Managing Climate Risks and Impacts Through Due Diligence for Responsible Business Conduct

Annex A. Relationship of OECD RBC due diligence expectations to existing initiatives

This Annex includes tables comparing steps and recommendations of OECD RBC due diligence expectations to those of selected existing initiatives and frameworks related to climate risk management for investors. The initiatives and frameworks below were selected on the basis of the size of their membership or degree of uptake. This initial stocktake of existing initiatives and frameworks may be adapted or added to over time to reflect additional initiatives or frameworks with broad uptake across institutional investors. The objective of this Annex is to provide investors with a simple reference point to assess to which extent initiatives and frameworks they may already be a part of or be implementing meet expectations of the OECD RBC due diligence process. In addition to the below, there are a significant amount of disclosure frameworks providing guidance and expectations on reporting and measurement of climate impacts and performance. In addition to the tables included in this Annex, Table 1 in the main body of this report provides an overview of how leading disclosure frameworks on climate compare to public reporting expectations of the OECD RBC due diligence framework.

Box A A.1. Brief overview of selected climate‑related frameworks and initiatives for investors

The Task Force on Climate‑related Financial Disclosures (TCFD): The TCFD was created by the Financial Stability Board (FSB) in December 2015. It followed a request by the G20 to FSB in April 2015, to design a set of recommendations to encourage climate‑related financial disclosure by both financial and non-financial institutions and assess the type of information that should be released to shift financial flows towards a low-carbon economy. The TCFD framework has gained momentum and is increasingly being implemented by several institutional investors worldwide. The TCFD recommendations primarily focus on the financial materiality of climate change, while the RBC due diligence approach and the present tool consider the social and environmental impacts of climate change. However, the TCFC also requires the consideration of forward-looking climate scenarios, which encourage investors to think beyond short-term financially material climate risks. Furthermore, the structure of the TCFD disclosure recommendations (on governance, strategy, risk management, metrics and targets) are closely related to key steps of RBC due diligence approach.

The Net Zero Investment Framework: The Paris Aligned Investment Initiative (PAII) was established in 2019 by the Institutional Investors Group on Climate Change (IIGCC). The IIGCC is the European membership body for investor collaboration on climate change, with more than 270 members, mainly pension funds and asset managers, across 16 countries with over EUR 35 trillion in assets under management. The PAII provides recommendation to help institutional investors align their portfolios with the Paris Agreement objectives and thus consider the environmental materiality lens. In August 2020, the IIGCC released a Net Zero Investment Framework for consultation, as part of the PAII, to explore how investors can align their portfolios with the goals of the Paris Agreement. The IIGCC launched the Net Zero Investment Framework in March 2021.

Climate Action 100+: Launched in 2017 at the One Planet Summit, Climate Action 100+ is an investor-led initiative that aims to ensure that the world’s largest corporate GHG emitters take necessary action to mitigate climate change impacts. The common engagement agenda includes three commitments or “three asks” of participating investors: 1) to implement strong governance frameworks, 2) to reduce GHG emissions across the value chain and 3) to provide enhanced corporate disclosure in line with the TCFD recommendations. These commitments are related to several steps of the due diligence process. Additionally, the focus on the Paris Agreement’s goal of limiting global average temperature (with the move towards net-zero emissions by 2050 or sooner) highlights that this initiative also considers environmental materiality of climate change.

Source: TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; TCFD, (2020[104]), 2020 Status Report: Task Force on Climate-related Financial Disclosures - Financial Stability Board, www.fsb.org/2020/10/2020-status-report-task-force-on-climate-related-financial-disclosures; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark.

Annex Table 1. Measure 1: Embed climate considerations into policies and management systems.

RBC due diligence sub-measures	TCFD	Climate Action 100+	Net Zero Investment Framework
Adopting policies on climate:	Requires disclosure regarding: - Climate governance, strategy, risk management (from a financial materiality perspective), and metrics/targets set.	Requires disclosure regarding: – Decarbonisation strategy, governance of climate risks/opportunities, capital alignment and climate policy support.	- Recognises the importance of setting climate objectives as part of policy objectives. - Aligns with the Net Zero Asset Owner Alliance and provides framework on which investors can define strategies, objectives and measure alignment at 3 levels: portfolio level (Governance, Portfolio Reference Targets, SAA), Asset class level (Asset class alignment) and external level (Policy advocacy, Engagement).
	No explicit mention of: - Inclusion of climate objectives into investment mandates, policies or charters. Financial materiality focus for risk-management.	No explicit mention of: - Climate objectives into investment mandates, policies or charters.
Embedding climate considerations into management systems through: - 1) embedding climate considerations at a board level - 2) and management level - 3) ensuring functional alignment and - 4) ensuring sufficient resources.	Recommends disclosures related to: - How climate related issues are reported to the board (frequency, method, organisational structure etc.). - Responsibility assignment for climate‑related risk assessments to management positions and how they fit into organisations’ financial reporting processes.	Recommends: - Implementation of a strong governance framework which clearly articulates the board’s accountability and oversight of climate change risk. - Inclusion of members appointed and responsible specifically for climate issues in executive committees. - Disclosure of organisational structures by which management is informed about climate‑related issues. - Integrating responsibility for climate issues sustainability departments. - Disclosure on how climate risks are incorporated into strategic and financial planning in short, medium, long term.	Recommends: - Strengthening board oversight of climate risks, impacts and direction for action. - IIGCC framework to integrate management of climate risks into all key processes (including governance, strategy, policy advocacy, engagement strategies, and financial planning over short, medium and long term.) - Communication of incentives related to climate. - Extending climate issue beyond the remit of sustainability departments.
	No explicit mention of: - Requirements or recommendations regarding board composition. - Incentives for management of climate risks. - Recruitment and selection of investment managers. -Resources.	No explicit mention of: - Requirements or recommendations regarding board composition. - Recruitment and selection of investment managers. - Resources.	No explicit mention of: - Requirements or recommendations regarding board composition. - Assigning climate responsibilities to executive and management level positions. - Clarifying organisation structures and reporting lines on climate issues including to boards. - Recruitment and selection of investment managers. - Resources.

