand-alone” disclosures, the Task Forceemphasizes it did not intend for companies
with comprehensive risk management
processes that include climate-related risks
to create separate processes or duplicate
existing disclosures. If a company’s disclosures
clearly describe its risk management processes
and it is clear those processes cover climaterelated risks, then no further disclosure may
be needed.

1. F
 EATURES OF DECISION-USEFULRISK MANAGEMENT DISCLOSURESAs described in the annex to the Task Force’s
2017 report, investors and other users of climaterelated financial information are interested incompanies’ disclosure of the processes they
use to identify, assess, and manage the climaterelated risks to which they are exposed andwhether those processes are integrated into
existing risk management processes.32 Suchinformation supports users in evaluating acompany’s overall risk profile and the adequacyof its risk management activities.
As highlighted in the previous section, theoverarching purpose of risk management is tosupport a company in achieving its strategy
and business objectives. The primary purposeof disclosing risk management processes is toprovide context for how the company thinks
about and addresses the most significant risks
to successfully executing its business objectives
and accomplishing its strategy. A company’s
description of the processes it uses to identify,
assess, and manage risks in general and climaterelated risks in particular may provide users with30

See Section C. Adoption and Use of the TCFD Recommendations in the Task Force’s 2019 status report, pp. 56–57.

31

See pp. 47–48 in the Task Force’s 2020 status report.

32

 ee Risk Management Guidance for All Sectors in the Task Force’s Implementing the Recommendations of the Task Force on Climate-related
S
Financial Disclosures, pp. 16–17.

19

The Task Force on Climate-related Financial Disclosuressome confidence that the company undertakes
a rigorous approach to understanding andaddressing its risks and factors the knowledge
gained into its strategic and financial plans.
Of course, another company’s descriptionof its risk management processes may leada user to determine the company does
not have appropriate processes in place toaddress climate-related risks. Either way, suchinformation may be useful to investors and otherusers in evaluating a company for investment orother financial purposes.
For its 2017 report, the Task Force developed
a set of principles for effective disclosureaccompanied by descriptions of what the
principles mean in practice.33 The principles
are intended to help companies develop high-quality and decision-useful disclosures thatenable users to understand the impact of climatechange on those companies. The Task Force’s
disclosure principles are largely consistent withother mainstream, internationally acceptedframeworks for financial reporting and are
generally applicable to most providers offinancial disclosures. They are informed by thequalitative and quantitative characteristics
of financial information and further theoverall goals of producing disclosures that areconsistent, comparable, reliable, clear, andefficient. The principles, taken together, aredesigned to assist organizations in making clear
the linkages and connections between climaterelated issues and their governance, strategy,
risk management, and metrics and targets.
In Figure E2, the Task Force provides selectFigure E2

Features of Decision-Useful (Effective) Disclosures
Disclosures should be presented in sufficient detail to enable users to assess the company’s
exposure and approach to addressing climate-related issues, while understanding that the typeof information, the way in which it is presented, and the accompanying notes will differ between
companies and will be subject to change over time.

Table of Contents
A.
Background and Purpose

Climate-related impacts can occur over the short, medium, and long term. Companies canexperience chronic, gradual impacts as well as acute, abrupt disruptive impacts. A company
should provide information from the perspective of the potential impact of climate-related
issues on value creation, taking into account and addressing the different time frames
and types of impacts.

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks

A company’s reporting should provide a thorough overview of its exposure to potential
climate-related impacts; the potential nature and size of such impacts; the company’s
governance, strategy, processes for managing climate-related risks, and performancewith respect to managing climate-related risks.

D.
Integration in Practice:
Key Principles andInitial Steps

Disclosures should be written with the objective of communicating financial informationthat serves the needs of a range of financial sector users. This requires reporting at a level
beyond compliance with minimum requirements. The disclosures should be sufficiently
granular to inform sophisticated users but should also provide concise information for
those who are less specialized.

E.
Disclosure of Risk
Management Processes

Disclosures should show an appropriate balance between qualitative and quantitative
information and use text, numbers, and graphical presentations as appropriate.

Appendices

Changes in disclosures and related approaches or formats (e.g., due to shifting climate-related
issues and evolution of risk practices, or accounting practices) can be expected due to therelative immaturity of climate-related disclosures. Any such changes should be explained.

33

TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, June 29, 2017.

20

The Task Force on Climate-related Financial Disclosuresdescriptions — those most relevant to disclosing
information on risk management processes —from its principles for effective disclosure.

• Description of the risk management
processes used to identify, assess, and/or
manage climate-related risks.

In the sub-section below, the Task Force provides
examples of companies’ disclosures of their risk
management processes in the context of climaterelated risks. The examples include the following
types of information:• Descriptions of how companies map sectionsin their reports to the Task Force’s Risk
Management recommendation where climaterelated risks are embedded in existing risk
management processes.

• Descriptions of climate-related risk as
being a part of a company’s overall risk
management processes.

2. E XAMPLES OF RISK MANAGEMENT DISCLOSURESAs described above, this sub-section provides examples of companies’ disclosures of their risk
management processes. Importantly, the examples are not intended to represent “best practice”
nor demonstrate disclosures that fully meet the Task Force’s Risk Management recommendation.
Instead, the examples are provided because they may help companies generate ideas for their own
disclosures.

Climate-Related Risk Included in Overall Risk Management Processes
Table of Contents
A.
Background and Purpose
B.
Scope and Approach

In the first example shown below (Figure E3), an electric utility company (Enel) describes its overallrisk management processes as including climate-related risks.

Figure E3

Enel, Consolidated Annual Report 2019C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Enel, Consolidated Annual Report 2019, p. 57

21

The Task Force on Climate-related Financial Disclosures

Figure E4 contains three excerpts from an oil and gas company’s (Eni’s) annual report that describe its
risk management process at a high level, how the risk management process covers all the company’s
risks, and how risks related to climate change are a sub-category of the company’s strategic risk
category. Based on this information, it is clear climate-related risks are integrated into the company’s
overall risk management processes.
Figure E4

Eni, Annual Report 2019
Integrated Risk Management Model
Integrated Risk Management Model

The IRM Model is characterized by a structured approach, based on
The IRM Modelis characterizeda structured
international
bestpractices and byconsidering
theapproach,guidelinesbasedof theoninternational
bestpracticesand considering
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ControlandRisk Management
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page 29),ofthat
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on threecontrollevels. RiskSystem
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ais structured
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which defines
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managed and monitored, determining the degree of compatibility

with company management consistent with the strategic targets.
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aimingat defining
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of CEO, related to the main results of the IRM process.

STRATESTRATE

MAIN RISK
MAIN RISEVENTSEVENTS[...]
Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
UniqueCharacteristics
with company
management
consistent with the strategic targets.
For this purpose,
Eni’s CEO, in particular,
through the IRM process,of Climate-Related
Risks

presents every three months a review of the Eni’s main risks to theBoard of Directors. The analysis is based on the scope of thework and risks specific of each business area and processesD.
aiming at defining an integrated risk management policy; the CEO
Integration
also ensuresthe evolutioninof Practice:
the IRM process consistently withbusiness dynamics
and the regulatory
Key Principles
and environment. Furthermore,
the Risk Committee,
chaired by the CEO, holds the role of consulting
Initial Steps
body for the latter with regards to major risks. For this purpose, theRisk Committee evaluates and expresses opinions, at the instanceof CEO, related to the main results of the IRM process.

