Taskforce for Climate
Related Financial
Disclosures (TCFD)

The Taskforce for Climate Related Financial Disclosures was established in 2015 by the Financial Stability Board to develop recommendations for more effective climate disclosures that could promote more informed investment, credit, and insurance underwriting decisions. It is an international organisation that spreads 31 expert members across the globe.

The 2020 TCFD Status Report claims that the recommendations have reached over 1,500 organisations globally, who have a market capitalisation of >$12.6trillion, and financial institutions responsible for $150trillion.

Once disclosed, this enables stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate related risks.

In short, it is envisaged that the climate credentials of an organisation who adheres to the TCFD’s recommended disclosures will be more robust than those who do not.

The Task Force for Climate related Financial Disclosures published their Final Report in June 2017, outlining 11 recommendations that are key to more effective climate disclosures.

In summary, the recommendations are split into four thematic areas that are intended to represent the core elements of how organisations operate: Governance, Strategy, Risk Management and Metrics and Targets. These thematic areas, each with recommendations, are designed to interlink, inform, and influence one another.

These recommendations are to help disclose the company/organisation’s governance around climate-related risks and opportunities, to:

These recommendations aim to disclose the actual and potential impacts of climate-related risks and opportunities on the company/organisation’s businesses, strategy, and financial planning where such information is material.

These recommendations help detail the processes used by the company/organisation to assess and manage climate-related risks.

In the UK, the Financial Conduct Authority released Policy Statement PS20/17. In this document, the FCA lay out the new rules coming into place for FY21.

At present, the 460 commercial companies with UK Premium Listings will now be required to include a statement in their annual financial report setting out:

• whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual financial report,
• where they have not made disclosures consistent with some or all the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future – including relevant timeframes for being able to make those disclosures,
• where they have included some, or all, of their disclosures in a document other than their annual financial report, and an explanation of why,
• where in their annual financial report (or other relevant document) the various disclosures can be found.

The UK Government has endorsed the TCFD’s recommendations and have cited them as a playing a major role in the 2019 Green Finance Strategy. To this end, HM Treasury, along with other Whitehall and regulatory bodies, released a Roadmap charting a path that extend the scope of TCFD inclusion in financial disclosures into the future.

Indeed, more recently, the FCA has outlined plans in CP21/17 to extend reporting requirements to asset managers, life insurers and FCA regulated pension providers and in CP21/18, to issuers of standard equity listed shares.

The HM Treasury Roadmap outlines the intended path towards mandatory climate-related disclosures in the UK, with the scope widening year on year. Within 5 years, it is anticipated that most UK listed companies, as well as large asset holders, will be required to report with reference to the TCFD’s recommendations in the annual financial reports.

The UK Government have also acknowledged the interactions between Streamlined Energy and Carbon Reporting (SECR) framework and the disclosures recommended by the TCFD. It can therefore be expected that the two will become more aligned and intertwined into the future, with companies that are within scope for SECR, including privately owned companies, potentially being required to adhere to the FCA requirements for financial reporting as detailed above.

The TCFD’s Final Report includes guidance for all sectors on how to implement their recommendations, as well as the taskforce’s reasoning behind each recommendation.

Similarly, there is further guidance for all sectors and well as supplemental guidance for certain sectors detailed in an Implementing the Recommendations of the Task Force on climate-related Financial Disclosures Annex of the final report.

A further Annex details The Use of Scenario Analysis in Disclosure of Climate Related Risks and Opportunities. This is among the Strategy recommendations of the TCFD.

All of the above documents can be found at https://www.fsb-tcfd.org/publications/

If lengthy >80page reports aren’t particularly appealing, TCFD Hub goes into manageable detail around the 4 thematic areas and 11 recommendations of the TCFD as well as touching on the supplementary guidance for certain sectors.

Alternatively, please give Swan a call to discuss how TCFD recommendations may impact your business.