Sources: Authors compilation and analysis; based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.

Annex Table 2. Measure 2. Identify and assess actual and potential adverse climate impacts.

RBC due diligence sub-measures	TCFD	Climate Action 100+	The Net Zero Investment Framework
1) Identifying and assessing climate risks, impacts and opportunities at portfolio level 2) Identifying and assessing climate risks, impacts and opportunities asset level and. 3) Prioritising the most significant risks and impacts for further action.	Recommends disclosure of: - Carbon foot printing information. - All processes by which climate risks and impacts are assessed. - How climate risks identification and assessment in integrated into investment decision making processes. - Climate‑related risks and impacts the organisation has identified over the short, medium and long term. Recommends both historical and forward looking (scenario) analyses when considering the potential impacts of climate. - Climate‑related opportunities the organisation has identified over the short, medium and long term - How climate‑related risks and opportunities are prioritised.	Recommends: - Carbon footprint and other GHG emissions footprint across investment types and asset classes be assessed and disclosed. - How climate risks identification and assessment in integrated into investment decision making processes. - Climate risks and opportunities be prioritised and how such prioritisation decisions are made should be disclosed. - Both historical and forward looking (scenario) analyses when considering the potential impacts of climate change in line with TCFD.	Recommends: - Screening portfolios to identify climate‑related risks and impacts. - Climate financial risk assessment be undertaken line with TCFD recommendations. -Estimating the carbon footprint and other GHG emissions footprint for overall portfolio emission target. - Assessment building on existing work, processes or requirements of investors. - How climate risks identification and assessment in integrated into investment decision making processes. - Scenario analysis and forward looking approaches to ensure SAA asset class return expectations are informed by a realistic assessment of climate risks and opportunities or to stress test potential portfolios. - Sectors most material to climate change and impacts be identified and prioritised using NACE classification codes as well as weighted carbon intensity. - Stakeholder and market engagement to facilitate alignment. - Screening portfolios to identify climate‑related opportunities.
	No explicit mention of: - Identification of adaptation and resilience measures (or lack thereof). - Stakeholder engagement. Focus is on transition and physical risks from a financial materiality perspective.	No explicit mention of: - Working with investment advisors and managers to understand how they assess climate risks and impacts. - Assessing existing and potential assets for climate mitigation, adaptation and resilience. - Stakeholder engagement. - Identifying investment opportunities. Focus is on transition and physical risks from a financial materiality perspective.	No explicit mention of: - Assessing existing and potential assets for climate mitigation, adaptation and resilience.

Sources: Based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.

Annex Table 3. Measure 3. Seek to prevent and mitigate adverse climate impacts.

RBC due diligence sub-measures	TCFD	Climate Action 100+	The Net Zero Investment Framework
1) Responding to climate considerations at portfolio level 2) Taking climate considerations into account in portfolio allocation at asset class-level 3) Influencing existing assets through engagement	Recommends disclosure of: - The impact of financial planning on acquisitions and divestments from carbon-intensive assets. - Increased diversification in financial assets to capture new opportunities through investing in greenfield and resilient infrastructure (low carbo energy production, energy efficiency, grid connectivity etc.).	Recommends: - That companies may consider divestment from carbon-intensive sectors and communicate about these. - Increasing diversification in financial assets to capture opportunities in low-carbon, greenfield and resilient infrastructure. - Increasing engagement, in multi-stakeholder initiatives for asset managers and corporations to better manage risks.	Recommends: - Aligning portfolios with climate objectives through Strategic Asset Allocation. - Undertaking a cross-section analysis of climate‑related opportunities and mapping those against SAA targets in place. - That companies consider divestment from carbon-intensive sectors to reduce portfolios’ exposure to emissions intensive assets. - Increasing investments in appropriate low carbon opportunities such as renewable energy, energy efficiency, low-carbon transportation, energy storage and energy efficiency buildings or energy efficiency technologies. - Increasing engagement, active ownership and engagement in multi-stakeholder initiatives. - Engagement and stewardship to a foster emission reduction by favouring transitioning assets.
	No explicit mention of: - Strategic asset allocation - Engagement, active ownership and stewardship.	No explicit mention of: - Strategic asset allocation - Stewardship and active ownership or the way engagement can influence existing assets.