E.
Disclosure of Risk
Management Processes
Appendices

Integrated Risk Management Process
Integrated Risk Management Process

The IRM process ensures the detection, consolidation and analysisThe
ensures
the thedetection,
and analysis
ofallIRM
Eni’sprocessrisks andsupports
BoD to consolidation
verify the compatibilityofof allEni’sriskswithand thesupports
the targets,
BoD to verify
compatibility oftherisk
profilestrategic
also inthe
a medium-longthe risk
profile withthe strategic
also in ina medium-longterm
approach.
The IRM
supportstargets,management
the decisionterm approach.
Thestrengthening
IRM supportsawarenessmanagementin themakingprocess byof theriskdecisionprofile andmakingprocessmitigations.
by strengthening
awarenessof thebyrisk
profile andtheassociated
The process,regulatedthethe associated System
mitigations.
The process,regulated Riskby the"Management
Guideline(MSG) Integrated"Management is
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continuous,
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includesRisk
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and includesand
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sub-processes:(i)continuous,risk governance,
methodologies
risk
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sub-processes:(ii)
risk strategy,(i)(iii)
integrated
risk methodologies
management, (iv)
(ii) risk strategy,(iii) andintegrated
risk management,risk starts
knowledge,
training
communication.
The IRM(iv)process
knowledge,
training andcommunication.
The IRM andprocess
startsfromthe contribution
to thedefinition of medium
long-termfrom thetoPlanthe definitionof mediumplans
andcontribution
Eni's Strategic(risk strategy)
throughand
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throughand
thestrategic
identification
proposalsfor(riskde-risking
objectives
identificationof proposals
forthede-risking
strategic
treatment
actions,
as well as
analysisobjectivesof the risk andprofileandtreatment actions, as well as the analysis of the risk profile andFigure E4

TREATME
TREATME
MEASUREMEASUREbusiness opportunities underlying the plan and the long-termbusiness opportunities
underlying
the plan and thelong-term
development.
The Integrated
Risk Management
sub-processdevelopment.
Therisk
Integrated
RiskandManagement
includes:periodic
assessment
monitoringsub-process
cyclesincludes: periodic
risk assessment
andtomonitoring
cycles(Integrated
Risk Assessment)in orderunderstandthe risks taken(Integrated
Assessment)in orderto understandthe risks
taken
onthe basisRiskof thestrategic andmedium-longterm targets
andtheon the basisof theto
strategic
medium-longtermtargets andofthe
initiatives
definedachieveandthem;
analysis andmanagement
initiatives definedto achieve
analysis andmanagement
contractual
risks (Contract
Riskthem;
Management)
aimed
at the bestof
contractual(Contract Risk
Management)
aimed
the best
allocation
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the contractual
responsibilities
withthe atsupplierandallocationof themanagement
contractual responsibilities
withthe supplier
and
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adequatein the operational
phase;
integrated
their adequate
management
the operational
phase;
analysisof existingrisks in theinCountries
of presenceorintegrated
potential
analysis (Integrated
of existing risks
in theCountries
of presenceor potential
interest
Country
Risk- ICR) which
representsainterest (Integrated
Country
Risk- ICR) whichareferencefor risk strategy,risk
assessment
andrepresents
project riskreferencefor risk strategy,risktheassessment
and project
riskfor the
analysis
activities;
support todecision-making
process
analysis activities;
support toprojects
the decision-making
process for theauthorizationof investment
and main transactions
authorizationof investment
projects andmain transactions(Integrated
Project
Risk Management& M&A).
(Integrated Project Risk Management & M&A).

[...]

STRATEGIC RISKSCENARIO

CLIMATE CHANGE

MAIN RISKEVENTS

Risk of unfavourable fluctuations in Brent
and other commodities prices compared toplanning assumptions.

Climate change referred to the possibility of change in scenario/climatic conditions
which may generate physical and connected to energy transition risks (legislative,
market, technological and reputational risks) on Eni’s businesses in the short, medium
and long term.

TREATMENTMEASURES• Efficiency (capex and costs);• Upstream projects portfolio with a low breakeven price and reduced time-to-market;• Hedging/coverage strategy for gas, powerand LNG exposures aimed at maximizing theportfolio value;• Ramp-up of green refineries, diversificationof feedstocks and end markets;• Chemical portfolio diversification addressedto specialties and integration with thedownstream supply chain;• Renewable chemical and recycling.
→ Ref. pages 88-89• Adoption of a new Company's mission based on the UN SDGs and definition ofstrategic guidelines and targets for the energy transition in the short, medium andlong term;• Structured governance on climate with a central role of the Board in managing
main issues connected with climate change; presence of specific committees;
establishment of the Advisory Board and Eni’s programs focused on climatechange issues;• Inclusion of targets related to the energy transition in management incentive
plan, consistent with the medium and long term plans;• Leadership on climate-related financial disclosures and participation in different
initiatives at international level.
→ Ref. pages 93-95

business opportunities underlying the plan and the long-term
development. The Integrated Risk Management sub-processincludes: periodic risk assessment and monitoring cycles(Integrated Risk Assessment) in order to understand the risks takenon the basis of the strategic and medium-long term targets and theinitiatives defined to achieve them; analysis and management ofcontractual risks (Contract Risk Management) aimed at the best
allocation of the contractual responsibilities with the supplier andtheir adequate management in the operational phase; integrated
analysis of existing risks in the Countries of presence or potential
interest (Integrated Country Risk - ICR) which represents areference for risk strategy, risk assessment and project risk
Eni, Annual Report 2019, pp. 20–22
analysis activities; support to the decision-making process for theNote: Some content was reformatted to fit the page; and some content was excluded, denoted by […].
authorization of investment projects and main transactions(Integrated Project Risk Management & M&A).

22

Figure E5
The Task Force on Climate-related Financial Disclosures

The example in Figure E5 shows how a packaging and paper company (Mondi Group) highlights its
management of climate-related risks (and opportunities) in particular and indicates it uses its groupwide risk management framework to identify and assess such risks.

Figure E5

Mondi Group, Financial Filing 2019

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

15.5% reduction of specific Scope 1 and 2
CO2e emissions against the 2014 baseline

Reduce Scope 2 GHG emissions 39% per MWh by 2025
and 86% per MWh by 2050 from a 2014 baseline

6.1% reduction of specific Scope 2 CO2eemissions per MWh against the 2014 baseline

Our customers are increasingly concerned
about the consequences of climate change
and are looking to us for more sustainable
solutions. We are taking action andmanaging our impacts by transitioning to
low carbon energy technologies, reducing
the carbon footprint of our products
and refining our approach to sustainablefibre and forest management. In 2019 ourscience-based greenhouse gas reduction
targets to address the climate crisis
were approved by the Science Based
Targets initiative and we updated ourcommitments accordingly.

Managing climate-related risks
and opportunities

Producing pulp, paper and packaging isenergy-intensive and energy generation is
the major source of our greenhouse gas(GHG) emissions. In addition, fibre is themain raw material for our products andforests are an important carbon store,
with sustainably managed forests having
the opportunity to support a circularbioeconomy. We combine strategicenergy-related investments across our pulp
and paper mills with good management
and best-practice sharing. We invest in
optimising energy and process efficiencies
and replacing fossil fuel-based energy withrenewable biomass sources.
Sustainable Development reportwww.mondigroup.com/sd19

Appendices

We identify and assess climate-related risks
using our group-wide risk management
framework. It includes pre-determined risk
tolerance limits, established by the Board,
based on the likelihood and severity ofrisk factors.
Climate change has the potential toaffect our business in various ways.
While these may not be severe in the
short term, we believe climate-related risks
are likely to have a medium and longterm impact on our business. We haveidentified both transition and physical risks.
Governments and regulators are likely
to take action to curb carbon emissions
that may impact our business, such as theintroduction of carbon taxes. Changes inprecipitation patterns and extreme weather
conditions such as floods, storms, droughts
and fires may impact our plantations andthe forests we source wood from and could
result in fibre supply chain interruptions andhigher fibre costs. Higher temperatures may
also increase the vulnerability of forests
to pests and disease. Increased severityof extreme weather events may alsointerrupt our operations. In water-scarcecountries, we may see an impact on our
production process as a result of limited
water availability.

Financial statements

E.
Disclosure of Risk
Management Processes

Reduce Scope 1 and 2 GHG emissions 34% per tonne ofsaleable production by 2025 and 72% per tonne ofsaleable production by 2050, from a 2014 baseline

StatusGovernanceA.
Background and Purpose

2019 performance in brief

Strategic report

Table of Contents

Our commitments to 2025 and 2050

Mondi Group, Integrated Report and Financial Statements 2019, p. 43

23

The Task Force on Climate-related Financial Disclosures

In Figure E6, a financial institution (Société Générale Group) describes its use of the TCFD definitions
for climate-related transition and physical risks, explains how climate-related risks are a driverof existing risks, and then indicates the “existing risk management governance framework andprocesses have simply been updated to include climate risk factors.”

