What Is the Task Force on Climate-Related Financial Disclosures (TCFD)?
The Task Force on Climate-Related Financial Disclosures (TCFD) is an industry-led initiative that aims to develop voluntary, consistent climate-related financial disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.
In April 2015, the Financial Stability Board (FSB) was asked to review how the financial sector considers climate-related risks.
Under former Chair and Governor of the Bank of England Mark Carney, the FSB subsequently established the TCFD in December 2015.
The TCFD is chaired by Michael Bloomberg and comprises representatives from companies, investors, lenders, insurers, accounting standard-setters, and climate science and policy experts.
What Does the Task Force on Climate-Related Financial Disclosures (TCFD) Do?
The TCFD is committed to developing voluntary, consistent climate-related financial disclosures that will help companies disclose information to investors, lenders, insurers, and other stakeholders in a way that supports informed decision-making.
The TCFD develops recommendations for disclosing climate-related risks and opportunities in mainstream financial filings, such as annual reports and financial statements.
The goal is for these disclosures to be useful to users of climate-related information, including investors, analysts, lenders, insurers, and others who are making decisions about capital allocation.
In developing its recommendations, the TCFD considers both physical risks from climate change (such as those associated with extreme weather events) and transition risks associated with moving to a low-carbon economy (such as stranded assets).
Why Are TCFD Disclosures Important?
There is a growing awareness among investors, lenders, and insurers of the need to consider climate-related risks and opportunities when making an investment, lending, and underwriting decisions.
They need high-quality information about these risks and opportunities to make informed decisions.
The recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) will help companies disclose climate-related information in a helpful way to these stakeholders.
What Are the Four Pillars of TCFD?
The TCFD’s recommendations are based on four pillars: governance, strategy, risk management, and metrics and targets.
Governance
The recommendations on governance address the role of the board of directors in overseeing an organization’s management of climate-related risks and opportunities.
Strategy
The recommendations on strategy address how an organization’s business model, strategic planning, and risk management processes consider climate-related risks and opportunities.
Risk Management
The recommendations on risk management address how an organization identifies, assesses, manages, and reports climate-related risks.
Metrics and Targets
The recommendations on metrics and targets address the use of financial and non-financial metrics and targets to evaluate and manage climate-related risks and opportunities.
Benefits of Implementation
Below are some of the benefits that companies may realize by implementing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD):
Effective Evaluation of Risks
The TCFD recommendations will help companies to disclose climate-related risks in a way that is useful to investors, lenders, and insurers.
Because these recommendations are based on a robust and comprehensive framework, they will allow for a better evaluation of risks and opportunities across sectors and geographies.
Better Decisions on Capital Allocation
The recommendations of the TCFD will help companies make better decisions about allocating capital.
By providing investors with more information about climate-related risks and opportunities, companies can attract capital from investors interested in supporting low-carbon initiatives.
Better Strategic Planning
The recommendations of the TCFD will help companies to incorporate climate-related risks and opportunities into their strategic planning processes.
This will enable companies to make better long-term decisions about responding to the transition to a low-carbon economy.
Supporting the TCFD
Those interested in becoming TCFD supporters can learn more below:
Supporters of the TCFD
Supporters of the TCFD play an important role in its success.
By publicly committing to implement the recommendations of the Task Force, supporters signal their commitment to disclosing climate-related information in a way that is useful to investors, lenders, and insurers.
The list of supporters of the Task Force on Climate-Related Financial Disclosures (TCFD) includes various organizations from different sectors and geographies.
Today, TCFD has 3,400 supporters in 95 jurisdictions. Some of the most famous supporters include BlackRock, Morgan Stanley, JP Morgan Chase & Co., and Bank of America.
How to Become a Supporter
To become a supporter of the TCFD, an organization believes that TCFD recommendations provide a valuable framework for disclosing climate-related information and is committed to implementing the recommendations.
Signing up through a brief initial assessment is the first step to becoming a supporter.
This assessment captures an organization’s details, such as name, sector type, location, market capitalization, and assets under management. It will also ask for some information about the business owner or representative.
After an organization becomes a supporter, it is asked to provide annual updates on its progress in implementing the recommendations of the Task Force.
These updates help TCFD track supporters' overall progress and identify areas where additional guidance or support may be needed.
Final Thoughts
The Task Force on Climate-Related Financial Disclosures (TCFD) was created in 2015 in response to the growing need for companies to disclose information about climate-related risks and opportunities.
The TCFD is a voluntary, private-sector-led effort that provides recommendations for how companies can disclose this information in a way that is useful to investors, lenders, and insurers.
The recommendations of the Task Force are based on a robust and comprehensive framework designed to apply to companies across sectors and geographies.
By implementing the recommendations of the TCFD, companies can improve their disclosure of climate-related information, enabling investors to make better-informed decisions about the allocation of capital.
FAQs
1. What are TCFD disclosures?
TCFD disclosures are voluntary disclosures that companies can make about climate-related risks and opportunities. These disclosures are designed to be helpful to investors, lenders, insurers, and other stakeholders.
2. What are some climate-related risks?
Climate-related risks include physical risks and transition risks. Physical risks are risks to a company’s assets, revenue, and profits caused by climate-related events such as extreme weather. Transition risks are risks to a company’s business model driven by the transition to a low-carbon economy.
3. What are some climate-related opportunities?
Climate-related opportunities include developing new products and services, opening new markets, and the efficiency gains that can be achieved through the transition to a low-carbon economy.
4. What does a low-carbon economy mean?
A low-carbon economy is an economy that emits relatively low levels of greenhouse gases. This can be done through renewable energy, energy efficiency, and other low-carbon technologies.
5. What are the functions of the Financial Stability Board?
The Financial Stability Board (FSB) is an international body that promotes financial stability. It does this by coordinating the activities of national and regional financial authorities and developing and advancing policies to improve the global financial system's stability.
