October 15, 2020
On October 9 (Tue.), 2020, the Ministry of Economy, Trade and Industry (METI) held a Summit of the Task Force on Climate-related Financial Disclosures (TCFD; hereinafter referred to as the “TCFD Summit”), bringing together global leaders of industrial and financial organizations having made efforts to advance the implementation of the TCFD recommendations, a framework in which companies disclose their information on climate change.
To conclude the discussion of the TCFD Summit, METI compiled “Key Takeaways of the TCFD Summit.”
1. Background of the TCFD Summit
Toward realization of the positive cycle of environmental protection and economic growth, it is considered important to not only continue to encourage companies to be committed to TCFD disclosures and increase the number of supporters but also to encourage companies to improve the quality of disclosure as an effort to help investors make decisions and lead to discovery of business opportunities.
In October 2019, the world’s first TCFD Summit was held in Tokyo, bringing together global leaders of industrial and financial organizations. At the summit, participants agreed on key concepts on measures against climate change, including the “importance of engagement” and “importance of opportunity assessment.” As of October 2019 when the first TCFD Summit was held, 863 organizations from around the world and 198 in Japan showed their support for the TCFD recommendations. Since then, the number of such organizations has grown to 1,472 worldwide, up by 609, and 311 in Japan, up by 113, as of October 20, 2020, which is an effect triggered by the summit.
The TCFD Summit 2020, which was the second one, presented discussions by leaders of industrial and financial organizations on approaches to facilitating use of the TCFD recommendations. In addition, the summit also presented sessions by practitioners for the purpose of establishing and developing the TCFD recommendations in practical matters. Through this summit, participants shared their awareness and knowledge on climate-related financial disclosures, and Japan sent a message to the world of its support for the TCFD recommendations.
2. Overview of the TCFD Summit 2020
Date: October 9 (Fri.), 2020
Meeting format: Online style
Co-organizers: The World Business Council for Sustainable Development (WBCSD) and the TCFD Consortium
Number of registered viewers: About 3,200
3. Details of the discussions
(1) Welcome message delivered by the Prime Minister of Japan
Prime Minister Suga Yoshihide delivered the message that companies and investors around the world are shifting to business that position sustainability at its core. He also stated that Japan will create innovations that realize “Beyond-Zero”, which is an approach to retroactively reducing the accumulated amount of CO2 emissions, and will present a picture of a positive cycle of environmental protection and economic growth, which will contribute to global decarbonization. Following this, he declared that the government of Japan will support TCFD as an effort for supporting companies engaging in solutions to climate change by taking advantage of the power of finance.
(2) Welcome message by METI Minister
Mr. Kajiyama Hiroshi, Minister of Economy, Trade and Industry, proposed the importance of TCFD aligned with disclosures where efforts for transition to de/low carbonization and innovations for dramatic reduction of CO2 are taken them as “opportunities”. He confirmed his expectations for the continuous promotion of TCFD disclosures through this summit in the next and following years. Moreover, he announced a list of 320 Companies Taking on the Zero-Emission Challenge, a compilation of companies boldly taking on efforts for innovations toward realization of a decarbonized society, as the first step of the Zero-Emission Challenge project.
(3) Opening remarks
Message from Mr. Valdis Dombrovskis, Executive Vice-President, European Commission (EC)
Mr. Dombrovskis stated that the TCFD recommendations are important as they provide authoritative guidance on how companies should report climate information and that the European Commission remains a firm supporter.
Message from Mr. Mark Carney, Finance Adviser to the Prime Minister for COP26 and UN Special Envoy for Climate Action and Finance
Mr. Carney stated his team will look for ways to make TCFD disclosure mandatory in different jurisdictions. In some countries that will be through legislation, in others it will be through securities disclosure standards, in others through accounting disclosures. He also stated that climate change should be taken into account in financial companies’ judgements as interest rates, credit risk and future cash flows are essential today. For this purpose, TCFD disclosures are regarded as the foundation of climate-related financial disclosures. He suggested that we should see how entities are managing climate related risk – where they see the opportunities, how they are governing the strategies and how they are putting them in place rather than simply making static disclosure.
Message from Ms. Mary L. Schapiro, Head of the TCFD Secretariat
Ms. Schapiro expressed her appreciation for the efforts by the TCFD Consortium as it plays great roles as the world’s largest body of TCFD supporters and it presents a model integrating financial and non-financial actors to work together to improve transparency. Moreover, she suggested that firms that neglect the long-term implications will not be able to compete successfully, while those looking ahead, setting net-zero emissions of carbon targets and developing products and services that support a more resilient future can thrive.