Figure E6

Société Générale Group, Financial Filing 2020

Table of Contents
A.
Background and Purpose
Société Générale Group, Universal Registration Document 2020, p. 284

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

The example shown in Figure E7 describes how a metals and mining company (Gold Fields) integrates
climate-related risks into its risk management systems and business strategy.

Figure E7

Gold Fields, 2019 Climate Change Report

E.
Disclosure of Risk
Management Processes
AppendicesGold Fields, Our 2019 Climate Change Report, p. 2

24

The Task Force on Climate-related Financial Disclosures

Identification, Assessment, and Management of Climate-Related Risks
The examples below show how different companies disclose information about how they identify,
assess, and manage climate-related risks. In the first example (Figure E8), Australia and New Zealand(ANZ) Banking Group Limited describes how climate-related risks fit into its risk management
framework and how these risks are included in the Group and Institutional Risk Appetite Statements
to ensure they are appropriately identified and assessed.

Figure E8

ANZ Banking Group Ltd, 2019 Climate-Related
Financial Disclosures
Risk Management
Climate Risk Management
We have disclosed our most material social and environmental risks in our 2019 Annual Report (see page 46) on
anz.com/annualreport in accordance with the ASX Corporate Governance Principles and Recommendations. Our
most material climate-related risks and opportunities result from our lending to business and retail customers,
including credit-related losses incurred as a result of a customer being unable to repay debt.
Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

Under our risk management framework, our material risk category of Credit Risk incorporates the risks associatedwith lending to customers that could be impacted by climate change or by changes to laws, regulations, or otherpolicies such as carbon pricing and climate change adaptation or mitigation policies. It also includes changes tothe cost and level of insurance cover available to our customers.
We also specifically include climate change as one of our Principal Risks and Uncertainties (available onanz.com/annualreport). Climate change risk is included in the Group and Institutional Risk Appetite Statements toensure the risk is appropriately identified and assessed.
We continue to develop an organisational culture that encourages regular discussion and consideration of
emerging climate-related risks. Our Risk team is working with our bankers, encouraging them to talk withcustomers about managing the risks and opportunities associated with climate change, assisting us to progress
our low carbon transition target focused on our largest emitting customers.
Australia and New Zealand Banking Group Limited, 2019 Climate-Related Financial Disclosures, p. 5
Note: Some content was reformatted in order to fit the page.

E.
Disclosure of Risk
Management Processes
Appendices

25

The Task Force on Climate-related Financial Disclosures

Figure E9 from Allianz Group describes how the insurer addresses climate-related risk as part ofan overarching qualitative and quantitative risk “reporting and controlling framework” that senior
management uses to decide on the risk management strategy. Toward the second half of theexample, Allianz describes the key tools used to assess climate-related risks.

Figure E9

Allianz Group, Sustainability Report 2019

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Allianz Group, Sustainability Report 2019, p. 75

Appendices

26

The Task Force on Climate-related Financial Disclosures

Figure E10 provides an excerpt from Citigroup’s 2019 10K (financial filing) that describes some of thefactors Citigroup includes in its credit underwriting practices to assess climate-related risks. It also
describes ongoing work Citigroup is doing to better measure and assess climate-related risks.

Figure E10

Citigroup, Financial Filing 2019

Citigroup, Form 10-K 2019, pp. 294–295
Note: Some content was reformatted in order to fit the page; and some content was excluded, denoted by [...].

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

27

The Task Force on Climate-related Financial Disclosures

In Figure E11, Enel describes assessing such risks using physical risk and transition risk scenarios.
Enel also refers to opportunities that arise from the transition to a lower-carbon economy and thecompany’s decision to seize those opportunities.

Figure E11

Strategic risks and opportunities connectedwith climate change

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

tential electricity generation.
acterized by a gradual reduction of CO2 emissions has risks

activities in a variety of ways.

and opportunities connected both with changes in the regula-

In order to identify the main types of risk and opportunity andtory and legal context and trends in technology development,

their impact on the business associated with them in a struc-electrification and the consequent market developments.

tured manner consistent with the TCFD, we have adopted a

Consistent with the climate and transition scenarios used byframework that explicitly represents the main relationships

Enel to determine risks and opportunities, the main transi-

between scenario variables and types of risk and opportunity,tion-related phenomena are beginning to emerge in relation

specifying the strategic and operational approaches to man-to customer behavior, industrial strategies being adopted in all

aging them, comprising mitigation and adaptation measures.

economic sectors and regulatory policies. Between 2020 and

There are two main macro-categories of risks/opportunities:

2030, the transition trends will become visible in response to

those connected with developments in physical variables andthe evolution of the context: the Enel Group has decided tothose linked to the evolution of the transition scenarios.

facilitate the transition, and is therefore ready to seize all the

Physical risks are divided in turn between acute (i.e. extreme

opportunities that may arise from an acceleration in that tran-

events) and chronic, with the former linked to extremely in-sition. As discussed previously, our strategic choices, which

tense meteorological conditions and the latter to more gradualare already strongly oriented towards the energy transition, tobut structural changes in climate conditions.

which we have dedicated more than 90% of investments, en-Extreme events expose the Group to the risk of prolonged

able us to incorporate risk mitigation and opportunity maximi-

unavailability of assets and infrastructure, the cost of restoring

zation “by design”, adopting a positioning that takes accountservice, customer disruptions and so on. Chronic changes inof the medium and long-term phenomena we have identified.

climate conditions expose the Group to other risks or oppor-

The strategic choices are accompanied by the operating best

tunities: for example, structural changes in temperature could

practices adopted by the Group.

Strategy & Risk Management

The energy transition towards a more sustainable model char-

Climate change and the energy transition will impact Group

Performance & Metrics

A.
Background and Purpose

impact the Group’s business by increasing or decreasing po-cause changes in electricity demand and have an impact on

Consolidated financial statements

Table of Contents

output, while alterations in rainfall or wind conditions could

Outlook

The identification andmanagement of risks connectedwith climate change

Governance

Enel GroupEnel, Annual Report 2019

Enel, Consolidated Annual Report 2019, p. 63

E.
Disclosure of Risk
Management Processes
Appendices

Risk management

63

28

The Task Force on Climate-related Financial Disclosures

As another example of risk identification and assessment processes, Figure E12 shows how atelecommunications company (Verizon) considers short-term and longer-term risk identification andassessment.

Figure E12

Verizon, 2019 TCFD Report

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Verizon, TCFD Report 2019, p. 7

29

The Task Force on Climate-related Financial Disclosures

An example of how a food and agri-business company (Olam International) evaluates, monitors, andmanages risks is shown in Figure E13. Olam International treats climate-related risk as a cross-cutting
risk that impacts its existing agricultural and reputational risks.

Figure E13

Olam International Limited, Annual Report 2019

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Olam International Limited, Annual Report 2019, p. 64

30

The Task Force on Climate-related Financial Disclosures

In Figure E14, an electronics company (Samsung Electronics) provides an overview of its process for
Samsung Electronics Sustainability Report 2020
026
identifying
and analyzing climate-related risks and opportunities.

026

Samsung Electronics Sustainability Report 2020

Figure E14

Samsung Electronics,
Risks and OpportunitiesSustainability Report 2020
Samsung Electronics regularly monitors issues related to climate change, such as GHG and renewable energy use atworksites around the world. The person in charge at each worksite is then asked to immediately report any issue that
may arise to the headquarters. Through the Environmental Safety Committee or the GHG management Council, we
regularly check these issues and discuss further actions to be taken before relaying decisions to the related departRisks and Opportunities
ments.
Samsung Electronics regularly monitors issues related to climate change, such as GHG and renewable energy use at
Risk
and Opportunity
Analysis
worksitesaround the world.
The person in charge at each worksite is then asked to immediately report any issue that
may arise Electronics
to the headquarters.
Throughthe opportunities
Environmentalrelated
Safety to
Committee
or the andGHGprioritizes
management
Council,Samsunganalyzes therisks andclimate change
issuesbased weonregularly checkthese issues and discuss further actions to be taken before relaying decisions to the related departmateriality
and impact.
ments.

Risk and Opportunity Analysis
Samsung Electronics analyzes the risks and opportunities related to climate change and prioritizes issues based onmateriality and impact.

