11 January 2024

Everything you always wanted to know about TCFD as a Private Equity Asset Manager

In 2017, the Task Force on Climate-related Financial Disclosures (TCFD) published 11 recommendations and supporting disclosure recommendations related to GovernanceStrategyRisk Management, and Metrics and Targets to enable organisations to report on climate change risks and opportunities.

This framework requires physical climate risks and transition risks and opportunities to be analysed under different scenarios.

While the framework is increasingly used on a voluntary basis by financial institutions, several national regulations make it mandatory – in the UK, the FCA (Financial Conduct Authority) introduced rules for asset managers and certain asset owners to make disclosures consistent with the TCFD’s recommendations.

By June 30th 2024, all asset managers in the UK with more than £5bn of AUM will have to report on the 2023 fiscal year at both entity level and product level.

TCFD reporting is particularly challenging for Private Equity because of the lack of data reported by Small and Medium Businesses (SMBs) in their portfolio. It is important to emphasise that before tackling the metrics and data part, having proper governance in place, defining a strategy, and implementing good risk management practices should come first – as recommended by the framework.

Regarding data, solutions exist to assess, measure, or estimate climate-related risks and opportunities. Also, since 2017, several TCFD reports have been published and can provide guidance and points of comparison.

Overall, managing your climate risks and having a climate strategy create positive externalities, such as attracting more clients and talented people for a more sustainable business that is more likely to flourish.

There have been tens – if not hundreds – of guides, white papers and webinars released regarding the TCFD framework. This document is not one of them.

We conducted research and interviews, scrutinised disclosure requirements and examined industry peers’ reports over the last few months. Leveraging that work, the Altitude team wanted to share an additional perspective on the TCFD framework. We chose to focus on the regulatory requirements and associated opportunities for Private Equity Investors.

Whether your motivation is fuelled by the impending compliance deadlines looming on the horizon or a proactive approach to climate risk management, this document will help you in the initial steps on your TCFD journey.

Regardless of the nature of the questions or feedback you may have, please reach out to us at altitude@axaclimate.com.

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