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The good news for companies filling out the CSA questionnaire is that S&P Global is not seeking to reinvent the wheel, but rather aligning with the recognized TCFD. Wider alignment and adoption of the TCFD framework is also present in regulatory fields such as the EU’s Non-Financial Reporting Directive and Taxonomy for sustainable activities, providing clear guidance for companies on their climate journey. So, if your company already reports under the TCFD recommendations and/or responds to the CDP Climate Change program, the new questions should look familiar.
In its CSA Companion, S&P Global has indicated how the Climate Strategy questions link to the elements in the TCFD framework and the CDP Climate Change assessment. As the mapping table below shows, the criterion has the strongest relation with the Strategy aspect of TCFD and sections 2 and 3 in CDP Climate Change.
CSA Climate Strategy Questions (2021) | Link to TCFD | Link to CDP |
Climate Risk Management* | Overall | Overall |
Climate-Related Management Incentives | Metrics and Targets (a) | C1.3a |
Climate Change Strategy | - | C2.2 |
Financial Risks of Climate Change | Strategy (b) | C2.3a |
Financial Opportunities Arising from Climate Change | Strategy (b) | C2.4a |
Climate Risk Assessment- Physical Risks* | Strategy (a), (b), and (c) | C3.1a and C3.1d |
Climate Risk Assessment- Transition Risks* | Strategy (a), (b), and (c) | C3.1a and C3.1d |
Physical Climate Risk Adaptation* | Strategy (b) |
|
Climate Related Targets | Metrics and Targets (c) | C4.1a, C4.1b, C4.2 |
Scope 3 GHG Emissions | Metrics and Targets (b) | C6.5 |
Source: S&P Global, CSA Companion
* Newly added questions in 2021
Looking specifically at the new questions that S&P Global has added to the CSA in 2021, we see an expanded view on risk assessment, management and mitigation plans, with extra attention paid to scenario analysis.
To put the new questions in a wider perspective, Finch & Beak has developed a checklist to quickly assess the completeness of your company’s climate strategy.
Starting point of the strategy is getting a thorough understanding of the company’s climate-related risks, opportunities and financial impacts, ideally by using scenario analysis (see question 2).
The following should be clearly pictured and translated into (monetary) impacts:
• Physical risks: associated with physical impacts from climate change, which can be cute or chronic
• Transition risks: policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change
• Opportunities: for example resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain
One of TCFD’s recommended disclosures focuses on the resilience of an organization’s strategy, considering different climate-related scenarios, including a 2° Celsius or lower scenario. Scenario analysis is also one of the components of the new questions that S&P Global has introduced on the climate risk assessment on physical risks and transition risks.
If the company conducts a scenario analysis and uses another method than the ones included in the question, the following should be described:
• Parameters used (e.g. discount rate, GDP, other macro-economic variables etc.)
• Assumptions made (e.g. assumptions related to policy changes, technology development/deployment, energy mix, price of key commodities or inputs, geographical tailoring of transitional and physical impacts, and timing of potential impacts)
• Description of the different scenarios with time horizons set
According to the TCFD, financial impacts of climate-related issues on an organization are driven by two main elements. The first: the specific climate-related risks and opportunities to which the organization is exposed. Second, the company’s strategic and risk management decisions on managing those risks (i.e., mitigate, transfer, accept, or control) and seizing those opportunities.
Four main categories were identified by TCFD through which climate-related risks and opportunities may affect an organization’s current and future financial positions:
• Income statement: (1) revenues and (2) expenditures
• Balance Sheet: (3) assets and liabilities, and (4) capital and financing
For each category, companies should be able to express the financial impacts. This should take into account aspects such as carbon pricing, cost structure, and flexibility to adapt. Besides, it is to describe expected changes in the valuation of organizations’ assets and liabilities, and to the profile of an organization's debt and equity structure.
What interventions is your company implementing to manage the risks and to seize the opportunities? Aspects covered in the Climate Strategy criterion in the CSA include:
• Climate Related Targets, including science-based targets
• Scope 3 Greenhouse Gas Emissions
• Climate-Related Management Incentives
• Low Carbon Products
• Internal Carbon Pricing
• Physical Climate Risk Adaptation
Investors, policy makers and other stakeholders are increasingly expecting companies to be transparent on their climate strategy and its outcomes. The wider alignment around TCFD creates an appropriate vehicle for enhanced climate-related reporting – which is ideally integrated in mainstream financial reporting.
From the perspective of S&P Global, the Climate Strategy criterion did not yet include any public disclosure aspects – until now. In the CSA 2021, companies are now required to provide public evidence of their commitment to the TCFD framework. Additional credit is now granted for disclosure of at least one climate related scenario, the focus and scope of the climate risk assessments of physical and transition risks, and the company’s plan to adapt to physical risks.
With over 15 years of experience in ESG benchmarking support including DJSI, Finch & Beak is one of Europe’s leading experts in improving our clients’ sustainability programs and ESG performance. The Finch & Beak company vision is to accelerate sustainability. Our ESG and sustainability strategy work is characterized by a continuous improvement method that leverages existing assets in the short term while identifying opportunities for strategic development in the future.
If your organization is looking to accelerate its sustainability performance and realize its DJSI-ambitions, please download our service description or contact us at hello@finchandbeak.com.
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