1

2

3

4

5

Identify climatechange phenomena
and issues

Analyze impacts,
risks, andopportunity factors

Establish response
strategies

Implement andmonitor projects

Analyze results
and check with thetarget

1

2

3

4

5

Risk and Opportunity Analysis Criteria
Establish response
Implement andAnalyze results
Analyze impacts,
Identify climate
Stakeholder's interest Industry trend Business impact Internal capability Probability of occurrence
strategies
monitor projects
and check with therisks, andchange phenomena
targetopportunity factors
and issues

Table of Contents

Risk Analysis
and Opportunity Analysis Criteria
Issue Identification and Risk and Opportunity

A.
Background and Purpose
B.
Scope and Approach

Risks

Stakeholder's interest Industry trend Business impact Internal capability Probability of occurrence
Our approach
Opportunities

Carbon tax Analysis
Issue Identification and Risk and Opportunity

Risks
GHG emissions trading
Regulations
IssuesC.
Unique Characteristics
of Climate-Related Risks

Carbon tax
Use of renewable energy
GHG emissions trading

Regulations
IssuesD.
Integration in Practice:
Key Principles andInitial Steps

Product energy efficiency
regulations
Use of renewable energy

PhysicalIssuesCyclone and flood
Product energy efficiency
regulations
Yellow dust

E.
Disclosure of Risk
Management Processes

Cyclone and flood
PhysicalIssuesOthersAppendices

Corporate reputation
Yellow dust
Changing consumer behavior[...]
Footnotes:
1) CleanOthers
Development Mechanism

Corporate reputation

Changing consumer behavior

Samsung Electronics, Sustainability Report 2020, p. 26

Develop refrigerants witha low global warming potential

Ouran
approachEstablish
emission reduction
system and an emission trading
handling system
Develop refrigerants witha low renewableglobal warming
potential
Engageenergypurchase
contracts, registering for green
Establish
anpurchasing
emission reduction
pricing,REC
system and an emission trading
handling system
Develop energy efficient products
Engage renewable energy purchase
contracts, registering for green
pricing, purchasing REC
Expand investments in facilities
for natural disaster damage
prevention
restoration
Developenergyandefficientproducts
Establish damage prevention andrestoration scenarios andinvest in HVAC facilities
Expand investments in facilities
for natural disaster damage
prevention
and restoration
Reinforceinternal
sustainability

activities andstrengthen
external
Establish
damageprevention
andcommunication
restoration
scenarios andinvestconsumer
in HVAC facilities
Surveytrends andexpand sustainable productdevelopment
Reinforce internal sustainability
activities and strengthen external
communication
Survey consumer trends andexpand sustainable productdevelopment

Driving a worksite CDM¹⁾
ProgramSecuring carbon credit
Opportunities

ExpandingDrivingrenewablea worksiteenergy
CDM¹⁾ use,
reducing
GHG emissions
ProgramSecuring
carbon credit
Receiving sustainable certificatesand energy lables
Expanding renewable energy use,
reducing GHG emissions
Contribution to local communities forclimate change adoption and support
Receivingsustainable
certificateswithtechnologies
against climatechangeand energy lables
Create new business opportunities
for home appliances, such as air
purifiers and dryers
Contribution to local communities forclimate change adoption and support
with technologies against climate change
Enhancing
the brand
image
Createnew business
opportunities
for home appliances, such as air
purifiers and dryers
Proactive response to consumer
demand on eco-conscious products
Enhancing the brand image

Proactive response to consumer
demand on eco-conscious products

Footnotes:
1) Clean Development Mechanism

Note: Some content was excluded, denoted by [...].

31

The Task Force on Climate-related Financial Disclosures

Lastly,as an example of risk response, Figure E15 shows actions taken by a financial institution (Royal
FINAL
DRAFT
Bank of Canada) to mitigate climate-related risk.

Lastly, as an example of risk response, Figure E15 shows actions taken by a financial institution (RoyalBank of Canada) to mitigate climate-related risk.
Figure E15

Royal
Figure E15Bank of Canada, TCFD Report 2019
Royal Bank of Canada, TCFD Report 2019

Identification and assessment of climate risks[..]
RBC may be exposed to climate risk through emerging regulatory and legal requirements, disruptions to our operations and services,and the products and services we provide to our clients. We regularly review the risks that we face and the actions to mitigate theserisks. The table below highlights potential climate risks we faced in 2019 and actions we are taking to mitigate those risks.

Potential risk

Actions to mitigate risk

Emerging regulatory
and legal
requirements• Climate change regulations, frameworks, and guidance that apply to banks, insurers and asset
managers are rapidly evolving. The Bank of Canada and European Central Bank Financial Systems
Reviews were published in May 2019 and address the financial and economic risks of climatechange. While no specific requirements have been released, we will continue to monitor
development.
• RBC Europe Limited established a Senior Management Function responsible for the financial risk
from climate change, and has developed an initial plan for meeting the Bank of England
Prudential Regulation Authority’s Supervisory Statement SS3/19 and Policy Statement PS11/19.

Table of Contents
A.
Background and Purpose
B.
Scope and Approach• For clients in sectors categorized as medium and high environmental risk, such as those in carbon
intensive sectors, we evaluate whether clients have assessed and quantified the regulatory
impacts of climate change

Disruptions tooperations and client
services• We take steps to mitigate and adapt to climate change through our building design andpurchasing decisions.

C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices• We identify properties that we lease or own, which contain business processes and supporting
applications that require enhanced facility infrastructure to mitigate site disruptions, such as
those caused by extreme weather events. We classify critical environment sites based on ourbusiness risk tolerance for site-specific downtime and, among other things, site location, power
supply, exposure to flooding, geological stability and other hazards.

• As required, we assess the impact of climate-related events (e.g. floods, hurricanes) on ourbusinesses and client operations.

Products and services
we provide• We provide products, services and advice to assist clients in responding to climate-related risks
and opportunities (e.g., carbon trading services, green bond underwriting, clean technology
lending and advisory services, and responsible investing).
• We maintain a diversified lending portfolio, which improves our resilience to geographic or
sectoral downturns and minimizes concentrations of credit exposure.
• Each business segment is responsible for identifying material climate-related risks andopportunities, which are integrated into risk management processes as necessary. We haveconducted climate scenario analyses on parts of our portfolio to assess the impact of thetransition and physical risk drivers under different scenarios, including a 2°C scenario.
• Our asset management businesses integrate ESG issues into their investment process when doing
so may have a material impact on investment risk or return.
• RBC Insurance® provides policy administration for property and casualty products sold throughAviva Canada Inc., and is therefore not directly exposed to climate-related risks associated withthese products. The insurance industry as a whole has exposure to longer-term shifts in climate
patterns, such as rising temperatures and hurricanes, which may indirectly impact our Insurance
business results.

Royal Bank of Canada, Task Force on Climate-related Financial Disclosures Report 2019, pp. 9 and 11.

Royal Bank of Canada, Task Force on Climate-related Financial Disclosures Report 2019, pp. 9 and 11

Note: Some content has been reformatted to fit the page; and some content has been excluded, denoted by [...].

Note: Some content was reformatted to fit the page; and some content was excluded, denoted by [...].

32

The Task Force on Climate-related Financial Disclosures

Mapping to the TCFD Recommendations
Some organizations provide tables and charts that map sections of their reports to the Task Force’s
recommendations to direct users to where they can find their TCFD-aligned disclosures. Figure E16
shows a company’s (BASF’s) mapping of where in its integrated report a user can find information that
addresses the recommended disclosures under the Risk Management recommendation.

Figure E16

BASF, Integrated Report 2019*

Table of Contents
A.
Background and Purpose
B.
Scope and Approach

BASF, BASF Report 2019, p. 18
Note: Some content was reformatted in order to fit the page; and some content was excluded, denoted by [...].

C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

33

The Task Force on Climate-related Financial Disclosures

Similar to the figure above, Figure E17 shows EnBW’s mapping of the Risk Management
recommendation to sections of its annual report.

Figure E17

Figure E17

EnBW, Integrated Annual Report 2019
Task Force on Climate-related Financial Disclosures (TCFD)
TCFD element

ThemesSection

Page reference

Governance› Corporate management› Corporate governancepage 48› Materiality analysis› In dialogue with our stakeholders

page 51 f.

