Understanding TCFD: How Climate-Related Disclosures Can Enhance Your ESG Reporting
In a recent Verdani Partners article, we detailed the key steps for building out a strong resilience program for CRE assets. The Task Force on Climate-related Financial Disclosures (TCFD) is not only a highly useful framework for establishing and aligning with resilience best practices, but it is also increasingly becoming integrated into regulatory disclosures. TCFD recommendations are also integrated into the forthcoming International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards for Climate-related Disclosures, anticipated to be finalized in late 2022.
Below, we provide an overview of TCFD and its recommendations for companies to consider in their resilience efforts and climate risk-related reporting.
What is TCFD?
The Financial Stability Board (FSB) established the TCFD in 2015 to provide investors and other providers of capital with financially material climate-related disclosures.
Ultimately, TCFD’s purpose is to promote more informed capital allocation and to enable stakeholders to understand companies’ climate-related risks and opportunities.
TCFD developed 11 voluntary recommendations that companies may adopt to disclose their climate-related risks and opportunities to stakeholders. The recommendations are structured around four pillars: governance, strategy, risk management, and metrics and targets.
TCFD’s Disclosure Recommendations
The table below shows the TCFD pillars and recommendations for organizations to include in their reporting. These recommendations can help shape organizations’ resilience and risk management approach and planning.
Credit: FSB Task Force on Climate-related Financial Disclosures TCFD International Regulatory Disclosure Alignment
TCFD recommendations are increasingly influencing climate-related financial disclosure regulations worldwide:
Mandatory TCFD-aligned disclosures in the United Kingdom¹
New U.S. Securities and Exchange Commission (SEC) regulation includes physical and transition risk disclosures in alignment with TCFD recommendations²
Additional countries and governing bodies incorporating TCFD recommendations include the European Union, Singapore, Canada, Japan and South Africa³
Next Steps
Interested in aligning with TCFD recommendations?
Become a TCFD supporter to demonstrate your company’s commitment to climate-related disclosure
Review your existing programs for TCFD alignment; identify the programs and practices that address the recommendations
Develop a plan to address any gaps identified in your program review
Report your TCFD disclosures in your Form 10-K (for public companies) and/or your annual ESG report
Be on the lookout for the release of the IFRS Sustainability Disclosure Standards for Climate-related Disclosures
References
George, Sarah. (April 2022). TCFD mandate: Everything you need to know about the UK’s new climate disclosure requirements. Retrieved from: https://www.edie.net/tcfd-mandate-everything-you-need-to-know-about-the-uks-new-climate-disclosure requirements/#:~:text=The%20required%20disclosures%20are%3A,climate%2Drelated%20risks%20and%20opportunities.Securities and Exchange Commission (2022). