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ESG

ESG Newsletter published on March 27, 2020

Breckinridge Adds TCFD Reporting

The Financial Stability Board established the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to develop voluntary recommendations for climate-related financial disclosures that are consistent, reliable, clear, and efficient, and provide decision-useful information to lenders, insurers, and investors. As an investment manager who analyzes ESG risks, including climate risks, in our bond portfolios, we recognize there are immediate and long-term investment implications due to climate change. Breckinridge has been a TCFD signatory since 2018, and we join the more than 1,000 organizations that have expressed their support for the TCFD recommendations. We believe that the recommendations of the Task Force will help companies understand what financial markets want from disclosure and help them better align their disclosures with investors’ needs.

Organizations with public debt or equity and asset managers and owners ─ the preparers and users of financial disclosures ─ are particularly encouraged to support and implement the recommendations. At Breckinridge, our research analysts have conversations with bond issuers on their climate-related disclosure practices, and we incorporate climate risk metrics into our research process. As part of a broader effort, we have joined 370 investors as part of the Climate Action 100+, which engages the world’s largest greenhouse gas emitters to strengthen climate-related disclosures by implementing the TCFD framework. Additionally, we are a signatory to the Principles for Responsible Investment, which added mandatory TCFD-aligned indicators into its annual survey this year. These answers are voluntary to publicly disclose, unscored, and do not require actual reporting to the TCFD recommendations.

Companies expressing their support for the TCFD recommendations join a cohort of leading companies that are taking action to mitigate climate risks and are thoughtful to consider how a changing climate may impact their businesses. Publicly declaring our support is a natural next step for investment firms like us that are already evaluating climate-related disclosure published by companies in which we seek to invest. In short, we want to lead by example, committing to the same reporting disciplines we look for from our investments. Readers can view our 2019 Corporate Sustainability Report, including our reports on addressing climate-related risk here.

The TCFD is the first industry-led initiative working to bring climate-related financial reporting to a mainstream audience. Companies’ adoption of its recommendations is an important step forward in enabling market forces to drive efficient allocation of capital and support a smooth transition to a low-carbon economy. Widespread adoption will facilitate companies’ and investors’ routine consideration of the effects of climate change in business and investment decisions.

The TCFD developed a set of voluntary recommendations for companies to disclose information on how they oversee and manage climate-related risks and opportunities as well as the material risks and opportunities to which they are exposed. The recommendations:

  • Promote board and senior management engagement on climate-related issues
  • Bring the future nature of issues into the present through scenario analysis
  • Support understanding of financial sector’s exposure to climate-related risks
  • Are designed to solicit decision-useful, forward-looking information on financial impacts

TCFD recommends disclosures across four topic areas:

  • Governance including the board’s oversight of climate-related risks and opportunities and management’s role in assessing and managing climate-related risks and opportunities.
  • Strategy including material information related to actual and potential impacts of climate-related risks and opportunities on the organization’s businesses and financial planning and the resilience of the organization’s strategy, taking into consideration different climate scenarios, including a 2°C or lower scenario.
  • Risk Management including the organization’s processes for identifying and assessing climate-related risks, managing those risks and integrating them into the organization’s overall risk management.
  • Metrics and Targets including the metrics to assess climate-related risks and opportunities in line with its strategy and risk management process and the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

With widespread adoption, TCFD recommendations may help:

  • Improve access to capital by increasing investors’ and lenders’ confidence that the company’s climate-related risks are appropriately assessed and managed
  • More effectively meet existing disclosure requirements to report material information in financial filings
  • Increase awareness and understanding of climate-related risks and opportunities within the company resulting in better risk management and more informed strategic planning
  • Proactively address investors’ demand for climate-related information in a framework that investors are increasingly asking for, which could ultimately reduce the number of climate-related information requests received.

By standing behind efforts like those of the TCFD and adopting higher standards for our own reporting, we are supporting an important movement towards transparency and a focus on sustainable business practices, which we believe is in the best interest of our clients and stakeholders.

 

DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. Investors should consult with their financial professional before making any investment decisions.

While Breckinridge believes the assessment of ESG criteria can improve overall credit risk analysis, there is no guarantee that integrating ESG analysis will provide improved risk-adjusted returns over any specific time period.

Some information has been taken directly from unaffiliated third-party sources. Breckinridge believes such information is reliable but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.

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