With less than a month to go until collating data in line with the Taskforce for Climate-related Financial Disclosures (TCFD) becomes mandatory, more and more asset managers are updating their climate disclosures and including them in annual reports amid investor pressure.
From 6 April, the 1,300 largest UK-registered companies, including public and private firms, will be required to collate data in line with the TCFD four pillar framework and report on these from next year.
Steve Waygood is chief responsible investment officer for Aviva Investors, and also a long-running member of the TCFD. He also founded the Sustainable Stock Exchange initiative as well as the Corporate Sustainability Reporting Coalition, which is aiming to catalyse a UN Convention promoting enhanced corporate transparency and integrated reporting.
Here, he answers ESG Clarity’s questions on the impact of TCFD on the investment industry and Aviva’s approach.
Tell us about your role on the TCFD committee?
I represent Aviva and Aviva Investors on the taskforce itself. We have been lobbying for mandatory corporate climate reporting for more than 10 years.
I have been closely studying the regulatory framework TCFD for a long time and helped design it.
At Aviva, my role is more to encourage alignment with TCFD, I am not that involved in the operational report drafting, which is led by finance and risk. I chair the net-zero investment steering committee and am a member of the investment committee with people from across the group.
What are your expectations for TCFD?
We welcome the fact the UK has made the move for TCFD reporting to be mandatory from 2023 and hope it has set off the G7 trajectory of change.
But there are clear implications. TCFD has been created with one perspective: risk management and mitigation risk. The UK is looking at this from the perspective of being the net-zero financial centre.
The two can be brought together but the paradigms are different; risk management and mitigation doesn’t necessarily mean transition to net zero.
How is Aviva Investors prepared for data collation from 6 April?
Aviva has recently released a transition plan, which outlines our strategy.
There is a clearly work to be done at the product level and the net-zero committee regularly meet to debate the vision, how to measure and future plans.
Part of the answer for us is evolving governance and oversight, apportioning management responsibility, trying to source the best data we can and leaning in on engagement where data is missing.
Amid all this we are very supportive of developments at IOSCO and ISSB – this is something we have been asking for 15 years.
How will TCFD benefit clients?
It will help them calibrate risk and measure and manage it by avoiding transition risk and stranded assets. Of course, it gives the industry a chance to measure this for the first time – the industry has not been very good at measuring this so far as the world is just waking up to the fact that we need to transition.
While we do need to think about consequences to individuals and communities as we transition, we also need to consider how it will impact future generations if we don’t get on with this.
The big benefit is if we don’t, the physical risk of climate change could get very difficult for humanity and civilisation as we know it over a generational cycle.
As we approach the end of the century some of the plausible business scenarios look quite dire and nothing like the Paris Agreement.
This is not just about the money and risk, it’s about people and the planet.
When will we see the benefits?
It is going to be some years to see the benefits realistically. The whole world is learning by doing; investors, corporations, NGOs, governments – nobody anywhere has a crystal-clear vision on how they are going to deliver net zero by 2050.
For some time, and the regulator has been clear on this, it’s going to mean lots of gaps in the data and some huge assumptions.
While we are very big fans of TCFD, we need to think about all the other non-corporate asset classes too, particularly infrastructure, sovereign bonds etc., as well as corporates. TCFD focuses almost entirely on just companies and this is just a sub-set of our portfolios, albeit quite a large one. Even if all corporates are disclosing perfectly still, there’s still going to be a lot of risk in other asset classes to deal with.
I’m not underestimating the task, but the size of the problem is greater if we don’t get on with it.
What else would you like to see in terms of climate reporting?
Within TCFD and the transition plan, we would like to ask the UK government to require companies to say ‘this is what we need government policy to look like to support us’ and make sure there aren’t competitors illegitimately going against us.
The regulation needs to come through and provide a floor to ensure laggards are brought along too. We are advocating that not just at corporate reporting level but the other policy mechanisms like tax, carbon trading and phase out commitments too.
Once we can look at all the disclosures, it will be clearer for investors, government and NGOs, to work out what needs to be done and hopefully more change will come from policymakers – stepping up to the challenge of managing a smooth and just transition.
