In our previous article, Demystifying the TCFD recommendations, we highlighted the framework, the sectors it would affect and the benefits of TCFD disclosures. The recommendations are intended to provide the market with decision-useful, forward-looking information on how organisations are addressing climate related risks and opportunities.
As part of a review commissioned by the G20 Finance Ministers and Central Bank Governors, the Financial Stability Board identified that there was a need for better analysis of climate risks and opportunities to support informed investment, lending and insurance underwriting.
“Increasing transparency makes markets more efficient and economies more stable and resilient.” Michael R. Bloomberg
TCFD at a glance
Launched in 2015 with the support of G20 countries, the Task Force on Climate-related Financial Disclosures (TCFD) brought together global experts from across the finance and business world, chaired by former Mayor of New York Michael Bloomberg and Mark Carney, UN Special Envoy for Climate Action and Finance and former Chairman of the Bank of England.
The TCFD released its recommendations in July 2017 suggesting a framework based on four primary areas which all companies and institutions could use to report on climate-related financial impacts in their annual financial filings.
In summary, the TCFD’s final report, published in June 2017, sets out recommendations for disclosure in four areas:
|Governance||Strategy||Risk Management||Metrics & Targets|
|Details of your Board and senior management’s role in climate risk management.||Details of what you expect the actual and potential impacts of climate change on your business model will be from detailed scenario analysis.||The processes used to identify, assess and manage climate-related risks.||The tools you use to measure, assess and manage relevant climate-related risks and opportunities.|
Beneath these sit 11 recommended disclosures that provide granular detail on the information to be disclosed under each of the recommendations.
How effective is voluntary TCFD disclosure and when will it be mandatory?
The TCFD’s recommendations have already attracted considerable support internationally. More than 1400 organisations worldwide, from both the nonfinancial and financial sectors, support the TCFD recommendations. However, evidence included in recent consultations by the FCA and the Department for Work and Pensions (DWP) found that in 2019, only around a third of premium-listed companies and 13% of the largest occupational pension schemes were making the TCFD’s 11 recommended disclosures. There was a similar message on disclosures by asset owners and asset managers in recent analysis by UN Principles for Responsible Investment.
Given the urgency of the threats from climate change, the Government and regulators have concluded that a voluntary approach to climate related financial disclosure may not be enough. The UK should move towards mandatory TCFD-aligned disclosures across both non-financial and financial sectors of the UK economy, Rishi Sunak announced on 9 November that the UK will become the first country in the world to make TCFD disclosures fully mandatory across the economy by 2025, with a significant portion of the mandatory requirements planned to be in place by 2023. Please see our second article for information on the mandatory TCFD proposals.
How Carbon Intelligence can help
TCFD experts at Carbon Intelligence use their experience and expertise in TCFD disclosures to help our clients produce TCFD compliant disclosures for their annual reports. We also set out and implement plans to manage climate related risks.
If you would like to find out more about how we can help with voluntary or mandatory TCFD reporting, speak to one of our experts by emailing [email protected]