The Financial Stability Board established the Task Force on Climate-related Financial Disclosures to improve and promote the reporting of climate-related financial information (TCFD).

Benefits of better disclosure

• Risk assessment

Climate-related risks to your firm, its suppliers, and competitors are better assessed.

• Capital allocation

Make better-informed decisions on where and when to allocate your capital.

• Strategic planning

Over the short, medium, and long term, better assess risks and exposures.

The TCFD has created a framework to assist public corporations and other organizations in better disclosing climate-related risks and opportunities through their existing reporting processes. Their climate-related financial disclosure principles are adaptable and applicable to enterprises across sectors and geographies. They’re intended to gather decision-relevant, forward-looking data that can be included in standard financial filings. The recommendations are organized around four themes that represent key aspects of how businesses operate: governance, strategy, risk management, and metrics and targets.

Governance

Describe the organization’s climate-related risks and opportunities for governance.

Recommendations for disclosure

a. Explain how the board handles climate-related risks and opportunities.

b. Categorize how management examines and manages climate risks and opportunities.

Strategy

Where such information is material, disclose the actual and future consequences of climate-related risks and opportunities on the organization’s business, strategy, and financial planning.

Recommendations for disclosure

a. Identify the organization’s climate-related risks and possibilities in the near, intermediate, and long – term.

b. Explain how climate-related opportunities and challenges impact the company’s business, marketing, and budgeting.

c. Describe the organization’s strategy’s resilience in light of several climate-related scenarios, including a 2°C or lower scenario.

Risk Management

Describe how the company detects, evaluates, and manages climate-related risks.

Recommendations for disclosure

a. Explain how the company goes about identifying and assessing climate-related risks.

b. Describe the organization’s climate-related risk management processes.

c. Describe how the organization’s entire risk management relates to processes for recognizing, assessing, and managing climate-related risks.

Metrics and Targets

Where necessary, disclose the measurements and targets used to assess and manage relevant climate-related risks and opportunities.

a. Describe the measures that the business uses to evaluate climate-related risks and opportunities by its strategy and risk management approach.

b. Identify Scope 1, Scope 2, and, if applicable, Scope 3 greenhouse gas (GHG) emissions, as well as the hazards associated with them.

c. Describe the organization’s aims for managing climate-related risks and opportunities, as well as performance against those targets.

Principles for effective disclosure

The Task Force recommends that firms consider seven principles for effective disclosure to help achieve high-quality disclosures that allow users to understand the impact of climate change on organizations.

1. The information disclosed should be relevant.

2. Disclosure should be specific and comprehensive.

3. Disclosure should be brief, reasonable, and clearly explained.

4. Over time, disclosure should be reliable.

5. Disclosure should be comparable among companies within a sector, industry, or portfolio.

6. Disclosure should be dependable, verifiable, and objective.

7. Timely disclosure is required.

Benefits of the TCFD

Markets will be better equipped to evaluate, price, and manage climate-related risks and opportunities as companies make consistent, reliable disclosures. Furthermore, businesses will be able to assess their risks as well as those of their business partners. Investors will also have better information with which to make capital-allocation decisions.

The TCFD is an industry-led effort to standardize climate disclosures. Although many NGOs and other organizations have contributed to this initiative, the TCFD has the potential to cause dramatic, industry-wide shifts.