Ørsted: Get started with TCFD, don't wait for perfection

Broad cooperation between teams inside the company has led Ørsted to a more detailed understanding of climate-related risks and opportunities.

04.11.2020

Eva Harpøth Skjoldborg, CSR.dk

The TCFD reporting framework on climate-related financial disclosures is gradually becoming a de facto standard for corporate reporting, for example it's approach will be integrated into the upcoming review of the non-financial reporting directive. In Denmark, Ørsted is recognised as a frontrunner in working with the TCFD recommenations and CSR.dk asked the company's head of ESG Engagement, Christine Sobieski, to talk us through how they have implemented the recommendations and which changes this has led to. 

Why are you working with the TCFD framework - how did you get started? 
Increasingly, we see that investors want companies to disclose how they manage risks related to climate change. With a USD 30bn green energy investment pipeline towards 2025 and on track to be carbon neutral in 2025, Ørsted is deeply committed to tackling climate change. As such, it has been natural for us to utilize the TCFD recommendations as a framework to improve our understanding of climate-related financial risks and opportunities and disclose it in a useful way to our investors.

Kort fortalt: TCFD's anbefalinger

TCFD’s retningslinjer fokuserer både på klimatilpasning, der imødekommer de potentielle fysiske effekter skabt af klimaforandringer, og omstillingen til en co2-neutral økonomi.

Der er fire overordnede områder i anbefalingerne:

  • Governance – virksomhederne bør rapportere på deres governance i relation til klimarelaterede risici og muligheder. De bør rapportere, hvilken proces bestyrelsen har anvendt til at evaluere risici og muligheder og resultaterne af evalueringen.
  • Strategi – virksomhederne bør rapportere på, hvilken aktuel og potentiel betydning de klimarelaterede risici og muligheder har for virksomhedens forretning, strategi og finansielle planlægning. Dette bør ske via scenarie-analyser, som mindst skal indeholde et 2-grader-varmere scenarie på kort, mellemlang og lang sigt.
  • Risikostyring – virksomhederne bør rapportere, hvordan de identificerer, evaluerer og håndterer klima-relaterede risici, og hvordan dette indarbejdes i deres generelle risikostyring.
  • KPI'er og mål – virksomhederne bør rapportere de KPI'er og mål, som de anvender til at evaluere klimarelaterede risici og muligheder med en forklaring på den historiske udvikling i data.

In 2018, we began by conducting a TCFD gap analysis. This showed that we were already largely aligned with the recommendations, but that we also still had some important gaps to close. We decided to officially endorse the TCFD recommendations later that same year.

What are the steps in the process you have designed, how far have you come? 
Following the results of our TCFD gap analysis, we started by establishing a working group and implementing the low-hanging fruits by improving reporting on existing climate-related risk processes in Ørsted. This helped to TCFD-align the Ørsted Annual Report 2018.

Next, we significantly improved the implementation of climate-related key performance indicators in our CEO and CFO incentive schemes, reported in the Ørsted Remuneration Report 2019 (p. 7).

We further conducted a climate scenario analysis to assess potential physical and transitional impacts on our offshore wind business of a 1.5-2°C and 3-4°C rise in global temperature by 2100, respectively. The main outcomes of this scenario analysis were disclosed in the Ørsted Annual Report 2019 (p. 63).

Which parts of the company have been and will be involved in this work?
One of the first steps we took was establishing an internal working group consisting of six different departments: the annual reporting team, the risk department, ESG Accounting, strategy, investor relations and the sustainability department. For the scenario analysis specifically, key colleagues from our offshore wind business also got involved.

Notably, TCFD implementation has been rooted in the finance organisation, while the sustainability department has had a key role in project managing and coordinating between teams.

Læs også: Sådan arbejder Novo Nordisk med TCFD

What are some of the outcomes of your work?
We have deepened our understanding and disclosure of climate-related risks and opportunities, with improved reporting on how we integrate climate-related issues into our governance, strategy, risk management and metrics & targets.

From our scenario analysis, we concluded that our offshore business is well positioned to manage potential climate-related transitional and physical impacts in both the scenarios mentioned earlier.

What are some of the changes you have made based on the TCFD-work?
We have bridged gaps between existing financial reporting practices and what investors increasingly demand from companies on climate disclosure. As a concrete example, we mapped and begun reporting on Ørsted’s scope 3 carbon emissions, which has helped us set the company’s first net-zero reduction target for value chain emissions.

What are the most beneficial learnings you have had along the way? 
We have been able to utilise the TCFD recommendations to both provoke internal thinking and improve external reporting. Conducting a climate scenario analysis particularly heightened internal understanding of physical climate change risks and the value reporting on these risks can bring to investors.

Christine Sobieski is Head of ESG Engagement in Ørsted. Foto: Ørsted.

What has been the most challenging so far? 
Climate science is a complex and evolving field of knowledge. Employees in specialized roles such as construction engineers or environmental data specialists sometimes find it difficult to work with the lack of precision in different climate change projection models. Our experience is to try work as constructively as possible with the best available science from trusted sources.

Are there specific factors, that you can point to, which has helped you be successful in working with climate change as a risk?
I believe that realistic scoping is key when it comes to scenario analysis: Focus your scenario analysis on where your main earnings are derived from, and the most material climate-related financial risks to this part of the business.

In order to do this, it can prove beneficial to bring experts together from across your business who may not normally collaborate. By doing so, you can build a nuanced picture of gaps in assessing climate-related risks, and how to close them.

If you were to give advice to other companies, who have not worked with TCFD yet, what would that be? 
Get started with TCFD now and don’t wait for perfection! Taking things step by step has worked well for us, with Ørsted used as case example in the 2019 TCFD Status Report (p.80-83).

Though we have come a long way, we do not see ourselves as ‘finished’ with TCFD implementation. I very much view TCFD alignment as a continuous process where best practice is still developing to ensure that climate-related risks and opportunities are diligently addressed and reported by companies and investors.

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