The Task Force on Climate-related Financial Disclosures (TCFD) was created in 2015 with the goal of developing a set of recommendations for entities providing a broad spectrum of recommendations on ESG reporting. The primary objective for creating this task force is to assess and manage relevant climate-related risks and opportunities where such information is material. TCFD provides frameworks for companies to disclose their potential long-term risks and opportunities associated with climate change. The TCFD was created by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. You can find their Final Report here.
- Why was TCFD set up?
- Who are the TCFD?
- What are the TCFD requirements?
- What is the focus of the TCFD initiative?
- What three types of climate risks does the TCFD focus on?
- What is the connection between the TCFD and SDGs?
- Who should report TCFD?
- What an organization should do with TCFD?
- Why should you report to TCFD?
- What should they disclose?
- How many companies signed up to TCFD?
- Who are the members of TCFD?
- Is TCFD reporting mandatory?
- Is TCFD a reporting framework?
- Which countries are making TCFD mandatory?
- Caveats, disclaimers & climate-related financial disclosures
Why was TCFD set up?
Global warming presents both risks and benefits for businesses as we move into the future. As temperatures on the planet rise, natural catastrophes that were previously rare are damaging ecosystems and human health. This is resulting in unforeseen commercial losses and jeopardizing assets and infrastructure. Governments and private sector organizations are considering a variety of strategies to reduce worldwide emissions that will affect all business sectors.
Investors, lenders, and insurers don’t have a clear picture of which firms will survive or flourish in an ever-changing climate. With new laws emerging and customer behavior changing, there is limited access to dependable climate-related financial data. At present, the economy as a whole will be unable to price climate risks and opportunities accurately. TCFD was created to create sustainable frameworks to measure these changes.
Who are the TCFD?
The TCFD is an international group that aims to provide high-quality independent advice on climate-related issues for standard setters, regulators investors, company boards, company management teams, and other stakeholders. Their work focuses on three dimensions: Reporting, Disclosure, and Assurance of Climate Change-related Financial Risks and Opportunities.
What are the TCFD requirements?
The TCFD, through their work, has identified four dimensions of information on climate-related issues: Governance, Strategy, Risk Management, and Metrics and targets.
- Governance: Includes information on how an organization sets goals, manages risks and opportunities from climate change, and provides oversight. This also includes the governance process for ensuring that there is collaboration with shareholders and other stakeholders to provide a stable political structure for future decisions about climate-related issues.
- Strategy: Outlines the business strategy related to its products, services, supply chains, and operations. This includes an integrated strategy to manage risks and opportunities related to climate change across the organization’s operations, products, and services.
- Risk Management: Describes how an organization identifies, measures, assesses, and manages financial risks stemming from potential changes in the physical impacts of climate-related phenomena such as weather, climate, and geophysical events, as well as climate-related policies and regulations.
- Metrics and Targets: Provides information related to the organization’s strategy and risk management framework. This includes quantitative metrics (e.g., emissions) against which progress is measured; descriptions of how targets are set; and whether or not there are sectoral or regional emissions or emissions intensity targets.
What is the focus of the TCFD initiative?
The four main objectives for creating this task force were: to provide a forum for discussion on these issues; to align markets and investors around sustainable practices while remaining transparent about climate-related risks; to facilitate the integration of climate-related financial disclosures into existing requirements like sustainability or corporate reporting; and make resources available for companies that need additional help.
What three types of climate risks does the TCFD focus on?
The TCFD focuses on three types of climate risks:
- Financial risks related to the impacts of climate change, such as risk from storm surges and sea level rise, or from global shifts in trade routes, prices, and supply chains that may affect the value of assets.
- Companies’ exposure to climate-related legislation is expected to increase over time.
- Failure to address future issues related to the continued use of fossil fuels.
What is the connection between the TCFD and SDGs?
The Global Goals are a new way to address many of the same problems previous international initiatives have tried to fix. The TCFD has already started to work on recommendations for investors and standard setters, but their work is ongoing.
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Who should report TCFD?