› Investment guidelines› The EnBW Group

page 76› Climate protection initiatives› In dialogue with our stakeholders, General conditions

pages 52 and 63› Overall assessment by the management› Overall assessment of the economic situation of thepage 95› Board of Management remuneration› Remuneration report

page 110 ff.

› Robustness of business model/scenario analysis› Business model

page 33› Strategy, strategic development› Strategy, goals and performance management system

page 41 ff.

› Interdependencies› Strategy, goals and performance management system

page 46 f.

› Materiality analysis› In dialogue with our stakeholders

page 51 f.

› Green bonds› The EnBW Group

page 74› General conditions, climate protection› General conditions

page 63› Integrated opportunity and risk management› Report on opportunities and risks

page 100 ff.

› Environment goal dimension: opportunities and risks› Report on opportunities and risks

page 104› Sustainability ratings› In dialogue with our stakeholders

page 53› Key performance indicators and long-term targets› Strategy, goals and performance management system

page 44 ff.

› Environment goal dimension: key performance› The EnBW Group

page 87 ff.

Strategy

Riskmanagement

Table of Contents
A.
Background and Purpose

Performanceindicators andtargets

including opportunity and risk map

indicators and other performance indicators

Group

›

EnBW, Integrated Annual Report 2019, p. 122

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

34

The Task Force on Climate-related Financial Disclosures

Appendix 1: Climate-Related Risks
and Potential Financial Impacts
In its 2017 report, the Task Force divided climaterelated risks into two major categories:(1) risks related to the transition to a lower-carbon
economy and (2) risks related to the physicalimpacts of climate change (see Table A1-1, p. 36).

1. TRANSITION RISKS
Transitioning to a lower-carbon economy may
entail extensive policy, legal, technology, andmarket changes to address mitigation andadaptation requirements related to climatechange. Depending on the nature, speed, andfocus of these changes, transition risks may
pose varying levels of financial and reputationalrisk to companies.
Policy and Legal Risks
Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

Policy actions around climate change continue
to evolve. Their objectives generally fall into
two categories — policy actions that attempt toconstrain actions that contribute to the adverse
effects of climate change or policy actions that
seek to promote adaptation to climate change.
Some examples include implementing carbonpricing mechanisms to reduce GHG emissions,shifting energy use toward lower emission
sources, adopting energy-efficiency solutions,encouraging greater water efficiency measures,and promoting more sustainable land-use
practices. The risk associated with and financial
impact of policy changes depend on the natureand timing of the policy change.34
Another important risk is litigation or legal risk.
Recent years have seen an increase in climaterelated litigation claims being brought before
the courts by property owners, municipalities,
states, insurers, shareholders, and public interest
organizations.35 Reasons for such litigation include
the failure of companies to mitigate impactsof climate change, failure to adapt to climatechange, and the insufficiency of disclosure aroundmaterial financial risks. As the value of loss anddamage arising from climate change grows,
litigation risk is also likely to increase.

Technology Risk
Technological improvements or innovations
that support the transition to a lower-carbon,
energy-efficient economic system can have asignificant impact on companies. For example, thedevelopment and use of emerging technologies
such as renewable energy, battery storage, energy
efficiency, and carbon capture and storage willaffect the competitiveness of certain companies,
their production and distribution costs, andultimately the demand for their products andservices from end users. To the extent that newtechnology displaces old systems and disrupts
some parts of the existing economic system,
winners and losers will emerge from this “creative
destruction” process. The timing of technology
development and deployment, however, is a key
uncertainty in assessing technology risk.
Market Risk
While the ways in which markets could be affectedby climate change are varied and complex, oneof the major ways is through shifts in supply anddemand for certain commodities, products, andservices as climate-related risks and opportunities
are increasingly taken into account.
Reputation Risk
Climate change has been identified as a potential
source of reputational risk tied to changing
customer or community perceptions of acompany’s contribution to or detraction fromthe transition to a lower-carbon economy.
A key aspect in assessing transition risks is the
speed and magnitude of transition, as well as thepolicy instruments used to effect change, which
jurisdictions are undertaking such changes, andthe amount of coordination across jurisdictions.
A rapid, disorderly transition to a lower-carbon
economy may present significant risks andadjustment costs to companies, especially those
operating in multiple jurisdictions. For example,
some companies may face “stranded assets”
across a variety of asset types. Stranded assets
can be caused by changing policy or regulation,
reputational impacts, or shifts in markets andtechnology. Asset stranding could affect a variety
of infrastructure assets, such as resources in the
ground, physical facilities, or technology patents.

34

 rganizations should assess not only the potential direct effects of policy actions on their operations, but also the potential second andO
third order effects on their supply and distribution chains.

35

Peter Seley, “Emerging Trends in Climate Change Litigation,” Law 360, March 7, 2016.

35

The Task Force on Climate-related Financial Disclosures

2. PHYSICAL RISKS
Physical risks resulting from climate change canbe event driven (acute) or longer-term shifts(chronic) in climate patterns.36 Physical risks may
have financial implications for companies, such as
direct damage to assets and indirect impacts fromsupply chain disruption. Companies’ financial
performance may also be affected by changes
in water availability, sourcing, and quality; foodsecurity; and extreme temperature changes
affecting companies’ premises, operations, supply
chain, transport needs, and employee safety.
Acute Risk
Acute physical risks refer to those that are eventdriven, including increased severity of extreme
weather events, such as cyclones, hurricanes,or floods.
Chronic Risk

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks

Chronic physical risks refer to longer-term
shifts in climate patterns (e.g., sustained higher
temperatures) that may cause sea level riseor chronic heat waves.

The most common climate-related physical risks
identified by companies include the following:37• Risks from the increased severityof extreme weather;• Changes to precipitation and weather
patterns; and• Rising mean temperatures.
Physical risks will vary by region and locality andare influenced by geographic and topologicalaspects of a location. Physical risks from climatechange can impact businesses directly, indirectly,or through cascading or interrelated effects.
Such risks may directly damage or disrupt a
company’s operations, supply chains, or laborproductivity; and they may indirectly affect foodsystems, social stability, biodiversity, and habitat
more generally. Through feedback loops andinteractions, physical risks also may combine
or cascade, such as through rising sea levels
combined with extreme weather (hurricanes)
resulting in historically high and damaging
storm surges.

Table A1-1

Climate-Related Risks and Potential Financial Impacts
Type

Climate-Related Risks38

Potential Financial Impacts

Policy and Legal•	­Increased pricing of GHG emissions• Enhanced emissions-reporting obligations

D.
Integration in Practice:
Key Principles andInitial Steps
Transition Risks• Mandates on and regulation of existingproducts and services

E.
Disclosure of Risk
Management Processes
Appendices• Exposure to litigation• Increased operating costs (e.g., higher compliancecosts, increased insurance premiums)• Write-offs, asset impairment, and early retirementof existing assets due to policy changes• Increased costs and/or reduced demand for
products and services resulting from fines
and judgments

Technology• Substitution of existing products andservices with lower-emissions options• Unsuccessful investment in
new technologies• Costs to transition to loweremissions technology• Write-offs and early retirement of existing assets• Reduced demand for products and services• Research and development (R&D) expendituresin new and alternative technologies• Capital investments in technology development• Costs to adopt/deploy new practices
and processes36 or more information on physical risks and hazards, see the IPCC’s 2012 special report and its Working Group I and Working Group II
F
contributions to its Fifth Assessment Report.

37

CDP, Major Risk or Rosy Opportunity: Are Companies Ready for Climate Change, 2019.

38

T he sub-category risks described under each major category are not mutually exclusive, and some overlap exists.

