TCFD reporting

Author
Alex Bingham
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What does a TCFD stand for

TCFD stands for Task Force on Climate-related Financial Disclosures. It is an international framework created to help organisations disclose climate-related financial information to investors and other stakeholders.

What are the four pillars of TCFD?

  1. Governance: Establishing clear policies and objectives to ensure proper oversight is in place to guide the organisation's approach to TCFD. 
  2. Strategy: Understanding the impacts of climate-related risks and opportunities on the organisation's strategy, business model and financial planning. 
  3. Risk Management: Building and maintaining systems to identify, assess, manage, and report on climate-related risks. 
  4. Metrics and Targets: Developing and disclosing metrics and targets to assess and manage climate-related risks and opportunities

Who is responsible for TCFD?

The TCFD was developed by the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system. The board was established in 2009 by the G20 in the wake of the 2008 global financial crisis. The board created TCFD reporting in 2015 to provide a framework for companies to disclose information on managing the financial risks and opportunities associated with climate change. 

What is TCFD reporting?

The TCFD reporting helps organisations better understand and manage climate-related risks and opportunities. By providing a standardised set of disclosures, companies can better inform their investors, lenders, and other stakeholders of their exposure to climate-related risks and opportunities. This, in turn, will enable investors to make more informed decisions about their investments and help ensure that capital is allocated in a way that is consistent with the transition to a low-carbon economy.

What are the 11 TCFD disclosures?

11 TCFD disclosures. Sourced from: https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf

TCFD reporting examples

Here’s an example: If a bank were to adopt the TCFD recommendations, it would now make public its TCFD report. This includes the following: 

  1. A description of its governance structure and board oversight of climate-related risks and opportunities. 
  2. An analysis of the potential financial impacts of climate-related risks, such as those from physical and transition risks, on the bank's business model, strategy, financial planning and performance. 
  3. Discuss the bank's climate risk management strategies and processes for identifying, assessing, managing and monitoring these risks. 
  4. A description of the bank's products and services that support a transition to a low-carbon economy. 
  5. An outline of the bank's targets and metrics related to climate-related risks and opportunities.
  6. A description of how the bank's climate-related activities are integrated into executive remuneration.

What is the difference between ESG and TCFD?

ESG (Environmental, Social, and Governance) is a set of criteria used to measure a company's performance in environmental protection, employee relations, and corporate governance. 

TCFD is a global voluntary disclosure framework that guides companies in reporting climate-related risks and opportunities in their financial statements. 

While ESG is broader in scope and looks at a company's overall performance, TCFD focuses specifically on climate-related financial disclosures.

What is the difference between GRI and TCFD?

GRI (Global Reporting Initiative) is an international standard for sustainability reporting. It provides a comprehensive, consistent framework to measure and report sustainability performance. GRI enables organisations to measure and disclose their impacts on various topics, including environment, social, governance and economic performance. 

TCFD is an international framework for disclosing climate-related risks and opportunities. It provides a set of voluntary, consistent climate-related financial disclosures that can help investors, lenders, insurance underwriters, and other stakeholders understand the impacts and risks of climate change on a company's business. TCFD focuses on disclosing climate-related risks and opportunities to an organisation's financial performance, including physical risks, transition risks and opportunities, and governance and risk management.

Is TCFD mandatory?

Companies are encouraged to use the TCFD's recommendations when reporting climate-related issues, but it is not mandatory.

TCFD reporting checklist

Here is an example of what an organisation will follow when forming its report. 

  1. Define corporate strategy and objectives: 
    • Identify the business strategy and objectives, including targets for the next 3-5 years. 
  1. Establish governance and management processes: 
    • Describe the governance and management processes for identifying, assessing, and managing climate-related financial risks and opportunities. 
  1. Assess climate-related financial risks and opportunities: 
    • Analyse the organisation's potential climate-related financial risks and opportunities, focusing on the transition and physical risks. 
    • Identify the most significant climate-related financial risks and opportunities and the associated time horizon over which they are likely to impact the organisation. 
  1. Prepare disclosure: 
    • Describe the quantitative and qualitative disclosures to be included in the TCFD Report. 
    • Integrate the TCFD disclosures into the organisation's existing financial and sustainability disclosure framework. 
    • Identify the metrics, scenarios and other data points used in the TCFD disclosures. 
  1. Review and approve disclosure: 
    • Establish an internal review and approval process for the TCFD Report. 
    • Review and approve the TCFD Report before its release.

Challenges of TCFD

The critical challenges of TCFD implementation include the following: 

  1. Limited Infrastructure & Resources: Companies may face difficulties in gathering, interpreting and reporting data on climate-related risks and opportunities.
  2. Data Quality: Identifying and collecting high-quality data is challenging, as companies must collect data from different sources. 
  3. Governance: Companies must ensure proper governance structures and processes are in place to ensure the accuracy and reliability of data. 
  4. Change Management: Companies must be prepared to manage the necessary changes in their existing systems and processes to meet TCFD disclosure requirements. 
  5. Disclosure: Companies may struggle to accurately and comprehensively disclose climate-related risks and opportunities. 
  6. Integration: Organisations must integrate climate-related risks and opportunities into their overall strategic planning to ensure the long-term sustainability of their business.

TCFD recommendations

  1. Develop climate-related disclosures relevant to an organisation's activities, strategy, and financial planning. 
  2. Disclose climate-related risks and opportunities in a consistent and comparable manner. 
  3. Use metrics and scenarios to assess and manage climate-related risks and opportunities. 
  4.  Disclose how the organisation's activities affect climate-related topics. 
  5. Disclose the organisation's governance on climate-related issues. 
  6. Disclose the organisation's impact on the climate. 
  7. Assure the quality and integrity of climate-related disclosures.

Why is TCFD reporting important?

TFCD reporting is important for the environment because it helps companies to track their carbon footprints. This helps them identify areas where they can reduce emissions and make more sustainable decisions. By better understanding their environmental impact, companies can make better decisions about their production processes and reduce their ecological footprint. Additionally, TFCD reporting helps make companies more accountable for their environmental actions, encouraging them to take greater steps towards sustainability.

TFCD also benefits the organisation because it allows companies to track the financial performance of their projects. This helps them make better decisions about future investments and better understand their business's financial health. It also helps them to identify areas where they can reduce costs or increase efficiency. By tracking TFCD, companies can measure their progress and identify opportunities for improvement.

 

To conclude

The TCFD reporting framework provides companies with a unique opportunity to move towards more sustainable practices while still generating returns for shareholders. As companies look to become more transparent and accountable to their stakeholders, the TCFD reporting framework can provide a common language to communicate progress and performance against climate-related risks and opportunities. As companies continue to embrace the TCFD framework, we can expect to see greater clarity and more accurate reporting of environmental performance and risk management, leading to more informed decisions and more sustainable development.

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