(4) Opening session: Expectations for the TCFD Summit
Speakers as representatives of the co-organizers, investors and business entities delivered messages concerning changes surrounding the TCFD recommendations since the first Summit and efforts that investors and industrial organizations have been taking for implementation of the TCFD recommendations. As the momentum for climate related disclosure is further growing backed by expansion of COVID-19 and as TCFD disclosures are improving in terms of both quality and quantity, they stated their expectations for implementation of TCFD disclosures, e.g., analysis of financial impacts, and application of TCFD disclosures to innovations and transition.
Mr. Ito Kunio, Chair of the TCFD Consortium and Professor of the Graduate School of Business Administration, Hitotsubashi University, explained that under the cooperation framework between the public and private sectors, the TCFD Consortium, the world’s largest body consisting of supporters for the TCFD recommendations, revised the TCFD Guidance 2.0, with best practices and started a project, called GIG Supporters by investors who utilize the Green Investment Guidance for actual investment decisions and engagement. Following this, he suggested that to achieve sustainable society, we should take climate change as an opportunity to shift corporate management over the medium to the long-term period
Mr. Peter Bakker, WBCSD President and CEO, stated we must now focus on how climate and sustainability-related information is used in the investor-corporate relationship and create a capital market that recognizes and rewards sustainable business, attracting a lower cost of capital and more financial capital to lead the transition and transformations across critical systems.
(5) Special discussions: ESG investing and the TCFD disclosures in the with-corona and post-corona era
Panelists who are representatives of business entities and investors presented their views on impacts caused by the pandemic and future directions of responses in reviewing their efforts for TCFD disclosures for the past one year. Some investors explained that companies taking into consideration ESG factors have been showing a positive correlation with their performance even in the situation of the pandemic, and also that some value chains as a whole have been engaging in net-zero emissions of CO2. Some representatives of business entities explained, against the backdrop of the quick changes seen in global-wide business environments backed by the pandemic, the need for accelerating responses, as well as the importance of investments in innovations to strike a balance between economic value and social value.
The panelists discussed that TCFD is the best framework for disclosures currently available for ESG investments as information useful for decision making on investments is necessary and that it is significant to: fill gaps with other standards through further harmonization; assess long-term risk management and business opportunities, in particular, by making use of scenario analyses; disclose information; and hold dialogues with investors. Moreover, they stated that in some cases, the sector per se should be changed. Investors should be further committed to disclosures in order to assess companies that encourage players in and outside companies to bring about innovations.
(6) Panel discussion 1: Importance of evaluation based on materiality by industry
Climate change is an important issue for a wide variety of industries. However, in light of the characteristics of risks and opportunities varying among industries, disclosures in accordance with the TCFD recommendations should be evaluated based on the understanding of materiality unique to the respective industries, rather than check box type of evaluation. This session held discussions on: methods that companies should use for applying climate-related risks and opportunities unique to them into business strategies and effectively managing such strategies; approaches to constructive dialogues and engagement based on the materiality of each industry.
Through these discussions, panelists shared recognition that investors should consider the materiality of each industry in their investment decision from a long-term viewpoint and that companies should build a mechanism for identifying potential climate risks and opportunities and deliberating them at a management level. It was noted that disclosures are step-by-step efforts and companies do not need to make perfect disclosures from the beginning. It is considered effective for industries having the same materiality to share their sense of crisis among them, while companies should take their unique, own approaches to strategies for managing materiality.
(7) Panel discussion 2: Implementation of scenario analysis and case studies
A scenario analysis under the TCFD recommendations is one of the key challenges in carrying out disclosure. Conducting a scenario analysis, applying the analysis into business strategies and proceeding with them should lead to explore business opportunities. Focusing on such scenario analysis, this session shared experiences of: implementation of the TCFD recommendations by companies and assessment of companies by investors and financial institutes based on companies’ TCFD disclosures. The panel also discussed awareness from such experiences.
Through these discussions, panelists shared the importance of starting and continuing a scenario analysis and the involvement of management and related divisions. They also shared recognition that as a positive effect, a series of processes for sharing recognition with management team has a favorable influence on management, such as implementation of a scenario analysis may change the awareness of management team.