What is the TCFD and how does it affect your company?

Increasingly, countries are adopting regulations that require companies to disclose how climate change financially impacts their business, in line with recommendations from an organization called the Taskforce on Climate-related Financial Disclosures (TCFD).

These regulations will have a profound impact on the way organizations prepare and share information on climate-related risks and opportunities. In this blog, we’ll explain what the TCFD is, why it is relevant to businesses, and what its recommendations mean for the future of climate-related financial disclosures.

The TCFD is an industry-led body established by the Financial Stability Board (FSB) following COP21 in Paris. Its mission: to “improve and increase reporting of climate-related financial information.” Covering the four pillars of governance, strategy, risk management, and metrics, TCFD’s 11-point framework has become an internationally recognized framework for facilitating detailed and consistent climate disclosures.

The TCFD is committed to encouraging and enabling the widespread adoption of climate disclosure in the financial and non-financial sectors. It’s estimated that 16.9% of global assets worth about US$24.2 billion are at risk due to climate change. To avoid a catastrophic economic fallout, climate must be at the core of every decision.

By accessing decision-useful and timely disclosure data, investors, regulators and insurance underwriters can accurately price the risk and opportunities related to climate change. This creates the market transparency required to facilitate efficient capital allocation, encourage climate-resilient action, and allow businesses to transition smoothly to a low-carbon economy.

Since its inauguration in 2015, the Taskforce has grown to feature 31 pioneering members from across the G20. Featuring representatives from The Big 5 accounting firms to global manufacturers, it houses a plethora of expertise. The body is chaired by none other than Michael R. Bloomberg, Founder of Bloomberg L.P. and Bloomberg Philanthropies and former Mayor of New York City.

To ensure the framework is both comprehensive, decision-useful, and benefits all parties, members represent both “Data Preparers” and “Data Users”. Data Preparers are those that will use the framework to report and share information surrounding their organizations' climate risk, whereas Data Users consist of the investors, regulators, and insurance underwriters who will use these disclosures to guide their decision-making.

In 2016, the TCFD issued a series of draft reports inviting public feedback via a 60-day consultation period. Incorporating this feedback, it published its official recommendations for better climate risk reporting. One hundred CEOs signed a statement of support for the recommendations. Four status reports have since been released to help guide companies through the framework and towards decision-useful and accurate climate disclosures.

Since 2017, over 3,000 organizations from 87 countries have voiced their support for the TCFD recommendations. Supporters believe the recommendations provide a useful framework to increase transparency on climate-related risks and opportunities within financial markets. Take a look at this infographic for a detailed breakdown of who supports the TCFD framework.

As of April 6, the UK has incorporated the TCFD-aligned climate-related financial disclosure into law. Currently, only 1,300 companies that meet specific criteria are required to report on their climate risk in line with the recommendations. However, by 2025 the entire UK economy will be required to comply with these regulations.

If you’re a stakeholder in a UK company the TCFD may already be influencing your business. If not, it’s only a matter of time before it becomes relevant. To discover more about how your company can comply with the regulations, download our ebook: “Assessing your climate risk for UK climate-related financial disclosure regulations”.

Following President Biden’s Executive Order, the United States Securities and Exchange Commission (SEC) has submitted its own proposed framework that heavily leverages the one put forward by the TCFD. Providing this law progresses through litigation, US companies may be expected to disclose their climate-related risk as early as 2023.

Given its remit from the FSB, the TCFD is dedicated to increasing market transparency, allowing stakeholders to make like-for-like comparisons based on climate-related financial risk. In today’s world, these markets transcend geographical boundaries. Thus the widespread adoption of frameworks enshrined by different countries must be compatible. One way of achieving this would be by basing regulations on a common blueprint, such as the TCFD’s recommendations.

Leading the way towards transparency and standardization, the G7 nations have already agreed to mandate climate-related financial reporting in line with the TCFD recommendations. With the G20 being the drivers behind the TCFD, it’s likely that the rest of the world will soon follow suit, initiating a new era of climate reporting.

Mirroring the TCFD's quest for transparency, our open and networked Climate Intelligence platform fuses the latest climate data and machine learning techniques to enable companies to discover their climate-related risks and opportunities on-demand.

Companies can use Climate Intelligence products, like EarthScan™, to seamlessly add science-based climate risk insights to their mandatory or voluntary TCFD-aligned climate disclosures.

If you’re a UK company, you can find out more about how Climate Intelligence can upgrade your reporting with our free ebook: “Assessing your climate risk for UK climate-related financial disclosure regulations”.