Understand the importance of TCFD bottom-up climate risk reporting and how physical risk metrics fit in.

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By Megan Arnold & Emily Hron Weigle

Jupiter Intelligence

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Powerful global regulators — including the U.S. Securities and Exchange Commission (SEC), the European Commission (EC), and Canada’s Office of the Superintendent of Financial Institutions (OSFI) — have determined that assessing climate risk is material to a business’s financial well-being.  

The Task Force on Climate-Related Financial Disclosures (TCFD) framework represents a uniquely valuable and consistent set of guidelines for climate risk reporting. The proliferation of new regulations mandating transition and physical climate risk assessment, reporting, and resiliency, is continuing among jurisdictions worldwide.

The TCFD framework is advisory, not prescriptive, but it was designed with integration into jurisdictional disclosure mandates in mind.  Physical climate risk assessment is fundamental to the four core pillars of TCFD reporting — Governance, Strategy, Risk Management, and Metrics & Targets. 

Jupiter recently presented the webinar "Preparing for TCFD Physical Climate Risk Reporting." With the participation of Verdantix — ESG analyst Connor Taylor — we take a deep dive into the importance of physical climate risk analytics to TCFD reporting and what companies can do today to prepare.

In it, we strongly advocate that companies do not wait for regulatory mandates to roll out, or for extreme weather to unexpectedly disrupt their operations, supply chains, and balance sheets. It’s time to actively prepare and assess their vulnerability to physical climate risk. We urge you to watch the webinar now, or short-list it on your bookmarks or reading lists. 

‍Watch the on-demand webinar below: Preparing for TCFD Physical Climate Risk Reporting

Here are four things you’ll learn:

1. Companies are building out climate risk assessment and reporting efforts

Citing a Verdantix 2023 survey of 350 executives involved with net zero and climate risk activities, Connor revealed that “managing climate risk and CO₂ emissions-related disclosure” is the top priority for budgetary funding during this year and next. Respondents rated climate risk modeling and portfolio planning tools among the four most relevant digital investments over the same timeframe.

“Firms really need to prioritize investing in the data, to quantify risk exposure and reinforce disclosures,” he says.

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2. Physical climate risk assessment and data influence four core TCFD elements

The four pillars that underpin TCFD reporting aren’t meant to be considered on their own; each is meant to inform, and be informed by, the other three. 

Under Metrics & Targets, organizations disclose the metrics they use “to assess climate-related risks and opportunities in line with its strategy and risk management process.” They also help set targets for managing those risks and opportunities and measuring performance against those targets. 

Best-in-science metrics enable organizations to project the impacts of physical climate risk on their risk tolerance, financial planning, board oversight, and resilience strategy. Accordingly, they are:

• Decision-useful
• Clear and understandable
• Reliable, verifiable, and objective
• Consistent over time—supporting short-, medium-, and long-term forward-looking assessments.

Beyond regulatory disclosure, physical climate risk analytics are fundamental to risk management and business resiliency. A quantification of climate risk that goes beyond guesswork and qualitative assessment requires a bottom-up approach that’s transparently grounded in science. Like other forms of risk, it must satisfy regulators and investors and enable risk managers to prioritize immediate and future mitigation strategies.

Our webinar describes a four-step process for applying physical climate risk analytics to quantify climate impacts on operational risk, supply chain performance, and other major regulatory compliance components.

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3. Fit-for-purpose physical risk analytics are available for superior assessments

ClimateScore™ Global, Jupiter’s high-resolution physical climate risk analytics tool, can be applied to the risk assessment and TCFD reporting process. Jupiter turns sophisticated climate science into actionable data for organizations looking to strengthen their climate resilience – and delivers it as a service. ClimateScore Global quantifies the risk to assets from the changing climate around the globe and addresses questions such as:

• How can I expect future chronic physical risk and event-driven acute physical risk to impact locations of interest, during the time parameters that are relevant to my business?
• Could changes in climate cause flooding, extreme precipitation or temperature events, drought, wildfire, hail, or high winds in areas that result in direct damage to my assets? 
• Or could they cause indirect impacts, like business continuance or supply chain disruption?

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4. You don’t have to wait. Prepare now.

While the fine print of the emerging mandates may not be revealed until the regulations are announced, alignment with TCFD—and the availability of data such as Jupiter’s—enable organizations to prepare for that inevitability. Tangible steps you can take today include:

• Creating an internal infrastructure and a climate team composed of risk department, financial, and operations personnel that’s supported by executive management. 
• Identifying assets-at-risk, determining their precise locations, and prioritizing these assets by their value.
• Identifying the climate perils that could impact those assets, and relevant time parameters for forward-focused analysis based on asset lifespans to determine risk thresholds.
• Selecting the right physical climate analytics provider to assist you.
• Beginning the process of physical risk assessment using reliable, scientifically backed data.

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Many firms apply physical climate risk analytics to their risk management and resilience processes before they’re compelled to disclose. This lets them respond more easily and effectively to reporting requirements, and leverage data for longer-term business decisions.

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“Time and tide wait for no one.”  This 900-year-old proverb rings especially true when you consider the scientific fact of climate change, and the global drive to assess, disclose, and remediate its relentless, escalating impacts.

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Find out more.  Contact Jupiter today.

Watch our webinar. Reach out to us. Learn more about ClimateScore Global. Request a demo now.

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Megan Arnold is Jupiter’s Regulatory and Competitive Intelligence manager.

Emily Hron Weigle is a Jupiter Solutions Architect who works hands-on with our customers.

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