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Six Reasons Why the TCFD Matters Beyond Disclosure

March 15, 2022

The Greater Value of TCFD Recommendations

We know the Task Force on Climate-Related Financial Disclosures (TCFD) matters for disclosure. Why? The set of recommendations has broad buy-in from policymakers, world leaders, investors, and activists. It’s legitimately seen as the best way to learn more about businesses and their climate integration.

The TCFD has quickly become the global best practice for climate-related risk and opportunity disclosures, with New Zealand, Switzerland, the UK, and China announcing moves to mandate TCFD-aligned disclosures in 2021. Canada and the US are expected to follow suit shortly. 

What is often left unsaid, however,  is why the TCFD is so important. The short answer is that it brings value beyond disclosures. In this blog, we bring you six reasons why the TCFD matters beyond optional and mandatory disclosures.

1. The TCFD recommendations identify the impact of climate change on business

Let’s face it — this increasing interest and focus on climate change is relatively new, and not everyone in a business has the right background to understand climate change and its implications. In fact, it used to be that most climate-related issues were left to a business’ sustainability team if an organization even had one. The TCFD recommendations suggest company-wide processes that help organizations’ key players truly understand how climate change affects their people, processes, and bottom line, and how, in turn, their business also impacts the climate.

Even if you don’t disclose in line with its recommendations, the TCFD can be useful if you want to ensure your governance, strategy, and risk management processes incorporate climate considerations. Integrating climate considerations into your business requires you to understand what your business is currently doing, and not doing when it comes to climate action. That’s what part of the TCFD recommendations come down to: They lay out a process to surface the right data that you need to truly understand your current climate story and begin your climate maturity journey.

2. The TCFD recommendations help break down silos

Climate change and the policy, economic, and technological changes it’s driving can affect every aspect of an organization. As a result, it’s important for all departments in a business to have climate change on their radars. Often, most things related to climate change are centralized within a company’s sustainability team. This can lead to a reduced awareness of the climate-related risks that an organization is exposed to and can mean climate-related opportunities are left on the table. Both can have financial impacts on an organization.

Fully implementing the TCFD recommendations would push key areas of an organization (governance, strategy, and risk management) to be read up on climate change and its impacts. By engaging multiple areas of a business, what may have been a siloed consideration can be integrated into the strategic decision-making of a company. Take overland flooding’s impact on commercial real estate, for example. What might once have been considered an operational issue may be raised to the team responsible for the organization’s growth. In turn, that may influence the selection of growth areas that are projected to be less impacted by flooding, which would help to reduce current and future costs. In fact, most climate-related risks have an associated financial impact that organizations need to understand and that the TCFD can help bring to light.

3. The TCFD recommendations acknowledge climate related risk while identifying climate related opportunities

Climate change is often discussed as a risk. The TCFD recommendations are not only about risk management — but they’re also about finding opportunities related to climate change. This is especially useful if you have a product that is carbon-friendly, but that doesn’t have to be the case. The TCFD surfaces climate-related opportunities in areas that you may not have even considered. The climate is changing, but so is the economy, policy, and technology used by businesses around the world.

Part of being resilient in the face of climate change is understanding the opportunities that are inherent to a low-carbon transition. The TCFD recommendations suggest ways for organizations to think about opportunities existing in their sector. For example, a company developing water-efficient technologies may see a growth opportunity in helping businesses conserve water in water-stressed areas. Take another example: A municipality may identify an opportunity to spur local employment and economic development through the retrofitting of city buildings.

When doing our client climate disclosures at Manifest Climate, we have found that 100% of customers are doing better than they disclose or know. This is partially due to the many climate-related opportunities that inherently exist in a business.

4. The TCFD Recommendations guide on how to integrate climate change and business

Like all natural phenomena, climate change doesn’t care about press releases and scores on sustainability disclosures. An organization will be climate-resilient if it heeds the latest science and economic trends surrounding the transition to a low-carbon economy. The TCFD doesn’t only provide recommendations to help organizations identify and disclose their climate-related risks and opportunities — it also provides guidance and sector-specific case studies on how to best manage these risks and opportunities.

One key recommendation the TCFD provides helpful guidance on is climate-related scenario analysis. This can help businesses understand their climate resilience in multiple different climate futures — think of it as a gut check on companies’ strategies. This guidance, as well as recommendations on the selection and methodologies to calculate relevant climate-related metrics and targets, can help organizations to understand and integrate climate across their functions.

5. The TCFD recommendations push companies to grow  their climate action

The TCFD’s theory of change is different from some sustainability disclosures that provide gradings. Instead of creating an incentive to answer a questionnaire to obtain a good score, the TCFD strives to increase transparency in capital markets and equip decision-makers with decision-useful climate information. An organization’s level of alignment to the TCFD recommendations is as relevant as what an organization’s disclosures reveal. In other words, how much you share about your organization matters, but so does what your organization is doing on climate. In this way, climate integration is incentivized in organizations disclosing either voluntarily or due to mandatory disclosure requirements.

6. The TCFD recommendations are evergreen climate-related metrics

Last but not least, it’s important to note that the TCFD is evergreen as it draws on the latest climate science and modeling. Organizations are disclosing their climate maturity, but the TCFD doesn’t review disclosures or issue judgments on the types of climate-related thresholds that organizations should meet. In this way, preparers can make their claims, and readers of disclosures can assess these claims, strategies, and metrics against the latest data available. The TCFD’s goal is the resilience of the global financial system. This agnosticism enables climate disclosures to integrate the latest available information into the credible and useful TCFD frameworks.

Manifest Climate can help you build an effective TCFD report

Now that you know why the TCFD is important beyond disclosure, you may want to start on your own TCFD journey. Our climate intelligence platform combines cutting-edge technology, an industry-leading database of climate disclosures, and ongoing support from climate experts to provide the best-in-class climate guidance at scale. Get in touch with us now to find out just how well you are performing on your climate journey and what inspiring climate-related actions you can take next.

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