36

The Task Force on Climate-related Financial Disclosures

Table A1-1: Climate-Related Risks and Potential Financial Impacts(Continued)

Type

Climate-Related Risks38

Potential Financial Impacts

Market• Changing customer behavior• Uncertainty in market signals• Increased cost of raw materials• Reduced demand for goods and services due toshift in consumer preferences• Increased production costs due to changing input
prices (e.g., energy, water) and output requirements(e.g., waste treatment)

Transition Risks• Abrupt and unexpected shifts in energy costs• Change in revenue mix and sources, resulting indecreased revenues• Repricing of assets (e.g., fossil fuel reserves, land
valuations, securities valuations)
Reputation• Shifts in consumer preferences• Stigmatization of sector• Increased stakeholder concern or negative
stakeholder feedback

Table of Contents• Reduced revenue from decreased demand forgoods/services• Reduced revenue from decreased production
capacity (e.g., delayed planning approvals, supply
chain interruptions)• Reduced revenue from negative impacts on
workforce management and planning (e.g.,
employee attraction and retention)

A.
Background and Purpose• Reduction in capital availability

B.
Scope and Approach

Acute• Increased severity of extreme weather
events such as cyclones and floods

C.
Unique Characteristics
of Climate-Related Risks• Reduced revenue from decreased production
capacity (e.g., transport difficulties, supply
chain interruptions)Physical Risks• Reduced revenue and higher costs fromnegative impacts on workforce (e.g., health,safety, absenteeism)

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes

Chronic• Changes in precipitation patterns andextreme variability in weather patterns• Write-offs and early retirement of existing
assets (e.g., damage to property and assets in“high-risk” locations)• Rising mean temperatures• Increased operating costs (e.g., inadequate
water supply for hydroelectric plants or to cool
nuclear and fossil fuel plants)• Rising sea levels• Increased capital costs (e.g., damage to facilities)• Reduced revenues from lower sales/output• Increased insurance premiums and potential
for reduced availability of insurance on assets
in “high-risk” locations

Appendices38

T he sub-category risks described under each major category are not mutually exclusive, and some overlap exists.

37

The Task Force on Climate-related Financial Disclosures

Appendix 2: International Risk
Management Frameworks
In researching well-recognized, internationalrisk management frameworks, the Task
Force identified two such frameworks — theCommittee of Sponsoring Organizations of
the Treadway Commission’s (COSO’s) enterpriserisk management (ERM) framework andInternational Organization for Standardization(ISO) 31000. Both are widely recognized andused around the world. For example, “nearly
70% of the world’s companies use theoriginal COSO Framework for Enterprise Risk
Management;” and 76 countries have adopted
the ISO 31000 standard as their national risk
management standard (see Figure A2-1 below).39

Figure A2-1

International Risk Management Frameworks
COSO: ERM – Integrating Strategy
and Performance (2017)

ISO 31000: Risk Management –Guidelines (2018)

COSO published its initial ERM framework in 2004,
with the purpose of helping companies better
protect and enhance stakeholder value.

ISO published its initial risk management guidelines(ISO 31000) in 2009 and updated them in 2018. ISO
31000 provides guidelines on managing risk and “acommon approach to managing any type of risk andis not industry or sector specific.”

Table of Contents
COSO’s 2017 update of its ERM framework
highlighted that “the Framework has been usedsuccessfully around the world, across industries,
and in companies of all types and sizes to identify
risks, manage those risks within a definedrisk appetite, and support the achievement ofobjectives.” (COSO, 2017)

A.
Background and Purpose
B.
Scope and Approach

ISO 31000 also notes “[t]he application of theseguidelines can be customized to any organizationand its context” and the guidelines “can be usedthroughout the life of the organization and […] applied
to any activity, including decision-making at all levels.”(ISO, 2018)C.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

The Task Force decided to use COSO’s Enterprise
Risk Management — Integrating with Strategy
and Performance as the foundation for
discussing risk management processes inthis guidance.40 We leveraged COSO’s ERM
framework, in part, because it is also the basis

39of the COSO and World Business Council for
Sustainable Development (WBCSD)-developed
guidance on integrating environmental, social,and governance-related risks (ESG) into ERM
processes, from which we also draw.41

See Rodney Irwin, “Better Risk Management: It’s About Survival,” May 7, 2018; and ISO, “Why ISO 31000?” May 2017, respectively.

40

COSO, Executive Summary: Enterprise Risk Management — Integrating with Strategy and Performance, September 2017.

41

 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

38

The Task Force on Climate-related Financial Disclosures

Appendix 3: Additional Information
on Integration
This appendix provides examples of information
related to risk categories, tools, and scenario
analysis that may help companies in integratingclimate-related risks into existing processes.

help other companies think through theirown risk categorization.

RISKS
AND CAPITALADEQUACY
The example in Figure A3-1
showsa bank’s
KEY FIGURES(Société Générale Group’s) main risk categories
and indicates risks associated with climatechange have been identified as factors that
1. RISK CATEGORIES
could aggravate the existing risks. While climateThis section includes information on the risk management linked to financial
instruments,
andinformation
onin
capitalandrelatedrisks donotappearthemanagement
definitions
complianceregulatory
ratios, requiredrisks
by IFRSareas adopted by the European Union.
Examplesof withhow
climate-relatedof the bank’s main risk categories, such risksSome of thisforms
an integral partof the notes to the consolidated financial statements and is covered by the opinion of thecategorized
byinformationdifferent
companies
may

Statutory Auditors on the consolidated financial statements. This information is indicated with the note “Audited I”, (the symbol ▲ indicatesthe end of the audited part).
The Societe Generale Group is subject to oversight by supervisory authorities and to regulations on capital requirements applicable to credit
institutions and investment firms (Regulation (EU) No. 575/2013 of 26th June 2013).

Withinthe framework of the Third Pillar of the Basel Accord, a detailed and standardised statement is included in the “Risk Report for the
FigureA3-1
purposes of improving published financial disclosures” (Pillar 3 Report and cross-reference table).

Société Générale Group’s Risk Categories

All the information regarding the Pillar 3 Report and the prudential disclosures is available on the www.societegenerale.com website, under“Investors”, Universal Registration Document and Pillar 3.

TYPES OF RISKS

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices

The Group’s risk management framework involves the following main categories:
p Credit and counterparty risk: risk of losses arising fromthe inability of the Group’s customers, issuers or othercounterparties to meet their financial commitments. Credit
risk includes the counterparty risk linked to market
transactions and securitisation activities. In addition, credit
risk may be further amplified by individual, country andsector concentration risk;

p Risk related to insurance activities: through its insurance
subsidiaries, the Group is also exposed to a variety of risks
linked to this business. In addition to balance sheet
management risks (interest rate, valuation, counterparty
and exchange rate risk), these risks include premium
pricing risk, mortality risk and the risk of an increase inclaims;p Market risk: risk of a loss of value on financial instruments
arising from changes in market parameters, the volatility ofthese parameters and correlations between them. These
parameters include, but are not limited to, exchange rates,interest rates, the price of securities (equity, bonds),
commodities, derivatives and other assets;

p Risk on private equity and related transactions: risk of
reduction in the value of our equity ownership interests;

p Operational risk: risk of losses resulting from inadequacies
or failures in processes, personnel or information systems,
or from external events. It includes:- non-compliance risk (including legal and tax risks):
risk of court-ordered, administrative or disciplinary
sanctions, or of material financial loss, due to failure tocomply with the provisions governing the Group’s
activities,- reputational risk: risk arising from a negative
perception on the part of customers, counterparties,
shareholders, investors or regulators that could
negatively impact the Group’s ability to maintain or
engage in business relationships and to sustain accessto sources of financing,- misconduct risk: risk resulting from actions (orinactions) or behaviour of the Bank or its employees
inconsistent with the Group’s Code of Conduct, which
may lead to adverse consequences for our stakeholders,or place the Bank’s sustainability or reputation at risk,- IT and Information Systems Security risk (cybercrime,
IT systems failures, etc.);
p Model risk: potential for adverse consequences fromdecisions based on incorrect or misused model outputs andreports.

p Structural risk: risk of losses in interest margin or banking
book value if interest rates, exchange rates, or credit
spreads change. This risk is related to the commercial andown activities of the Bank, it includes the distortion of thestructural difference between assets and liabilities related
to pension obligations, as well as the risk related to longer
terms of future payments;
p Liquidity and funding risk: liquidity risk is defined as theinability of the Group to meet its financial obligations: debt
repayments, collateral supply, etc. Funding risk is definedas the risk that the Group will not be able to finance its
business growth on a scale consistent with its commercial
objectives and at a cost that is competitive compared to its
competitors;
p Strategic/business risk: risks resulting from the Group’s
inability to execute its strategy and to implement its
business plan for reasons that are not attributable to theother risks in this list; for instance, the non-occurrence ofthe macroeconomic scenarios that were used to construct
the business plan or sales performance that was below
expectations;p Residual value risk: through its Specialised Financial
Services Division, mainly in its long-term vehicle leasing
subsidiary, the Group is exposed to residual value risk
(where the net resale value of an asset at the end of theleasing contract is less than expected).
In addition, risks associated with climate change, both
physical (increase in the frequency of extreme climatic events)
and transition-related (New Carbon Regulation), have been
identified as factors that could aggravate the Group’s existingrisks.

