Enhancing Climate-related Disclosure by Cities: A Guide to Adopting the Recommendations of the Task Force on Climate-related Financial Disclosures

The Chartered Professional Accountants of Canada developed this guide in 2019 to enhance the transparency of a city’s climate-related risks and opportunities, strategies, and governance in line with recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). From responding to the increasing frequency and severity of extreme weather events, to building resilient infrastructure, cities are incurring higher costs to maintain critical services to their residents, communities and businesses that call them home. In order to integrate climate change considerations into capital planning and budgeting decisions, decision-makers within municipalities need reliable and consistent climate-related information. While the TCFD recommendations were originally developed for use by the private sector, increasingly cities are recognizing the applicability of these recommendations for their own internal decision-making and external reporting. This guide highlights some of the actions taken by Canadian cities in response to climate change, demonstrating the climate adaptation leadership underway across the country. It also includes process frameworks for different types of decision-makers within municipalities, including those working in financial reporting and capital planning, to help cities implement the TCFD recommendations.

Understanding and Assessing Impacts

The current and future impacts of climate change present both risks and opportunities to cities and their service delivery models. Insured losses in Canada have been over CAD $1 billion per year for the past five years, with payouts in 2018 reaching nearly CAD $2 billion. In reaction to the growing costs and risks of climate change, multiple Canadian cities in recent months have declared “climate emergencies” and are responding with actions accordingly. Therefore, understanding the costs and potential economic benefits of climate change is essential for cities and their stakeholders. Cities that adopt a strategic long-term approach to climate adaptation and mitigation will be better prepared to support economic growth, attract new investors, reduce potential costs and damages, and build more resilient communities. The guide developed by CPA Canada includes five main resources that cover a general process framework for aligning a city’s internal and external reporting with the TCFD recommendations. The framework includes details for cities on the process for preparing climate-related financial disclosures and reviews best practices surrounding this area. The framework five phases include:

  1. Identifying existing data;
  2. Planning and assessing the information;
  3. Developing metrics and targets;
  4. Collecting new data; and
  5. Reporting on climate-related disclosures.

Identifying Actions

This Guide has been developed to enhance the transparency of a city’s climate-related risks and opportunities, strategies, and governance in line with recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). This Guide is designed to help cities determine what climate-related information is valuable for internal decision-making to support short-term budgeting and longer term capital planning. It is also intended to enhance the usefulness of a city’s general-purpose financial reports for external stakeholders. Developed based on input and direction from a Working Group comprised of Canadian cities and supporting organizations, it can be scaled more broadly across the Canadian municipal landscape and potentially serve as a resource to other cities globally. The guide includes a maturity assessment framework for cities to determine which steps to take in order to integrate climate -related risks into financial decision-making. The framework includes three phases: getting started; progressing; and highly integrated.

Implementation

This Guide contains an overview of how cities can benefit from aligning with the TCFD recommendations, including a process framework for implementation. In addition, a Resource Toolkit is appended to this Guide with tools for city staff and key decision makers, including background information to further support cities aligning with the TCFD recommendations. Once the city has identified climate-related risks and opportunities for the short-, medium-, and long-term, the risks and opportunities are evaluated based on financial materiality. This development requires active participation from city councils and city management/staff to successfully enhance its disclosures to include climate-related risks in decision-making processes. The TCFD recommends material climate-related information be disclosed in mainstream (i.e., public) annual financial reports. In a city context, multiple stakeholders would be involved in the preparation of these disclosures, including but not limited to accountants, infrastructure and capital planners, and other senior decision makers. As an example, The City of Edmonton took an evidence-based quantitative approach to their vulnerability and risk assessment as part of its 2018 Adaptation Strategy and Action Plan. This assessment helped define Edmonton’s adaptation needs by identifying the areas of highest vulnerability. It estimated climate impacts to the City could increase by CAD $8 billion by 2050, potentially lowering the City’s GDP by CAD $3.2 billion from today.

Process Framework for Preparing Climate-Related Financial Disclosures in line with TFCD

A graph showing the process for preparing climate-related financial disclosures

Outcomes and Monitoring Progress

While the TCFD framework was designed for public companies, it has broader applicability as climate-related risks and opportunities impact most organizations, including cities. The TCFD recommendations are relevant to cities because they are generally focused on climate-related risks and opportunities and their linkage to strategy, risk management and governance. Cities are on the frontlines of climate change, and it is therefore critical to apply a climate risk lens on short- and long-term financial planning, operational budgets and capital investments. Some of the benefits of applying the TCFD framework to municipal operations might include:

  • Enhancing data collection and sharing to improve decision-making and enable comparability across local governments, or using cross-functional teams to integrate climate change considerations into existing risk assessment processes and build internal capacity for managing climate risks.
  • Using cross-functional teams to integrate climate change considerations into existing risk assessment processes and build internal capacity for managing climate risks.
  • Building public awareness of climate change impacts, and enhancing local support for action.

Next Steps

The guide suggests that cities can build on their existing efforts in order to make enhanced climate-related financial disclosures in accordance with the TCFD. As cities advance their climate change-related data collection, analysis and understanding, a greater focus on quantifying the economic impacts through climate-scenario analysis will help to further align the city with TCFD and enhance the city’s strategic decision-making.

Resources

Link to Full Case Study

Additional Resources:

Reprinted with permission from Enhancing Climate-related Disclosure by Cities: A Guide to Adopting the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), ©2019, by Chartered Professional Accountants of Canada. All rights reserved by copyright owner.