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Dec 11, 2023

TCFD bids adieu at COP28

FSB officially passes responsibility for climate-related financial reporting to ISSB from 2024

A series of official announcements made by the Financial Stability Board (FSB) and the IFRS during COP28 have confirmed that the TCFD has been disbanded. The baton of responsibility for climate-related financial reporting will now rest with the International Sustainability Standards Board (ISSB) from 2024.

‘The [FSB] has announced that the work of the TCFD has been completed, with the ISSB standards marking the culmination of the work of the TCFD,’ reads an official statement on the IFRS website.

‘Concurrent with the release of its 2023 status report on October 12, 2023, the TCFD has fulfilled its remit and disbanded,’ says the TCFD in a LinkedIn post. ‘The FSB has asked the IFRS Foundation’s ISSB to take over the monitoring of the progress of companies’ climate-related disclosures.’

The chair of the IFRS Foundation Trustees, Erkki Liikanen, echoes that COP28 marks ‘the official end of the work of the TCFD. The FSB board announced earlier this year that the ISSB’s standards reflect the culmination of the work of the TCFD. This provides yet further consolidation of the disclosure landscape.’

The official announcement should not catch off-guard those who have already reviewed the TCFD 2023 status report published in October.

The report had anticipated the completion of the TCFD’s objectives upon the paper’s publication, hinting at its dissolution, though without formal confirmation. Furthermore, the report already indicated that the FSB had tasked the IFRS Foundation with monitoring companies’ progress in disclosing climate-related information.

Emmanuelle Palikuca, managing director and head of sustainability at Alliance Advisors, says the announcement ‘is not entirely surprising [given] the previous plans to increase co-ordination between the FSB and ISSB’.

‘But I am a bit surprised it happened so quickly,’ she tells IR Magazine. ‘Overall, I think this is an impactful and valuable step in further streamlining and simplifying ESG reporting standards for companies. I think the continued consolidation of key industry players such as SASB or the Value Reporting Foundation, Climate Disclosure Standards Board and now TCFD is crucial for more standardized disclosure practices across the globe.’

Implications for companies

The dissolution of the TCFD is not an endpoint but a convergence. What it means for businesses is that if they have already adopted the TCFD recommendations over the past six years, they can continue to use them – in fact, some companies may still be required to.

But the ISSB’s launch of IFRS S1 and IFRS S2, rooted in TCFD principles, renders TCFD adoption unnecessary for those embracing ISSB standards.

The core of the TCFD’s legacy lies in its 11 recommendations founded on governance, strategy, risk management and metrics & targets. These pillars form the bedrock of the ISSB’s latest standards, ensuring a seamless transition for companies worldwide.

Emmanuel Faber, chair of the ISSB, confirmed earlier in July that the ISSB would take over from 2024, coinciding with the global adoption of IFRS S1 and IFRS S2.

‘The TCFD has been a trailblazer in raising the practice and quality of climate-related disclosures, providing much-needed information to investors about climate-related risks and opportunities,’ he said at the time. ‘The ISSB has built from and consolidated the market-leading investor-focused sustainability-reporting initiatives to deliver the ISSB Standards, with the TCFD recommendations at the heart of this.’

Faber’s remarks also hinted at a silver lining, anticipating the clarification of the ‘alphabet soup’ of ESG initiatives, easing the burden on both companies and investors.