Sources: Based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.

Annex Table 4. Measure 4. Tracking implementation and results

RBC due diligence sub-measures	TCFD	Climate Action 100+	The Net Zero Investment Framework
1) Developing targets and benchmarks to track climate performance at a portfolio, asset class and asset-level. 2) Tracking performance against benchmarks and target.	Recommends reporting on: - Climate targets and performance against those targets. - Metrics related to weighted carbon intensity.	Recommends: - Setting a series of targets to move towards next-zero emission by 2050 or sooner.	Recommends: - Setting targets and objectives both at portfolio and asset-level and reporting on: - Emissions Intensity Reduction Goal and a <10 Reference Target (CO2 Emissions Intensity); or a reference target for absolute CO2 emission reduction. - Initial goals for allocation to climate solutions representing a percentage of revenues or capex from AUM. - Supplementing SAA objectives with climate‑related objectives (carbon intensity and allocation to climate solutions). Recommends tracking: - Climate performance based on weighted carbon or GHG intensity. - Carbon footprint at a portfolio level to set a reference target for total, absolute emissions reduction. - Reduction in exposure to climate related assets.
	Does not explicitly require target setting related to: - Emissions - Revenue, assets, liability and capital allocation of carbon-intensive assets. - Forward-looking transition-oriented metrics. - Climate resilience and adaptation.	Does not explicitly require target setting related to: - Emissions - Revenue, assets, liability and capital allocation of carbon-intensive assets. - Forward-looking transition-oriented metrics. - Climate resilience and adaptation. Any specific metrics for measuring progress against targets are not identified.	Does not explicitly require specific target setting related to: - Liability and capital allocation of carbon-intensive assets. - Forward-looking transition-oriented metrics. - Climate resilience and adaptation.

Sources: Based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.

Annex Table 5. Measure 5. Communicate how impacts are addressed

RBC due diligence sub-measures	TCFD	Climate Action 100+	The Net Zero Investment Framework
Communicate publicly on: - Investor climate policy, including due diligence approaches. - Information on measures taken to embed climate issues into policies and management systems, and across asset classes. - Report on investors’ identified areas of significant climate risks and impacts, the significant adverse climate impacts and risks identified, prioritised and assessed. - The risk management and other tools used to assess and prioritise climate risks and impacts. - The actions taken to prevent or mitigate those risks including relevant investment strategies considered or adopted across asset classes, engagement activities undertaken by the investor etc. - Investors’ future climate plans, metrics and targets, and; - Where possible estimated timelines and benchmarks for improvement and their outcomes. - Measures to track implementation and results.	Recommends disclosure of: - Governance processes with respect to climate risks and opportunities. - Climate‑related risks and opportunities where such information is material and relevant to the business strategy. - Process for identification, assessment and management of climate‑related risks, including prioritisation criteria. - Metrics used, scope 1‑3 emissions and related-GHG risk. - Targets used to manage climate risks and performance against such targets.	Aligned with TCFD recommendations.	Aligned with TCFD recommendations.
	Not explicitly mentioned: - Investor climate policy, including due diligence approaches - Specific actions taken to prevent or mitigate climate risks including relevant investment strategies considered or adopted across asset classes, engagement activities undertaken by the investor etc. Climate risks, impacts and management strategy considered from a financial materiality perspective.	Aligned with TCFD recommendations.	Aligned with TCFD recommendations.

Note: See also Table 1 in core report comparing due diligence reporting expectations with leading disclosure frameworks.

Source: Authors compilation and analysis; based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.

Annex Table 6. Measure 6. Provide for or co‑operate in remediation if appropriate.

RBC due diligence sub-measures	TCFD	Climate Action 100+	The Net Zero Investment Framework
- Engagement in remediation, litigation, and dialogue related to climate impacts. For example, through co‑operation with judicial or state‑based non judicial mechanism. - Establishment of operational-level grievance mechanisms	Not explicitly addressed.	Not explicitly addressed.	Not explicitly addressed.

Sources: Authors compilation and analysis; based on TCFD, (2017[33]), Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), Final Report, www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-2017-TCFD-Report-11052018.pdf; Climate Action 100+, (2020[44]), Climate Action 100+ Net Zero Company Benchmark, www.climateaction100.org/net-zero-company-benchmark; IIGCC, (2020[24]), Net Zero Investment Framework for Consultation, www.iigcc.org; IIGCC, (2021[37]), Net Zero Investment Framework 1.5 C - Implementation Guide, www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Investment-Framework_Implementation-Guide.pdf.