The TCFD recommendations are suitable for all organisations and will help focus on:
Disclosure across the lenses of governance, strategy and risk management.
Establishing consistent and comparable metrics and targets that are applicable across all sectors, as well as specific metrics for most carbon-intense industries.
Using scenario analysis to access the potential impact of the risks and opportunities of the transition to a low carbon economy on strategy and financial planning.
Consistent adoption leading to effective measurement and improved organisational resilience.
The FSB created the TCFD to improve climate-risk disclosures that could promote more informed investment and underwriting decisions and facilitate the effective allocation of capital in the financial markets. As more information becomes available about the widespread risks and effects of climate-change, the need for a robust and internationally consistent climate framework has become increasingly important. Demand for this information from asset owners and managers is critical to the assessment of risk in their portfolios, and public sector leaders have also begun to become more attuned to the importance of transparency, mandating disclosure requirements for the coming years.
On the public sector front, in November 2021, at COP 26, the UK government announced its ambition to enshrine mandatory climate disclosures for the largest companies in law. The resulting Climate-related Financial Disclosure (CFD) regulations were enshrined in UK law on 17 January 2022. These changes require organisations to disclose climate-related financial information, and ensure they consider the risks and opportunities they face as a result of climate change.4
Similarly, in March 2022 the US Securities and Exchange Commission (SEC) proposed extensive requirements for public companies to disclose their risks and mitigation strategies related to climate change. They are similar to disclosures provided by companies employing the TCFD recommendations.5 The New Zealand Cabinet has also proposed a mandatory reporting regime that would require disclosures by certain entities beginning in 2023. With the increasing sense of urgency and expanded awareness, other jurisdictions may well follow suit.
In terms of reporting standards, in November 2021, the International Financial Reporting Standards (IFRS) Foundation Trustees announced the International Sustainability Standards Board (ISSB) consolidation with the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (SASB & IIRC)6. In anticipation of that announcement, in support of their commitment to build on existing frameworks and standards, the Trustees had created the Technical Resources Readiness Group of leading organisations which included the TCFD, the Value Reporting Foundation (SASB & IIRC), the CDSB, the World Economic Foundation and the IFRS IASB. Coincident with the announcement of the formation of the ISSB, two prototype standards developed by the TRWG were published. In March 2022, the IFRS Foundation released and published two exposure drafts; Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and, Draft IFRS S2 Climate-related Disclosures. Both align with, and build on, the recommendations of the TCFD.7
