Open Access
Issue
Sust. Build.
Volume 5, 2020
Article Number 3
Number of page(s) 6
Section Social and Economic Sustainability
DOI https://doi.org/10.1051/sbuild/2020002
Published online 06 August 2020

© R. Siew, published by EDP Sciences, 2020

Licence Creative Commons
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

1 Introduction

Climate change is recognised as the defining issue of this era. From shifting weather patterns which threaten food security [1] to rising sea levels that increases the risk of catastrophic flooding, the impacts of climate change are global in scope and unprecedented [2]. This phenomenon is caused by the release of heat-trapping gases, primarily carbon dioxide produced by a wide range of human activities [3]. As populations, economies and standard of living continue to grow, so does the cumulative level of greenhouse gas (GHG) emissions. The Fifth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) estimates the cumulative CO2 emissions since pre-industrial times and provides a carbon budget for future emissions to limit temperature from increasing beyond 2 degrees Celcius. Given current ongoing emissions, it has been predicted that the global mean temperature will continue to rise above pre-industrial level. With polar ice cap melting and warmer oceans, average sea levels are estimated to rise between 24 and 30 cm by 2065 and 40–63 cm by 2100 relative to the reference point of 1986–2005 [2]. The reality is that the impacts of climate change will continue to persist for many centuries even when emissions have stopped.

Given the urgency of the issue, different stakeholder groups have gathered to formulate solutions to address the challenges presented by climate change. The Climate Bonds Initiative [4] was formed as a not-for-profit with the intention of mobilising the $100 trillion dollar bond market towards climate solutions. CBI's primary work focuses on the promotion of investment in projects and assets necessary to accelerate the transition towards a low carbon and climate resilient economy. They deploy a three-pong approach in terms of strategy: (i) they aim to develop a large and liquid Green and Climate Bonds Market that will help drive down the cost of capital for climate projects [4] in both developed and emerging markets; (ii) to grow aggregation mechanisms for fragmented sectors; and (iii) to support governments seeking to tap debt capital markets. Climate Action 100+ [5] is an investor led initiative to ensure that the world's largest corporate greenhouse gas emitters accounting for two-thirds of annual global industrial emissions take necessary action on climate change [6,7].

Back in April 2015, G20 Finance Ministers and Central Bank Governors made a request to the Financial Stability Board (FSB) to convene public and private sector participants to review how the financial sector can account for climate-related issues. The FSB identifies several gaps including: the need for better information to support informed investment; lending and insurance underwriting decisions; and improved understanding of climate-related risks. To price climate related risks and opportunities, FSB established an industry-led task force: The Task Force for Climate related Financial Disclosures [8]. The aim of TCFD is to provide guidance for consistent climate-related financial risk disclosures by companies that are meaningful to stakeholders including investors, lenders and insurers among others. The recommendations provided by TCFD are intended to help companies better understand what financial markets want from such disclosures in order to monitor and respond to climate change risks.

The construction industry has coined the term ‘sustainable construction’ which dives into the practice of creating structures and using processes that are environmentally friendly and, in a resource efficient manner. Despite the rise of green building indexes such as the Leadership in Energy and Environmental Design (LEED), Building Research Establishment Environmental Assessment Method (BREEAM) and Gren Star inter alia which spell out the requirements of what constitutes a ‘sustainably designed’ or low carbon building [9], anecdotal evidence seems to suggest that there is still poor climate disclosures (little to no reporting on carbon emissions reduction target, strategy or governance initiatives in place) among property and construction companies [1012]. The adoption of TCFD is low among key industry players, one possible reason is due to the lack of awareness on the requirements of TCFD among practitioners. This paper aims to bridge this gap accordingly.

2 TCFD

A survey conducted by South Pole [13] revealed that while two thirds of responding organisations recognised the first mover advantage of early adoption of TCFD but less than one in ten have decided on a disclosure strategy. 40% of respondents believe that TCFD will improve the understanding of both physical and transition risks connected with climate change but only 25% have developed scenarios to explore how these risks will impact their business. Another landmark study by [8] revealed that there has been a 10% increase in the number of companies (1126 sample companies) disclosing relevant climate information between 2016 to 2018 (see [8,14]).

TCFD is structured around four thematic areas as depicted in Figure 1 representing the core elements that an organisation should focus on namely [8]:

  • Governance: An organisation's governance and climate-related risks and opportunities

  • Strategy: Actual and potential impacts of climate-related risks and opportunities on an organisation's business, strategy and financial planning

  • Risk Management: The process of identifying, assessing and managing an organisation's climate-related risks

  • Metrics and targets: metrics and targets used to assess and manage an organisation's climate-related risks and opportunities

The recommended disclosures for each of these elements are captured in Table 1.

thumbnail Figure 1

TCFD Structure [12].

Table 1

TCFD Recommended Disclosures [12].

3 Challenges

The property and construction industry face a few challenges in responding to the TCFD. First, given the fragmented nature of the construction industry, it is difficult to fully integrate understanding of climate related risks and translate them into quantitative measures across the whole supply chain. A supplier of building materials will face a very different set of climate related risks compared to a developer. As it is, there is a lack of capability in terms of understanding climate risks let alone translating them into quantifiable financial impacts. Second, data collection is a challenge especially when there are several parties (i.e. contractors, subcontractors) involved in the same project. It is challenging for property and construction companies to obtain relevant data along the supply chain for their climate models (or scenario analysis in the language used in TCFD). Third, the broader risk concept which includes sustainability aspects such as climate change has always received resistance at a psychological level. Given the cut-throat environment that the property and construction industry operate in, cost effectiveness is always prioritised before other pillars of sustainability.

4 Recommendations

A few recommendations are put forth based on a few virtual workshops conducted with 20 industry practitioners (with at least 5 years of experience) to help drive the adoption of TCFD by property and construction companies:

  • i).

    Setting up of an industry specific network- TCFD could help accelerate the adoption of its requirements by setting up a specific property and construction network with representation across different regions. The aim of this group is to share best-in-class practices for TCFD disclosures and to help build capabilities within this industry. If the network is established, it would also be able to push for Board of Directors of companies to adopt the TCFD (under the governance element-see Tab. 1).

  • ii).

    Harmonisation of frameworks- The reality is that there are many green rating tools for buildings which creates confusion among property and construction practitioners. There needs to be a coordinated effort to harmonise these tools including integrating the TCFD framework.

  • iii).

    Incentivisation and rewards- TCFD came about because banks and institutional investors were not able to accurately quantify the financial risks as a result of climate change due to poor disclosures by companies. Financial institutions would need to think about innovative ways to spur more complete and accurate disclosures on climate risks. One example is through the offering of sustainability-linked or climate-based loans where companies would need to demonstrate achievement of alignment to the TCFD in stages in order to benefit from lower interest rates.

5 Conclusion

TCFD is to provide guidance for consistent climate-related financial risk disclosures by companies that are meaningful to stakeholders including investors, lenders and insurers among others. Yet, very few property and construction companies are aligned to the requirements of the TCFD. This briefing paper explores the challenges faced by this industry and propose recommendations to overcome some these challenges.

References

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Cite this article as: R. Siew: Briefing: task force for climate financial disclosures (TCFD) for the property and construction industry. Sust. Build. 5, 3 (2020).

All Tables

Table 1

TCFD Recommended Disclosures [12].

All Figures

thumbnail Figure 1

TCFD Structure [12].

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