How TCFD targets climate-related risk reporting
How does the Task Force on Climate-related Financial Disclosures (TCFD) approach ESG reporting?
An industry-led initiative, the TCFD developed a voluntary framework for climate disclosures at the request of the Financial Stability Board. The TCFD recommendations have specifically been designed to solicit decision-useful, forward-looking information that shows the financial impacts of climate change on a business. The focus lies on companies disclosing information that is material to their business.
What do the TCFD recommendations do?
They help companies to outline their business’ resilience in the transition to a more sustainable, low-carbon economy. Scenario analysis is the TCFD’s recommended tool for companies to consider plausible future states and their potential implications for their business. The recommendations are widely applicable to all organizations, including non-financial and financial companies.
How did the TCFD develop its recommendations for reporting on ESG matters?
In devising its recommendations, the TCFD was very conscious not to simply add to the already well-developed body of existing disclosure frameworks. Instead, it drew on existing disclosure frameworks where possible and appropriate. Besides considering existing work that had already been done, the task force conducted extensive industry outreach through two public consultation periods – which received more than 500 responses – more than 120 one-on-one industry interviews, several focus groups and multiple webinars to seek feedback and inform its recommendations.
Importantly, the final recommendations, published in June 2017, were agreed based on consensus from all 31 TCFD members, representing a wide variety of industry perspectives from both the user and preparer side of disclosures.
Who is the intended target for your recommendations?
The TCFD recommendations target two key audiences. On the one hand, the recommendations have been developed for preparers of corporate disclosures, providing them with a coherent framework to disclose climate-related risks and opportunities in their financial filings.
On the other hand, the recommendations provide the users of such disclosures – investors, lenders and insurance underwriters – with decision-useful and consistent climate-related information. Other organizations, such as credit rating agencies, equity analysts, stock exchanges and investment consultants that also use climate-related information, will benefit from better disclosures as well.
Ultimately, the TCFD recommendations aid the users of disclosures to better price climate risks into their decision-making and at the same time identify opportunities presented by climate change. Better disclosures and more informed decision-making as a result will make global markets stronger and more resilient.
How can companies produce their own reports?
The most important thing for companies looking to report in line with the TCFD recommendations is to get started with reporting in the first place. We like to say that reporters shouldn’t let the perfect be the enemy of the good. At this point, a lot of companies are still figuring out how best to report, which scenarios to run and how best to collect data. Connecting with other departments internally is a first crucial step to building bridges with other internal businesses – from sustainability to audit, risk, strategy, finance, and so on.
What are some useful tools on TCFD’s website?
We recommend that companies looking to implement the TCFD recommendations review the resources, case studies and tools available on the TCFD Knowledge Hub at tcfdhub.org. We expect companies to improve and evolve their climate-related disclosures after a few reporting cycles and feedback from users on their respective decision-usefulness.
This interview appeared in Corporate Secretary’s special report on ESG engagement, reporting and integration