Market Risk Advisory Committee Statement

Nancy Meyer, Director of Corporate Engagement

Center for Climate and Energy Solutions (C2ES)

June 12, 2019

Commissioner Behnam and members of the committee, thank you for the opportunity to speak 

with you today. 

C2ES is an independent, nonprofit, nonpartisan organization. Our mission is to advance strong 

policy and action to reduce greenhouse gas emissions, promote clean energy, and strengthen 

resilience to climate impacts. Our work is informed by our Business Environmental Leadership 

Council (BELC), a group of 34 major companies that work with C2ES on addressing climate 

change risks and identifying solutions. These companies represent a range of sectors with 

combined revenues of nearly $3 trillion and over 3.5 million employees.

In my role at C2ES I manage the activities of the BELC, which has included facilitating 

activities for a cross-sector working group focused on implementing the recommendations of 

the Task Force on Climate-related Financial Disclosures (TCFD). The focus of this working 

group is to support companies in implementing the TCFD’s recommendations. My remarks will 

focus on key takeaways I gathered from two meetings C2ES held earlier this spring with 

members of our business council and other stakeholders. The committee may also be 

interested in the C2ES brief entitled, “Using Scenarios to Assess and Report Climate-Related 

Financial Risk,” which highlights best practices in this area.

First steps companies are taking 

Many companies are completing their first-generation climate-related financial disclosures

using TCFD guidance. Companies across sectors are eager to learn from one another during 

this process. However, the process is iterative and gradual. 

With TCFD’s focus on financial outcomes, climate change discussions have broadened 

beyond corporate sustainability teams. Implementing the TCFD recommendations requires

coordination among several corporate functions. The framework includes elements of risk 

management, strategic planning, and sustainability/ESG reporting. For example, managing 

physical risk often falls under the purview of risk managers, whereas transition risk is an area 

of focus for strategy teams, and greenhouse gas emissions management is typically the focus 

of sustainability teams. In addition, legal teams must also be engaged, particularly when it 

comes to reporting. Bridging information gaps and coordinating among business units is a 

major hurdle for many companies starting to engage in TCFD reporting.

Challenges of physical and transition risk analysis 

An important element of the TCFD framework is the recommendation to analyze scenarios that 

consider both the transition risks/opportunities and the physical impacts of climate change. For 

many companies, the physical risks are often easier to translate into financial outcomes, which 
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involves assessing business continuity plans and possible supply chain issues. For some

companies, the physical impacts represent a more immediate threat. Transition risks also can 

be harder to quantify given the uncertainty of assumptions around policy and technology, 

which makes it more difficult for companies to translate outcomes from those modeling 

exercises into financial impacts.

Despite the challenge of translating outcomes, many companies have focused their first 

iteration of TCFD analysis on transition risk, often harnessing existing capabilities of internal 

strategic planning teams. Climate modeling requires much more scientific expertise than the 

economic modeling used for assessing transition risk, and most companies do not have 

climate scientists on staff. However, the past few years have seen a proliferation of private 

consulting firms with climate modeling expertise ready to help companies conduct more 

granular scenarios exercises to analyze physical impacts.

Companies also encounter challenges when modeling transition scenarios. For example, most

models assume smooth transitions. However, climate-related financial risk is most likely to 

occur during times of disruption. Companies recognize this and are exploring ways to stress 

test the outcomes of their models to better anticipate potential rough points in a transition. 

Reporting Outcomes 

Reporting is another key challenge area for companies implementing the TCFD 

recommendations. Some companies have concerns about opening up potential legal liability 

once a risk has been disclosed. Other companies are concerned that scenarios exercises 

could be misconstrued as forecasts. And while models are good at developing insights, they 

are not designed to deliver absolutes. 

Part of the challenge is that companies must appropriately qualify the uncertainties involved in 

their modeling since models rely on many assumptions. In transition scenarios, policy design 

and technology assumptions are critical inputs, yet different models use very different 

assumptions for those factors.

Therefore, companies are challenged to frame key uncertainties that have a material impact on 

the modeled outcomes. Rather than reporting the outcomes in quantitative terms, companies 

often look for ways to relay strategic options that are robust within a range of uncertainty, but 

without disclosing confidential business information – often a difficult balance to strike.

In conclusion, we have seen significant progress toward implementation of the TCFD 

recommendations. More companies than ever are working to assess and quantify the risks

presented by climate change - a critical step in managing related financial impacts more 

broadly. However, the process is still evolving and there are many challenges that companies 

are working to resolve. C2ES will continue to support businesses in the implementation 

process and looks forward to engaging with stakeholders in this area as the field matures.