Countering the Clock: Climate Strategy Checklist
Five questions to review the updated Climate Strategy criterion in DJSI
Publ. date 29 Mar 2021
Our house is on fire: coming years are crucial for business and society to get on track to limit global warming to 1.5 degrees, and the clock is ticking. As companies work on reducing their carbon footprints and preparing for a changing climate, investors are eager to learn how effective those strategies are. This year, S&P Global has therefore updated the Climate Strategy criterion in its Corporate Sustainability Assessment (CSA), introducing more challenging questions, applicable to all industries. The criterion is now further aligned with the framework of the Task Force on Climate-Related Financial Disclosures (TCFD). In this article, five questions are suggested to challenge your company's climate strategy.
Climate Strategy Checklist - Finch & Beak (2021).pdf
The good news for companies filling out the CSA questionnaire is that S&P Global is not seeking to reinvent the wheel, but rather aligning with the recognized TCFD. Wider alignment and adoption of the TCFD framework is also present in regulatory fields such as the EU's Non-Financial Reporting Directive and Taxonomy for sustainable activities, providing clear guidance for companies on their climate journey. So, if your company already reports under the TCFD recommendations and/or responds to the CDP Climate Change program, the new questions should look familiar.
Mapping of the Climate Strategy questions with TCFD and CDP
In its CSA Companion, S&P Global has indicated how the Climate Strategy questions link to the elements in the TCFD framework and the CDP Climate Change assessment. As the mapping table below shows, the criterion has the strongest relation with the Strategy aspect of TCFD and sections 2 and 3 in CDP Climate Change.
CSA Climate Strategy Questions (2021)
Link to TCFD
Link to CDP
Climate Risk Management*
Climate-Related Management Incentives
Metrics and Targets (a)
C1.3a
Climate Change Strategy
Financial Risks of Climate Change
Strategy (b)
Financial Opportunities Arising from Climate Change
Climate Risk Assessment- Physical Risks*
Strategy (a), (b), and (c)
C3.1a and C3.1d
Climate Risk Assessment- Transition Risks*
Physical Climate Risk Adaptation*
Climate Related Targets
Metrics and Targets (c)
C4.1a, C4.1b, C4.2
Scope 3 GHG Emissions
Metrics and Targets (b)
Source: S&P Global, CSA Companion
* Newly added questions in 2021
CSA 2021: Newly added questions on Climate Strategy
Looking specifically at the new questions that S&P Global has added to the CSA in 2021, we see an expanded view on risk assessment, management and mitigation plans, with extra attention paid to scenario analysis.
Climate Risk Management
Companies are asked if they apply the TCFD framework in the management of climate-related risks and opportunities. Companies can report that that they are in the process of integrating the TCFD framework in risk management and if applicable, provide the timeframe by when the company will have fully integrated the framework. This question requires public evidence of the company's commitment to the TCFD framework.
Climate Risk Assessment - Physical Risks & Transition Risks
S&P Global now asks whether companies assess material physical and material transition risks related to climate change, the methodology that is used (qualitative, quantitative, or qualitative and quantitative climate-related scenario analysis), and which of a list of climate-related scenarios are used by the company (if any).
Physical Climate Risk Adaptation
Companies are now asked if they have a context-specific or overall plan to adapt to their identified physical climate risks, its scope, timeline and whether this plan also covers new operations. Additional credit will be granted for relevant public information.
To put the new questions in a wider perspective, Finch & Beak has developed a checklist to quickly assess the completeness of your company's climate strategy.
1. Does your company have a well-articulated view on its climate-related risks and opportunities?
Starting point of the strategy is getting a thorough understanding of the company's climate-related risks, opportunities and financial impacts, ideally by using scenario analysis (see question 2).
The following should be clearly pictured and translated into (monetary) impacts:
• Physical risks: associated with physical impacts from climate change, which can be cute or chronic
• Transition risks: policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change
• Opportunities: for example resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain
2. How is your company using scenario analysis?
One of TCFD's recommended disclosures focuses on the resilience of an organization's strategy, considering different climate-related scenarios, including a 2° Celsius or lower scenario. Scenario analysis is also one of the components of the new questions that S&P Global has introduced on the climate risk assessment on physical risks and transition risks.
If the company conducts a scenario analysis and uses another method than the ones included in the question, the following should be described:
• Parameters used (e.g. discount rate, GDP, other macro-economic variables etc.)
• Assumptions made (e.g. assumptions related to policy changes, technology development/deployment, energy mix, price of key commodities or inputs, geographical tailoring of transitional and physical impacts, and timing of potential impacts)
• Description of the different scenarios with time horizons set
3. Is your company able to express the financial impact of climate-related risks and opportunities?
According to the TCFD, financial impacts of climate-related issues on an organization are driven by two main elements. The first: the specific climate-related risks and opportunities to which the organization is exposed. Second, the company's strategic and risk management decisions on managing those risks (i.e., mitigate, transfer, accept, or control) and seizing those opportunities.
Four main categories were identified by TCFD through which climate-related risks and opportunities may affect an organization's current and future financial positions:
• Income statement: (1) revenues and (2) expenditures
• Balance Sheet: (3) assets and liabilities, and (4) capital and financing
For each category, companies should be able to express the financial impacts. This should take into account aspects such as carbon pricing, cost structure, and flexibility to adapt. Besides, it is to describe expected changes in the valuation of organizations' assets and liabilities, and to the profile of an organization's debt and equity structure.
4. What actions is your company taking to manage risks and leverage opportunities?
What interventions is your company implementing to manage the risks and to seize the opportunities? Aspects covered in the Climate Strategy criterion in the CSA include:
• Climate Related Targets, including science-based targets
• Scope 3 Greenhouse Gas Emissions
• Climate-Related Management Incentives
• Low Carbon Products
• Internal Carbon Pricing
• Physical Climate Risk Adaptation
5. How is your company (publicly) reporting on its strategy and outcomes?
Investors, policy makers and other stakeholders are increasingly expecting companies to be transparent on their climate strategy and its outcomes. The wider alignment around TCFD creates an appropriate vehicle for enhanced climate-related reporting – which is ideally integrated in mainstream financial reporting.
From the perspective of S&P Global, the Climate Strategy criterion did not yet include any public disclosure aspects – until now. In the CSA 2021, companies are now required to provide public evidence of their commitment to the TCFD framework. Additional credit is now granted for disclosure of at least one climate related scenario, the focus and scope of the climate risk assessments of physical and transition risks, and the company's plan to adapt to physical risks.
Finch & Beak helps you to accelerate results from ESG benchmarking
With over 15 years of experience in ESG benchmarking support including DJSI, Finch & Beak is one of Europe's leading experts in improving our clients' sustainability programs and ESG performance. The Finch & Beak company vision is to accelerate sustainability. Our ESG and sustainability strategy work is characterized by a continuous improvement method that leverages existing assets in the short term while identifying opportunities for strategic development in the future.
If your organization is looking to accelerate its sustainability performance and realize its DJSI-ambitions, please download our service description or contact Josée van der Hoek, Director and DJSI expert at josee@finchandbeak.com or call +34 6 82 04 83 01.
About Nikkie Vinke
Multidisciplinary advisor in ESG benchmarking, sustainability strategy development and execution. | nikkie@finchandbeak.com
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