Understanding the task force on climate-related financial disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures (TCFD) plays a big part in helping organizations to assess the potential financial risks that carbon emissions can have on their investments. It offers voluntary financial disclosure guidelines for investors, lenders and key stakeholders to help guide investment decisions. Learn everything you need to know about the TCFD.  

What is the TCFD?

TCFD stands for Task Force on Climate-related Financial Disclosures. It is a global initiative that was established in 2015 by the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system. It is made up of a diverse group of representatives from the financial, corporate, regulatory and climate-related communities. The TCFD's goal is to:  

• Encourage more consistent and reliable climate-related financial information from companies
• Provide a framework for disclosing climate-related financial risks and opportunities in business
• Help investors and other stakeholders better assess and manage the financial risks and opportunities associated with climate change

Together, these focus areas enable organizations to identify and disclose the climate-related risks and opportunities that they face, as well as providing recommendations on managing those risks and opportunities going forward

Reporting using TCFD guidelines

TCFD reporting aims to improve transparency and enable investors, lenders, insurers, and other stakeholders to make more informed decisions by understanding how climate change may affect an organization's financial performance over the short, medium, and long term. They aim to do this by providing guidance on reporting in the following 4 areas: 

Governance

helping leaders and top management of an organization handle and supervise risks and opportunities related to climate change. It explains how they incorporate climate-related factors into their decision-making, risk management, and overall organizational structure.

Strategy

This core area focuses on how an organization identifies and responds to climate-related risks and opportunities in terms of its short and long term strategy planning, with particular emphasis on transitioning to a low-carbon economy. 

Risk Management

Focuses on helping organizations identify, assess and manage climate-related risks. As well as how it is addressing any gaps in its risk management approach.

Metrics and Targets

Finally, the TCFD recommends disclosing information on the organization's greenhouse gas emissions, how these emissions are measured and verified, and any targets the organization has set to reduce its emissions. 

What are the benefits of following TCFD reporting guidelines?

By following guidance from the Task Force on Climate-Related Financial Disclosure regarding carbon reporting, organizations can keep up with rapid changes related to climate policies, climate change and new low-carbon technology that are becoming increasingly stringent everywhere. By following the TCFD’s framework it’s hoped that organizations can achieve:

• Improved decision-making - By helping companies better understand and assess their exposure to climate-related risks and opportunities, they can inform strategic decision-making and thus improve long-term performance.

• Enhanced transparency and disclosure - By following the TCFD recommendations, companies can provide investors and other stakeholders with more comprehensive and consistent information about their climate-related risks and opportunities, which can help to improve transparency and facilitate informed decision-making.

• Better risk management - The TCFD encourages companies to identify and assess their climate-related risks and opportunities, which can help them to better manage and mitigate these risks.

• Increased resilience - By adopting the TCFD recommendations, companies can build greater resilience to the physical and transitional risks associated with climate change, and position themselves for long-term success in a low-carbon economy.

• Improved reputation and stakeholder engagement - By demonstrating a commitment to addressing climate-related risks and opportunities, companies can improve their reputation and engagement with stakeholders, including customers, employees, and regulators.

Ultimately, the TCFD's goal is to help businesses and financial institutions understand and address climate-related risks and opportunities in a way that supports the long-term stability of the organization's financial system and the global economy.

What is recommended in TCFD disclosure?

The TCFD has identified several principles of effective climate-related financial disclosure. These principles are intended to help companies provide investors and other stakeholders with the information they need to make informed decisions about climate-related risks and opportunities. The principles are:

• Relevance: Disclosures should be relevant to the company's particular circumstances, including the nature and scope of its operations, and the potential financial impact of climate-related risks and opportunities.
• Materiality: Disclosures should focus on material climate-related risks and opportunities, which are those that have the potential to have a significant impact on the company's financial condition or performance.
• Completeness: Disclosures should provide a complete picture of the organization's exposure to climate-related risks and opportunities, including how the company is managing these risks and opportunities.
• Clarity: Disclosures should be clear, concise, and understandable, and avoid technical jargon or overly complex language.
• Consistency: Disclosures should be consistent over time, and within the company's broader reporting and communication practices.
• Reliability: Disclosures should be based on reliable and verifiable data, and should be subject to appropriate governance and internal controls.
• Comparability: Disclosures should be comparable across companies and sectors, to enable investors and other stakeholders to assess and compare climate-related risks and opportunities across different organizations.

By adhering to these principles, companies can help ensure that their climate-related financial disclosure is relevant, credible, and useful for investors and other stakeholders.

What are the climate-related risks identified by TCFD?

The TCFD has identified a range of climate-related risks that organizations should consider reporting on in order to standardize disclosure of information between different organizations. The risk factors can broadly be categorized into two categories: 

The TCFD recognizes that climate-related risks are relevant to all companies, and that there is a growing demand for consistent and comparable climate-related financial information from a wide range of stakeholders, including investors, lenders, insurers, and regulators.

How can my company start collecting TCFD relevant data?

If your company is interested in collecting TCFD-relevant data, you should consider engaging the services of a climate management and carbon accounting  platform such as Minimum. This will simplify the process of collecting, assessing and managing climate-related metrics. 

Minimum's Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for TCFD disclosure reports, emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform fully customizable and auditable data infrastructure enables businesses to surface, interpret and disclose their emissions data.

FAQs about the Task Force on Climate-Related Financial Disclosures

When was TCFD launched?

The TCFD was established by the Financial Stability Board (FSB)  in December 2015 to help develop recommendations for consistent and comparable disclosure of climate-related financial risks. The FSB is an international body that monitors and promotes global financial stability by bringing together both national and international financial authorities for a holistic view of global financial health.

What is TCFD reporting?

TCFD reporting refers to sharing information about how a company manages risks and opportunities related to climate change. It involves providing clear and transparent details about how climate change can affect a company's financial performance. This includes information about how the company's leaders oversee climate-related matters, how they plan for the future considering climate risks, and what actions they are taking to reduce their carbon emissions output.

Is TCFD reporting mandatory?

Currently, no country has made it mandatory for companies to report on TCFD recommendations. However, there is a growing trend towards voluntary adoption of the TCFD framework, with many organizations around the world now choosing to disclose their climate-related financial information in line with the TCFD.

Some countries have also taken steps to promote the adoption of TCFD recommendations, through regulatory guidance and incentives. For example:

•  The UK government has made it mandatory for listed companies to disclose their climate-related financial information in line with TCFD recommendations by 2025. 
• The EU has proposed a new Corporate Sustainability Reporting Directive that would require large companies to report on their sustainability risks and opportunities, including those related to climate change, in line with TCFD recommendations.

Can any organization use the TCFD Framework?

Yes, any organization can use the TCFD framework to disclose climate-related financial information. The TCFD framework is designed to be applicable to organizations of all types and sizes, across all sectors and industries, and in any geographic location.