Adoption of the Task Force for Climate Financial Disclosures (TCFD) in Malaysia

Abstract

Climate change has consistently emerged as one of the major threats to the economy. Scientists have warned that there is only a dozen of years left to cap temperatures from increasing by 1.5 degrees beyond which extreme weather patterns such as floods, droughts, and forest fires will intensify. In direct response to this, there has been a call for companies to be more transparent and align themselves to the guidelines to the Task Force for Climate Financial Disclosures (TCFD). This chapter seeks to explore the progress of publicly listed companies in Bursa Malaysia when it comes to adhering to the requirements of the TCFD. A TCFD Index (TI) is proposed to measure the degree of incorporation of the four main elements within TCFD: governance, strategy, risk management, as well as metrics and targets. Four performance groups are proposed to further characterize the TCFD alignment of companies based on classification analysis derived from the continuous data collected for TI. Findings show that the Malaysian companies tend to lag in terms of the adoption of TCFD. There is also variation in the carbon metrics disclosed by companies which make comparability difficult. This chapter highlights the challenges faced by Malaysian companies in implementing TCFD and proposes recommendations to address them.

Specific TCFD Requirements

Elements	Disclosures	Guidance
Governance	Describe the board’s oversight of climate-related risks and opportunities	Organizations should consider including a discussion of the following:  Processes and frequency by which the board and/or board committees (e.g., audit, risk, or other committees) are informed about climate-related issues  Whether the board and/or board committees consider climate-related issues when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans as well as setting the organization’s performance objectives, monitoring implementation and performance, and overseeing major capital expenditures, acquisitions, and divestitures  How the board monitors and oversees progress against goals and targets for addressing climate-related issues
	Describe management’s role in assessing and managing risks and opportunities	Organizations should consider including the following information:  Whether the organization has assigned climate-related responsibilities to management-level positions or committees; and, if so, whether such management positions or committees report to the board or a committee of the board and whether those responsibilities include assessing and/or managing climate-related issues  A description of the associated organizational structure(s)  Processes by which management is informed about climate-related issues  How management (through specific positions and/or management committees) monitors climate-related issues
Strategy	Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term	Organizations should provide the following information:  A description of what they consider to be the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of the organization’s assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms  A description of the specific climate-related issues for each time horizon (short, medium, and long term) that could have a material financial impact on the organization  A description of the process(es) used to determine which risks and opportunities could have a material financial impact on the organization
	Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning	Organizations should discuss how identified climate-related issues have affected their businesses, strategy, and financial planning Organizations should consider including the impact on their businesses and strategy in the following areas:  Products and services  Supply chain and/or value chain  Adaptation and mitigation activities  Investment in research and development  Operations (including types of operations and location of facilities) Organizations should describe how climate-related issues serve as an input to their financial planning process, the time period(s) used, and how these risks and opportunities are prioritized. Organizations’ disclosures should reflect a holistic picture of the interdependencies among the factors that affect their ability to create value over time. Organizations should also consider including in their disclosures the impact on financial planning in the following areas:  Operating costs and revenues  Capital expenditures and capital allocation  Acquisitions or divestments  Access to capital If climate-related scenarios were used to inform the organization’s strategy and financial planning, such scenarios should be described
	Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2 °C or lower scenario	Organizations should describe how resilient their strategies are to climate-related risks and opportunities, taking into consideration a transition to a lower-carbon economy consistent with a 2 °C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks Organizations should consider discussing:  Where they believe their strategies may be affected by climate-related risks and opportunities  How their strategies might change to address such potential risks and opportunities  The climate-related scenarios and associated time horizon(s) considered
Risk management	Describe the organization’s processes for identifying and assessing climate-related risks	Organizations should describe whether they consider existing and emerging regulatory requirements related to climate change (e.g., limits on emissions) as well as other relevant factors considered Organizations should also consider disclosing the following:  Processes for assessing the potential size and scope of identified climate-related risks  Definitions of risk terminology used or references to existing risk classification frameworks used
	Describe the organization’s processes for managing climate-related risks	Organizations should describe their processes for managing climate-related risks, including how they make decisions to mitigate, transfer, accept, or control those risks. In addition, organizations should describe their processes for prioritizing climate-related risks, including how materiality determinations are made within their organizations
	Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management	Organizations should describe how their processes for identifying, assessing, and managing climate-related risks are integrated into their overall risk management
Metrics and targets	Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process	Organizations should consider including metrics on climate-related risks associated with water, energy, land use, and waste management where relevant and applicable Where climate-related issues are material, organizations should consider describing whether and how related performance metrics are incorporated into remuneration policies Where relevant, organizations should provide their internal carbon prices as well as climate-related opportunity metrics such as revenue from products and services designed for a lower-carbon economy Metrics should be provided for historical periods to allow for trend analysis. In addition, where not apparent, organizations should provide a description of the methodologies used to calculate or estimate climate-related metrics
	Disclose scope 1, scope 2, and, if appropriate, scope 3 greenhouse gas (GHG) emissions, and the related risks	Organizations should provide their scope 1 and scope 2 GHG emissions and, if appropriate, scope 3 GHG emissions and the related risks GHG emissions should be calculated in line with the GHG protocol methodology to allow for aggregation and comparability across organizations and jurisdictions. As appropriate, organizations should consider providing related, generally accepted industry-specific GHG efficiency ratios GHG emissions and associated metrics should be provided for historical periods to allow for trend analysis. In addition, where not apparent, organizations should provide a description of the methodologies used to calculate or estimate the metrics
	Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets	Organizations should describe their key climate-related targets such as those related to GHG emissions, water usage, energy usage, etc., in line with anticipated regulatory requirements or market constraints or other goals. Other goals may include efficiency or financial goals, financial loss tolerances, avoided GHG emissions through the entire product life cycle, or net revenue goals for products and services designed for a lower-carbon economy In describing their targets, organizations should consider including the following:  Whether the target is absolute or intensity based  Time frames over which the target applies  Base year from which progress is measured  Key performance indicators used to assess progress against targets