Companies, organizations, and government agencies who are asked to create sustainability reports on climate change (e.g. reporting against the GRI G4 E, PAS 2050, and S&P 500) should take into consideration TCFD recommendations if their organization is expected to be affected by them. Small and medium-sized companies are recommended to undertake TCFD analysis as appropriate for their circumstances.
What an organization should do with TCFD?
Organizations are encouraged to take into account their risk exposure to climate-related physical risks, opportunities, and financial impacts in decision-making processes. They may also include the findings of the TCFD in the reporting process if their company’s management deems it to be relevant.
Why should you report to TCFD?
In 2020, there were 416 natural disaster events around the world at an estimated cost of 268 billion USD. Therefore, organizations are encouraged to take into account their exposure to climate-related risks because this will eventually help them to make better decisions and maintain the long-term value of their companies. It will also expose opportunities to diversify their offerings and make the world more sustainable.
What should they disclose?
They should disclose all the risks and opportunities associated with climate change that are material to the following: 1) business strategy; 2) products, services, supply chains, and operations; 3) governance process; 4) strategy for managing risks and opportunities related to climate change-related physical impacts (weather events, climate changes and geophysical phenomena like earthquakes); 5) metrics and targets.
With new laws emerging and customer behavior changing, there is limited access to dependable climate-related financial data.
How many companies signed up to TCFD?
To date, more than 400 companies have signed up to TCFD, with many of them disclosing climate-related information in their Annual Reports. The TCFD is urging all companies to take climate change into account in their decision-making process, not just the ones that are in the fossil fuel industry.
Over 1,500 businesses have indicated their approval for the TCFD recommendations, up by almost 90% since the previous status report. Almost 60% of the top 100 public companies in the world, along with over 80 percent of all publicly listed firms in Europe and North America, support or are in line with the TCFD’s suggestions.
Who are the members of TCFD?
The TCFD is made up of a broad range of experts from the public and private sectors including finance, climate policy, risk assessment, and institutional investors. The TCFD meets annually in London to discuss, review, and issue recommendations on how to manage climate-related risks and opportunities. The group includes members from the UK, China, France, Brazil, Indonesia, Belgium, and other countries around the world. Key positions include:
- Chairman: Michael R. Bloomberg
- Vice Chair: Denise Pavarina
- Managing Officer: Banco Bradesco
- Vice Chair: Graeme Pitkethly
- Vice Chair: Christian Thimann
- Vice Chair: Yeo Lian Sim
Is TCFD reporting mandatory?
The TCFD is not mandatory, but they are working to make it as easy as possible for companies to comply. The TCFD has encouraged all companies to undertake TCFD reports and to take advantage of the opportunities and risks associated with climate change.
Is TCFD a reporting framework?
TCFD is a reporting framework for companies to use. It helps companies identify and manage climate-related risks and opportunities.
Which countries are making TCFD mandatory?
On October 5, 2018, the TCFD released a new report on the recommendations they have for reporting disclosures on climate-related financial disclosures. The purpose of this was to make it mandatory for all companies in the world to provide climate-related information that is material in their annual reports. Those who are in support of or are aligned with these requirements are encouraged to participate by completing TCFD reports. Australia, France, the UK, and Italy are some of the countries that have made TCFD reporting mandatory.
Caveats, disclaimers & climate-related financial disclosures
We have covered many topics in this article and want to be clear that any reference to, or mention of financial institutions, sustainable development goals, climate related financial, task force on climate, force on climate related, financial planning, low carbon economy, business leaders, responsible investment, tcfd recommendations, climate reporting, strategic planning, sustainable development, relevant sdgs, other stakeholders, climate action, key role, tcfd disclosure, decision making, latest news, investors, support, governance, reporting, understanding, progress, companies, insights, environment, businesses, importance, identify, organisations, responsibility, challenges, capital, disclosure, collaboration, business, guidance, disclose, relevant, sectors, targets, disclosures, website, risk, transition, company, services, provision, leadership, access, commitment, planet, benefits, demand, sustainability or investing in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading, we hope that you found this article useful in your quest to understand ESG.
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SMEs and Investment professionals focusing on ESG principles. Their primary goal is to help middle-market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning, and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, UK, Europe, and the global community. If you want to get started, don’t forget to Get the Checklist! ✅