December 9, 2022
The Task Force on Climate-related Financial Disclosures (TCFD) is a global initiative launched to improve the quality and consistency of climate-related financial disclosures.
TCFD stands for Task Force on Climate-related Financial Disclosures. It is an international framework established to help organisations publish financial information related to climate change for investors and other stakeholders' knowledge.
Governance: Establishing policies and objectives to ensure proper oversight is in place within an organisation.
Strategy: Managing and understanding opportunities and risks associated with climate-related disclosures and changing the business model accordingly.
Risk Management: Establishing and maintaining suitable systems to carry out TCFD reporting.
Metrics and Targets: Setting targets to assess and manage climate-related risks and opportunities.
TCFD was developed in 2015 by the Financial Stability Board (FSB), an international body that monitors the global financial system and makes recommendations accordingly.
TCFD reporting helps organisations understand and manage climate-related risks and opportunities. By providing a standardised set of disclosures, companies can accurately inform their stakeholders of their exposure risks and opportunities. This, in turn, will enable investors to make more informed decisions about their investments in the company and help ensure that capital is allocated in a way that is consistent with the transition to a low-carbon economy.
11 TCFD disclosures. Sourced from: https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf
Carbon Footprint Reporting: Companies should report their greenhouse gas (GHG) emissions, including Scope 1, 2 and 3 emissions, and any strategies implemented to reduce them.
Water Consumption Reporting: Companies should report on their water consumption, including the sources, amount and strategies implemented to reduce water usage.
Climate Risk Disclosure: Companies should report on their exposure to physical and transition risks from climate change and any strategies implemented to manage them.
Renewable Energy Reporting: Companies should report on their renewable energy usage and any strategies implemented to increase it.
Stakeholder Engagement: Companies can report their engagement with stakeholders on climate-related issues, including any feedback received or strategies implemented.
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 and reporting.
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.
Currently, the External Reporting Board (XRB) has made TCFD mandatory for large listed companies (large meaning with a market capitalisation of more than $60 million); large registered banks, licensed insurers, credit unions, building societies, and managers of investment schemes (large meaning with more than $1 billion in assets). However, this will likely change to include the majority of companies as we move to a more sustainable corporate world, therefore, most companies are encouraged to use the TCFD's recommendations when reporting climate-related issues, but it is not mandatory.
Assess and manage risks and opportunities: Assess and manage climate-related risks and opportunities associated with their activities, products and services, and investments.
Develop a climate-related strategy: Develop a climate-related strategy that aligns with the general business strategy.
Set goals and targets: Set goals and targets for reducing greenhouse gas emissions and improving energy efficiency.
Disclose the risks and opportunities: Disclose the actual and potential impacts on their business activities, products and services, and investments.
Monitor and report progress: monitor and report progress towards achieving their climate-related goals and targets and managing climate-related risks and opportunities.
Consider stakeholder engagement: Consider engaging with stakeholders, including investors, customers, suppliers, and other relevant parties, to understand their perspectives on climate-related issues and opportunities.
The critical challenges of TCFD implementation include the following:
TCFD reporting framework provides companies with a unique opportunity to move towards more sustainable practices while still generating shareholder returns. 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 greater clarity and more accurate reporting of environmental performance and risk management, leading to more informed decisions and sustainable development.
