FSB climate task force’s scenario analysis recommendations seen as “challenging” for investors

Translating the high-level climate disclosure task force’s recommendations about scenario analysis will be “challenging and resource intensive” for institutional investors unfamiliar with the technique, according to new guidance from Asian and Australian investor groups.

Scenario analysis, a process of analyzing possible future events, is a tool used by scientists and policy makers and it emerged as a key element of draft recommendations put out late last year by the Taskforce on Climate-related Financial Disclosures (TCFD), the body set up by the Financial Stability Board.

While acknowledging that transition risk and scenario analysis tools can
 be “an important part” of investor reporting framework on climate change, the guidance also highlights its limitations.

“Methodologies for climate scenario analysis for investment portfolios are at an early stage of development with no generally accepted framework or methodology and few available examples,” it says – adding the technique is “new to many institutional investors, and can be challenging and resource intensive”. 


And it warns that reporting scenarios or 1.5-2 degree transition analyses “could create confusion” with stakeholders as scenarios are not forecasts but future possible outcomes.

A “lot of work” was needed to translate scenarios from the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) “into meaningful investment impacts at the asset class and regional level”.The guidance, from the Investor Group on Climate Change (Australia/New Zealand) and the Asia Investor Group on Climate Change (AIGCC), is called Transparency in Transition: A Guide to Investor Disclosure on Climate Change. It’s thought to be the first institutional investor-specific guidance released in the wake of the TCFD draft.

“Methodologies for climate scenario analysis for investment are at an early stage of development”

It was developed by a working group at the IGCC chaired by Pablo Berrutti, Head of Responsible Investment Asia Pacific for Colonial First State Global Asset Management (CFSGAM). It builds on work by Danyelle Guyatt, the former Catholic Super and Mercer ESG expert who now runs her own firm, Collaborare Advisory.

The “pragmatic” guide has been prepared “for investors by investors” and forms part of work on investor disclosure by the broader Global Investor Coalition on Climate Change (GIC), of which the investor groups are members. It highlights four key high level “pathways” for disclosure (labeled as Baseline, Intermediate, Advance and Future Vision). The TCFD recommendations are due to be finalised in mid-2017.

Transparency in Transition will be presented by the AIGCC at the RI Asia 2017 Conference in Tokyo on April 25.