Managing our personal financial risks from the changed climate

It is time to face the financial risks from our changing climate. This is the international reporting framework designed by the Task force on Climate-related Financial Disclosure, promoted by Mark Carney when Governor of The Bank of England and chair of the Financial Stability Board, now UN Special Envoy for Climate action and Finance.

In most countries, TCFD is voluntary. In the UK, the government is making TCFD mandatory for larger companies and seeking to extend it to all UK-listed companies and regulated organisations. Sustainability reporting has been trialed for decades and attempts to design frameworks to enhance the reliability and comparability of the information have spawned an alphabet soup of acronyms.

Do we need another attempt? The answer is yes.

TCFD requires a new perspective. Earlier frameworks have asked organisations to report how their activities impact the environment and climate. In contrast, TCFD asks organisations to report on how the change in climate is impacting them. It requires them to quantify the financial risks that climate change presents to their business and to report how they will manage those risks.

The IPCC (Intergovernmental Panel on Climate Change) report released this summer confirms that the world will warm beyond 1.5^o C in the next decades, even if COP26 is successful in reaching agreements to achieve net-zero. TCFD forces organisations to face the consequences for their business model assuming a 2^oC rise. Risks arise from:

• Physical threats due to increases in volatile weather events, such as extreme heating, freezing, flooding, fires, storms, and droughts. These can disrupt whole supply chains including those organisations it lends money to or invests in, leading to major changes in the allocation of funds to businesses and individuals. 
• The transition to net-zero pathways, including policy and legal changes imposed by governments worldwide and market disruption as consumers react to those changes.

What has this to do with you and me?

Climate change impacts us as individuals. It is happening now. We need to face this reality in our daily decisions and our plans for our future. The TCFD framework is a good way to think about what we need to do and could help us prioritise.

How do you assess your economic risk and take action?

How does TCFD work?

TCFD has four pillars. For us they might translate as:

• Take control

• Identify and assess the climate risks you face

• Decide how to manage them

• Set targets to reach where you need to be

Deciding to ‘take control’, I start with my main assets: my home, my earning capacity, and my savings.

Checking information produced by the environment agency, I discover that, while my home is not likely to suffer from flooding, the access road will. That is not an immediate problem for me as I work from home. It could be an issue for a potential purchaser and their mortgage provider. I need to talk to the local councilor and perhaps the Environment Agency about plans to maintain access.

The gas boiler is getting old. I had thought to replace it, but what with? The government has not announced a clear policy on heating homes in the future. There are no experienced local installers of heat pumps. Will hydrogen gas become available? I change my priorities. For the moment, I decide to keep the boiler repaired and use my savings to improve insulation. Insulation should be useful whatever heating becomes available. It could also improve the marketability of the house.

Governments will be making financial commitments as a result of the COP26 negotiations this autumn. They will need to make policy changes to meet those commitments. Will the government start taxing on miles driven instead of fuel? Will there be a carbon tax? Access to public transport could provide personal resilience to such changes. When I need new white goods, I will want them to be smart-enabled to benefit from off-peak power.  

As the transition occurs, there will be opportunities for many with the right skills and knowledge. It is not all gloom and doom. What new skills will we need to take advantage of the opportunities they offer for sustainable careers and savings? 

TCFD asks companies to put a financial value on the threats they face. You might feel that your possible domestic losses are beyond price but weighing up the personal costs we face can turn good intentions into a need for urgent personal action. 

OpenLearn has many short courses to keep you informed on current thinking on environmental and climate change issues. They are a good place to start.

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