Société Générale Group, Universal Registration Document 2020, p. 147

39

4

The Task Force on Climate-related Financial Disclosureswould likely appear in more detailed risk
documentation (e.g., risk inventory).
The example below comes from the Climate
Financial Risk Forum’s (CFRF’s) Risk Management
Chapter, which provides information on
approaches for managing climate-related risks(for the financial sector). The CFRF suggests
financial institutions should undertake amateriality assessment of climate-related risks

to help them decide whether such risks shouldbe treated as stand-alone risks or as drivers ofexisting risks. In cases where climate-relatedrisks are treated as drivers of existing risks,
Figure A3-2 provides an example of how the
TCFD-defined types of climate-related risks may
map into risk categories commonly used byfinancial institutions. The CFRF also mentions
litigation risk and model risk as categories
financial institutions may also wish to consider.

Figure A3-2

Mapping of Climate-Related Risks to
Major Risk Categories

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

Adapted from Climate Financial Risk Forum, CFRF Guide 2020: Risk Management Chapter, p. 16

E.
Disclosure of Risk
Management Processes
Appendices

40

The Task Force on Climate-related Financial Disclosures

For non-financial companies, risk categorization
will vary based on many factors, such as industry,business model, and regulatory requirements.
The example in Figure A3-3 shows an electricutility company’s (EnBW’s) opportunity
and risk map, “based on the internationallyestablished COSO II framework as a standard
for risk management systems that span entire
companies.” 42 The risk map shows whereclimate-related risks (defined by the TCFD) fit into
the company’s major risk categories and subcategories — marked by a light orange square.

Figure A3-3

Risk Map
Strategic / sustainability

Operative

B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks

Compliance

Sustainability

Business
Activity

Infrastructure

Implementation of growthfieldsFinancialmanagement

CorporatefinancingCompliance

Sustainablegeneration
structure

ClimatechangeBusiness
processes

Plants / grids /storage / IT

Renewable
Energies

Market prices

Capital market

Corruption

Marketdevelopments /social trends

Environmental
protection

Operatingactivities

Information
security /confidentiality

Gas / biogas
business

Liquidity
management

RatingAntitrust law

System criticalinfrastructure

Weather /natural events

Products /contracts

Crime /
sabotage /terrorism

E-mobility /digitalisation

Earnings
management

Data
Protection

Smart infrastructure forcustomers

HR

Operational
projectsz Expansion of

Investment
management

Fraud

Occupationalsafety / healthprotection

Approvals /licences /patents

Human rights

Legislation /regulation /litigation

Table of Contents
A.
Background and Purpose

Financial

Strategy

the grids

Taxes andleviesSocial issues

Figur

Reputation

D.
Integration in Practice:
Key Principles andInitial Steps

Task Force on Climate-related Financial Disclosures (TCFD)

Corporate social responsibility (CSR)

EnBW, Integrated Annual Report 2019, p. 100

E.
Disclosure of Risk
Management Processes
Appendices

42

EnBW, Integrated Annual Report 2019, March 2020, p. 100.

41

The Task Force on Climate-related Financial Disclosures

Another example of risk categorization
for non-financial companies is shown in
Figure A3-4. This example comes from the
WBCSD’s Construction and Building Materials
TCFD Preparer Forum report and is an excerpt
from a table describing climate-relatedtransition and physical risks to help construction

and building materials companies consider
which risks are most material to their respective
businesses. The complete table includes eachof the major risk categories defined by the TCFD
(transition and physical risks) as well as theunderlying sub-categories.

Figure A3-4

Transition and Physical Risks:
Construction and Building Materials
VALUE CHAIN IMPLICATIONSCATEGORY

MarketTable of Contents

SUBIMPACT
CATEGORY TYPE

Increased
cost of raw
materials,
shift inconsumerpreferences

A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes

Reputation Changing

publicperceptionsof the sector

RAW MATERIALEXTRACTION
Possible impact• Changes in thecost of carbon
intensive raw
materials affectdemand andprofitability ofoperations.
• Increased energy
prices affectoperational costs.

BUILDING
PRODUCTS AND
MATERIALS
MANUFACTURE
Possible impact• Changes to
input costs forconstruction
products affectdemand andprofitability.
• Demand for
substitute goods.
• Increased energy
prices affectoperational costs.

DEVELOPMENTCONSTRUCTION

Possible impact• Increasedmaterials
costs impact
profitability and/or viability of
construction
projects.
• Ability to prioritizeuse of lowcarbon materials
jeopardized ifthey become too
expensive.
• Increased energy
prices affectoperational costs.

Possible impact• Increased costs
if prices ofenergy and/or
raw materials rise
and are passed
through the value
chain.
• Changing
customerpreferences
incentivize use of
new materials.

INFLUENCES,
CONNECTIONS AND
COLLABORATION• Exposure to raw material
price volatility risks could
affect the value chain in
different ways, influencing
downstream players toseek alternative material/
product options andchanging the operationalcosts and demand for
products from upstream
players.
• Increased energy costs
Response
would cause operational• Stabilize
Response
costs to rise for all value
operational costs • Diversify productResponse
chain participants.
• Improve capacity
to capitalize on
portfolio.
• Changing demand could
to satisfy
raw material price • Hedge priceoffer opportunities
increase.
volatility of key
consumerfor specialization and• Adjust production
materials.
Response
preferences anddiversification, such as
outputs to reflect • Source raw• Materials pricemanage exposure
the expansion of low
to price volatility.
demand.
materials moresensitivity
emissions services and• Diversify productwidely, engage
assessment and• Develop
products.
portfolio to reflectwith suppliers andcontingency plans
contingency
plans to manage
shifting consumer
vertically integrate
for procurement.
preferences.
operations.
material pricefluctuations.
• Explore circular
economy options.
• Improve efficiencyof energy
consumption andmaterial use.
Possible impact• Negative public image arising from issues related to sustainability and climate change
results in reduced demand for products and services.
Response• Maintain focus on sustainability reporting, corporate citizenship and environmental
responsibility, ensuring this is well documented and transparently communicated.
• Maintain strategic focus on minimizing environmental impact and contributing toclimate change mitigation and adaptation efforts.
• Explore potential for differentiation in the market based on environmental credentials.

Appendices• Public sentiment aroundsustainability and climatechange issues affects allvalue chain players.
• Negative perceptions
can result in reputational
damage and influence
customer decisions,whereas positive
perceptions create
opportunities to attract
talent and investors.
• Collaboration to develop
educational initiatives
could help explain the
sector’s role in climatechange adaptation andmitigation and wider
societal issues.

WBCSD, Construction and Building Materials TCFD Preparer Forum, pp. 22–26

42

The Task Force on Climate-related Financial Disclosures

2. RISK TOOLSAs noted in Section D.2. Initial Steps for
Integrating Climate-Related Risks into
Risk Management, there are a range of toolsthat companies may want to consider as they
integrate climate-related risks into existingprocesses. Table A3-1 expands on the tools
described earlier in the guidance.

Table A3-1

Overview of Various Tools and Their Application
to Climate-Related Risks
Tool

Description

Application

Process

Delphi
MethodStructured communication
method for eliciting informationand opinions from experts

Conduct interviews or collectexpert input from businessleaders, actuaries, insurers,
meteorologists, oceanographers,
climate, and atmospheric scientists• Risk Identification

Economic
Scenario
Generator

Models that simulate possible
future states of economies andfinancial markets based on risk
factors to identify unexpected but
plausible outcomes

Test valuation models under abroad range of possible economic
and financial conditions (e.g.,considering climate change andsocioeconomic factors)• Risk Identification

Forecasting

An approach for predicting theimpact of a future event based on
past and present data

Use historical data and lookback
studies to understand previous
climate-related impacts to inform
estimates of potential future
impacts, changing key parameters(e.g., frequency, duration,
intensity) within plausible ranges• Risk Assessment

HazardMaps

Location-level information on
the extent or severity of perils
using assumptions on thefrequency, severity, and location
parameters of primary eventsand dependencies withsecondary perils 43

Present peril event scenarios
based on current and potential
future states considering theimpact from climate change, which
will result in different frequency
and severity of events affecting
certain locations• Risk Identification

HorizonScanning

Systematic and proactive
approach to risk identification
based on available information

Identify various climate-related
risk types across different spatial
and temporal scales• Risk Identification

Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes• Risk Assessment• Risk Assessment• Risk Assessment

Appendices43

T hird-party service providers and some reinsurers provide hazard maps. For example, see Swiss Re’s CatNet®.

