TCFD reporting

What does a TCFD stand for

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.

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What are the four pillars of TCFD?

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.

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Who is responsible for TCFD?

TCFD was developed in 2015 by the Financial Stability Board (FSB), an international body that monitors the global financial system and makes recommendations accordingly. 

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What is TCFD reporting?

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.

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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

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TCFD reporting examples

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.

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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 and reporting.

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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.

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Is TCFD mandatory?

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.

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TCFD reporting checklist

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.

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Challenges of TCFD

The critical challenges of TCFD implementation include the following: 

• Limited infrastructure & resources: Companies may face difficulties in collecting, interpreting and reporting data.
• Data quality: Identifying and collecting high-quality data is challenging, especially because companies collect data from many different sources. 
• Governance: Companies must ensure proper governance structures and processes are in place to ensure the accuracy and reliability of data. 
• Changes: Companies will likely need to change their business models, and they must be prepared to make and manage the necessary changes in their existing systems and processes to meet TCFD disclosure requirements. 
• Disclosure: Companies may struggle to accurately and comprehensively disclose climate-related risks and opportunities and may require external help, which can also be costly. 

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TCFD recommendations

• Develop climate-related disclosures relevant to an organisation's structure, business model and activities. 
• Disclose climate-related risks and opportunities in a consistent and comparable manner using a legitimate framework. 
• Use metrics to assess and manage risks and opportunities. 
• Disclose how the organisation's activities and overall impact affect climate-related topics. 
• Disclose the organisation's governance on climate-related issues. 
• Assure the quality and integrity of climate-related disclosures through verified measurements and reporting.

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Why is TCFD reporting important?

• It provides a standardised report to help investors understand the risks and opportunities associated with climate change within an organisation. 
• It encourages the implementation of long-term decision-making and strategy in an organisation.
• It forces organisations to be more transparent and accountable in their impact on the environment.  
• It enables investors to access more in-depth and reliable ESG information. 
• It enables the identification of climate-related risks and opportunities so that organisations can respond accordingly to improve their actions. 
• It allows investors to make more informed decisions when evaluating the potential of a company. 
• It provides a framework to help organisations to improve their sustainability performance in relation to a standard and other organisations. 
• It drives the transition to a low-carbon economy.

To conclude

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.