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Economic climate

ARTICLE BY

  • Scott Williams
  • ESG Coordinating Director
  • Marsh Middle East and Africa

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The Task Force on Climate-related Financial Disclosures (TCFD) is awaiting its breakthrough moment in the Middle East and Africa.

While other regions have made TCFD reporting mandatory – or committed to doing so in the near future – it has received much less traction among policyholders from Durban to Doha. TCFD reporting is not the only climate disclosure framework, however it is emerging as the global standard. Governments and regulators use the TCFD as the benchmark for their domestic legislation, recommendations and guidance.

Let’s take a look at what opportunities TCFD reporting presents to firms in the Middle East and Africa, and how TCFD reporting can benefit the region’s businesses as they grapple with the impact of climate change, amidst other risks.

What is TCFD reporting?

The TCFD reporting framework was first released in 2017. It is an attempt to build on the commitments made by national governments in the Paris Agreement.

TCFD reporting is designed to go beyond a box-ticking exercise. It wants to help businesses properly measure their exposure to climate change and take action to manage the associated risks. As well as reducing harm, firms should be able to use the TCFD framework to identify and benefit from opportunities created by the changing climate.

The four pillars of TCFD reporting

There are 11 TCFD disclosure requirements across four pillars: governance, strategy, risk management, and metrics and targets.

Governance: Businesses need to report what they’re doing at board level and at management level when it comes to assessing and managing climate-related risks and opportunities.

Strategy: Firms are required to disclose how climate-related risks and opportunities are reflected in their business strategy. This should extend to modelling for different climate scenarios.

Risk management: Here businesses need to look at how risks associated with climate change are built into their risk management activities.

Metrics and targets: Disclosure requirements in this pillar focus on measurement and performance. Organisations need to set targets for both climate-related risks and opportunities. And they are required to report on what they’re doing to meet those targets and how much progress they have made.

TCFD reporting in MEA: Spotlight on South Africa

South Africa is a carbon-intensive economy with a substantial mining sector. It has also witnessed the devastating impact of extreme weather events.

Unusually heavy rainfall in KwaZulu-Natal has led to floods, which caused loss of life and damage to infrastructure. In the Eastern and Western Cape, droughts have severely impacted agriculture and at one time there were fears Cape Town – a city of close to 5 million people – might run out of water.

South Africa faces huge challenges, from unemployment to healthcare. But it is ahead of other African countries when it comes to climate reporting.

The South African government has not made TCFD reporting mandatory, but it does encourage businesses to make climate disclosures in line with the TCFD framework.

As things stand, the majority of large South African businesses are still in the early stages of adoption. While a few have issued their first reports, TCFD requirements have not yet started significantly impacting their governance, strategy or risk management activities.

Benefits of TCFD reporting for MEA businesses

Advocates of TCFD are keen to point out that climate disclosures should not be seen as another bureaucratic burden. While the work involved in complying with a framework like TCFD is extensive, it can also benefit your business.

Attracting investment: Investors, employees, suppliers and other key stakeholders are taking an increasingly strong interest in the environment. Businesses that commit to a comprehensive, international framework like TCFD can demonstrate their commitment to climate change. As a result, they can find it easier to attract new investment and hire the best people.

Insurance and risk management benefits: TCFD reporting is still far from mainstream in the Middle East and Africa. Even in regions where TCFD or similar reporting requirements are mandatory, the effects are only beginning to filter through to insurance. However, the expectation is that robust climate disclosures will make it easier for firms to obtain particular types of insurance and could also reduce the cost of those insurance policies. Modelling different climate change scenarios and taking pre-emptive action to limit exposures are also sound risk management strategies that help firms plan for the future.

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