If you’re a publicly-traded company, you’ve probably heard the phrase ‘TCFD’ mentioned. In this article, we discuss:
- What is the TCFD?
- What does the TCFD mean?
- What does the TCFD do?
- What does the TCFD mean for your business?
The TCFD stands for the Task Force on Climate-related Financial Disclosures. It is a framework that organizations can use to publicly disclose the climate-related risks and opportunities to their businesses.
More than 4,000 businesses and governments around the world have publicly committed to reporting in alignment with the TCFD. In addition, regulators are increasingly moving toward making TCFD reporting mandatory for publicly traded companies.
The TCFD Framework
The TCFD framework consists of four themes — governance, risk management, strategy, and metrics and targets — with 11 TCFD disclosure recommendations. To help businesses get up to speed, the TCFD also produced a guide for implementing the TCFD recommendations and established a TCFD Knowledge Hub stocked full of helpful case studies.
[Read more: Manifest Climate’s Guide to the TCFD Framework]
What does the TCFD do?
The idea behind the TCFD recommendations is to increase consistency in reporting of climate-related financial information, guide companies on how to inform stakeholders on their climate action plans, and enhance market transparency. The TCFD’s founders also hoped this reporting would lead to a better understanding of where climate-related risks lurk within the financial system and help financial markets optimize capital allocation.
There was (and is) no shortage of sustainability reporting taking place, but too little was of high quality, and too much irrelevant information was shared with investors. In addition, there was confusion among preparers of financial filings on how to embed climate-related information into mainstream reports. The TCFD framework was designed to remedy these shortcomings and promote investors’ and companies’ understanding of the financial impacts of climate change.
Global support for the TCFD framework
Since 2017, adoption of the TCFD recommendations has been gaining momentum.
The US Securities and Exchange Commission plans to release its landmark climate disclosure rule for publicly listed companies in April 2023. This new rule cleaves closely to the TCFD recommendations. Additionally, in March 2023, Canada’s Office of the Superintendent of Financial Institutions, the country’s financial regulator, released its landmark climate risk guideline for financial firms. The new rule closely aligns with the TCFD and will begin to take effect fiscal year-end 2024 for most large financial institutions in Canada.
Across the Atlantic, the UK’s Financial Conduct Authority made it mandatory for premium-listed companies to disclose in alignment with the TCFD for fiscal year 2021. New Zealand has also adopted mandatory TCFD requirements for lenders, insurers, and asset managers.
In his recent letters to CEOs, investors, and clients, Larry Fink, the chief of Blackrock, reiterated his firm’s support for climate disclosure. He noted that BlackRock sees climate risk as an investment risk, citing recent natural disasters that took place around the world.
Fink first addressed climate-related risk in his 2020 letter to CEOs, which laid out BlackRock’s expectations that all companies it invests in should produce TCFD-aligned reports. In addition, other sustainability reporting frameworks used by businesses have embraced the TCFD, including CDP, the Climate Disclosure Standards Board (CDSB), and the International Financial Reporting Standards (IFRS) Foundation. The IFRS formed the International Sustainability Standards Board (ISSB) in November 2021. The ISSB is currently developing climate and sustainability disclosure standards that cleave closely to the TCFD. Once implemented, the ISSB standards have the potential to become the global baseline for climate reporting worldwide.
Voluntary take-up of the TCFD recommendations by public companies has also proceeded at a rapid clip. In its 2022 status report, the task force said it’s supported by more than 3,800 companies. .
How to get started with the TCFD framework
Businesses that have traditionally not thought much about climate change risks are now expected to discuss their climate risk plans in detail. As a business, where should you start?
At Manifest Climate, we regularly work with clients that are either looking to start disclosing in alignment with the TCFD or enhancing what they’re already doing. If you are thinking about the next steps your business should take on the TCFD pillars, there are a few important pieces of information to keep in mind.
The TCFD framework is forward-looking
The TCFD recommendations are a tool to communicate how your business intends to navigate climate change and climate-related physical and transition risks. It’s not solely about what your emissions were over the past decade, it’s about where you’re headed and what metrics you’re using to gauge progress. TCFD supporters are also encouraged to use and disclose the results of forward-looking scenario analysis to inform stakeholders of what the future may look like for them under different climate pathways. This could also help investors make smarter financial decisions.
TCFD framework pillars are a good place to start
Even if you don’t intend to disclose publicly, going through the exercise of looking at your business through the TCFD lens can be extremely useful. It is designed in a way to explore and unpack the various ways your business will be impacted by climate-related issues. If your business is struggling with trying to understand what climate change means for it and doesn’t know where to begin, the TCFD is a good place to start.
The recommendations of the task force and supplemental guidance for specific industries, such as the financial sector, are publicly available on its website. Whether your business is looking to produce or enhance a TCFD report in response to regulatory, investor, or stakeholder pressures, Manifest Climate can help you navigate the process and get you to where you want to go. Request a demo to learn more.
