Today, demand for transparency from organizations is increasing rapidly. The climate is changing, policies are changing, new markets are emerging, and it is ultimately becoming more evident that climate change poses a significant financial threat to organizations.
These threats come in many forms, ranging from droughts in regions that supply vital materials to increased exposure to pathogens, like that causing the spread of COVID-19.
Historically, these threats have been widely ignored, and the few who sought to assess them had to develop their own frameworks or rely on more general models that are ill-suited to a changing climate. That's where the Task Force on Climate-related Disclosures (TCFD) comes in. In this post, we describe the TCFD and its recommendations, how the TCFD is benefitting business, which businesses are currently supporting the framework, and provide examples of how to implement the TCFD recommendations.
What is the Task-Force on Climate-related Financial Disclosures (TCFD)?
To help identify the information needed by investors, lenders, and insurance underwriters, the Task Force on Climate-Related Financial Disclosures(TCFD) was created to develop a singular, accessible framework for climate-related financial disclosures to help investors and businesses understand material climate-related risks and opportunities.
The Task Force consists of 32-members selected by the Financial Stability Board (FSB). The FSB operates under the G20 Finance Ministers and Central Bank Governors and is responsible for overseeing and regulating the global economy.
How do the TCFD recommendations work?
The Task Force recommends that all organizations with public debt or equity adopt the TCFD framework and provide climate-related financial disclosures in their mainstream (i.e. public) annual financial filings. In doing so, the climate reporting landscape can unify (in line with the CDP, GRI, and SASB) and become easier for investors to navigate. According to the TCFD, adopting the TCFD recommendations can greatly enhance your risk management strategy and increase investors’ and lenders’ confidence that your company’s climate-related risks are appropriately managed.
The framework requires disclosures to be made in four thematic areas based on how an organization operates, namely governance, strategy, risk management, and metrics and targets.
Overview of the TCFD Recommendations
Example of TCFD Recommendations in Practice - General Mills
Below is an example of how General Mills applied the TCFD recommendations under the four thematic areas (governance, strategy, risk management, and metrics and targets) to their annual Global Responsibility Report. This example is used to illustrate how the TCFD recommendations can be applied to a public annual filing.
What are the benefits of using the TCFD?
According to the TCFD, the benefits to companies of implementing the recommendations include:
- “Easier or better access to capital by increasing investors’ and lenders’ confidence that the company’s climate-related risks are appropriately assessed and managed,
- Better ability to meet existing disclosure requirements by reporting material information in financial filings,
- Increased awareness and understanding of climate-related risks and opportunities within the company resulting in better risk management and more informed strategic planning, and
- Proactively addressing investors’ demand for climate-related information in a framework that investors are increasingly asking for.”
Who's supporting the framework now?
In February 2020, the TCFD announced over 1,027 organizations that support the TCFD and its recommendations with a market capitalization totaling $12 trillion.
Here is a sample of supporters you may recognize:
- Bank of America
- BMO Financial Group
- Desjardins Group
- Ford Motor Company
- General Mills
- Goldman Sachs Group
- H&M group
- Harvard University Endowment
- London Stock Exchange plc
- Morgan Stanley
- PepsiCo, inc.
- RBC Global Asset Management
- Royal Bank of Canada
- Sony Corporation
For more information or to become a supporter click here.
Notably, the Federal Government of Canada has recently included TCFD compliant reporting in the list of requirements for companies seeking COVID-19 related bridge loans. Read about that here.
Example of TCFD Scenario Analysis - Unilever
This case study includes an in-depth scenario analysis of the material impacts to Unilever that may arise from 2°C and 4°C warming scenarios. The study also demonstrates how Unilever considered potential climate physical and transition risks in their analysis, why they chose to adopt the recommendations, and the assumptions used in their climate-related financial analysis.
Circle and the TCFD
We provide services that can help your business understand and better align with the TCFD recommendations. This includes:
- Defining Your Sustainability Roadmap
- Setting Targets and Measures For Your Sustainability Strategy
- Reaching Your Environmental Goals
- Publishing Accurate and Engaging Sustainability Reports and ESG Disclosures
Have questions? Connect with us today