43

The Task Force on Climate-related Financial Disclosures

Table A3-1: Overview of Various Tools and Their Application to Climate-Related Risks(Continued)

Tool

Description

Application

Process

Probabilistic
Modeling

General. Systems modeling thatinvolves probabilistic inputs,
processes, and outputs

Numerical weather andclimate predictions that allow a
representation of uncertainties,
a reduction of systematic biases,
and improved representation of
long-term climate variability• Risk Assessment

Catastrophe Models. Probabilistic
models based on deep
understanding of the physicalparameters that define a natural
hazard (e.g., wind speeds) andcharacteristics of the exposures(e.g., location)

Estimate potential losses fromnatural catastrophes• Risk Assessment

A process for identifying andassessing potential implications ofa range of plausible future states
under conditions of uncertainty

Explore and develop anunderstanding of how climaterelated risks and opportunities
might plausibly impact a company
over time• Risk Identification

Sensitivity
Analysis

Statistical analysis that examines
the change in a desired output
relative to a change in input
parameters

Analyze a company’s sensitivity
to changing climate-related
conditions (e.g., carbon orcommodity prices or demand)• Risk Assessment

Simulation

Use of models to imitate asituation many times in order toestimate the likelihood of various
possible outcomes (e.g., Monte
Carlo method)

Assess the likelihood orpropensity of different climaterelated scenario pathways
accommodating multiple variables
and parameters• Risk Assessment

Stakeholder
Engagement

A means of obtaining input for
decision making from thoseparties who may be affected by
the decision or have knowledge
that may inform the decision

Seek insight from a range ofstakeholders within and outside
a company (e.g., management
executives, suppliers) who
can provide feedback onchanging conditions and potential
impacts associated with climaterelated risks• Risk Identification

Scenario
AnalysisTable of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes• Risk Identification• Risk Response• Risk Assessment• Risk Response• Risk Assessment

Appendices

44

The Task Force on Climate-related Financial Disclosures

3. SCENARIO ANALYSISThe Task Force considers scenario analysis
as a useful tool for risk identification andassessment of climate-related risks and has
been emphasizing the importance of using
scenario analysis to assess potential business,strategic, and financial implications of climaterelated risks since publication of the TCFD
recommendations in 2017.
In particular, for firms taking a forward-looking
risk assessment approach, scenarios can support
the assessment of strategic risk from climatechange. Scenario analysis is particularly usefulfor taking account of the uncertainties associatedwith climate change. These uncertainties arise
from the way drivers of change, assumptions,and the scenario logic may play out and evolve
under different assumptions; other uncertainties
arise from the physical interactions and impactsof the climate as well as uncertainties in climate
models. In scenario analysis, different drivers
and different assumptions about those drivers
lead to a wide range of potential outcomes.
Table of Contents
A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps

Uncertainty also arises from the differing
temporal and spatial scales over which climaterelated risks develop. For example, acute physicalrisks, such as extreme weather, wildfires, andheatwaves, develop over shorter time frames(e.g., annually) and at local or subnational
spatial scales. Chronic physical risks, such as
long-term changes in precipitation patterns andaverage temperatures, are modeled on global
and regional scales and decadal time periods.
Scenario time horizons, therefore, should be
sufficiently long for the climate-related risks ofinterest to emerge; thus, scenario time horizons
may vary with the type of risk being evaluated(e.g., transition, acute physical, chronic physical).

In assessing forward-looking risks, scenarios
should be distinctive and diverse to cover a wide
range of plausible climate-related risks for therisks a company is assessing. The objective is
to create scenarios that capture the historical
trends and forces and how they might unfold/evolve into the future. Each scenario should
focus on a different combination of the key
high-impact and high-uncertainty driving
forces in order to be distinct and challenging;all scenarios should have a common baseline
set of conditions consisting of high-impact
drivers with low-to-medium uncertainty.
For example, if a company wishes to assess
its transition risks, one scenario could assume
an outcome that the Paris Agreement climate
targets are met, and then consider which drivers
and assumptions would be required to achievea pathway to that outcome. Other scenarios
could assume outcomes at lower levels ofemissions with different assumptions as to how
drivers must evolve to achieve that outcome.
The range of scenarios, therefore, should reflect
the key underlying drivers and assumptions
relevant for the creation, amplification, or
distortion of the potential climate-related risks acompany wishes to assess. Each scenario should
be distinct, plausible, and challenging, and theset of scenarios used should have consistentlogic, be relevant to the risks being assessed,and be diverse. Scenario analysis should beconsistently applied to assess strategic andfinancial risks, and consistent with other internalrisk processes such as the valuations of assets
and liabilities for financial disclosure.

E.
Disclosure of Risk
Management Processes
Appendices

45

The Task Force on Climate-related Financial Disclosures

Appendix 4: Glossary
BUSINESS OBJECTIVES refer to measurable
steps an organization takes to achieve
its strategy.44
CLIMATE-RELATED OPPORTUNITY refers to
the potential positive impacts related to climatechange on a company.
CLIMATE-RELATED RISK refers to thepotential negative impacts of climate change
on a company.
GOVERNANCE refers to “the system bywhich [a company] is directed andcontrolled in the interests of shareholders
and other stakeholders.”45
IMPACT refers to the extent to which a risk event
might affect a company.
LIKELIHOOD represents the possibility thata given event will occur.

Table of Contents

OPERATING STRUCTURE refers to the way [acompany] organizes and carries out its day-today operations.46

A.
Background and Purpose

RISK APPETITE refers to the types and amountof risk, on a broad level, a company is willing toaccept in pursuit of value.47

B.
Scope and Approach

RISK CATEGORIES refer to the high-levelclassification of specific risks. Commonly usedrisk categories include strategic, financial, andoperational; however, most companies haveadditional (or other) risk categories as well.

C.
Unique Characteristics
of Climate-Related Risks

RISK INVENTORY refers to all risks that could
impact a company.48
RISK MANAGEMENT refers to a set of processes
that are carried out by a company to support
the achievement of its objectives by addressing
its risks and managing the combined potential
impact of those risks.
RISK TAXONOMY refers to a common system toorganize risks consistently across a company andestablish “parent-child” relationships between
broad risk categories and specific sub-categories.
RISK PROFILE refers to a composite viewof the risk assumed at a particular level of acompany or aspect of the business that positions
management to consider the types, severity, andinterdependencies of risks and how they may
affect performance relative to the strategy andbusiness objectives.49
STRATEGY refers to a company’s desired
future state. A company’s strategy establishes
a foundation against which it can monitor
and measure its progress in reaching thatdesired state.

D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices44

 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

45

A . Cadbury, Report of the Committee on the Financial Aspects of Corporate Governance, London, 1992.

46

 OSO and WBCSD, Enterprise Risk Management–Applying Enterprise Risk Management to Environmental, Social and Governance-Related Risks,C
October 2018.

47

Ibid.

48

Ibid.

49

Ibid.

46

The Task Force on Climate-related Financial Disclosures

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Background and Purpose
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Scope and ApproachC.
Unique Characteristics
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Disclosure of Risk
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Scope and ApproachC.
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Disclosure of Risk
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48

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A.
Background and Purpose
B.
Scope and ApproachC.
Unique Characteristics
of Climate-Related Risks
D.
Integration in Practice:
Key Principles andInitial Steps
E.
Disclosure of Risk
Management Processes
Appendices49

For more information, please visit fsb-tcfd.org
Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell a security or financial instrument or investment advice orrecommendation of a security or financial instrument. The Task Force on Climate-related Financial Disclosures believes the information herein
was obtained from reliable sources but does not guarantee its accuracy. Copyright 2020 The Task Force on Climate-related Financial Disclosures.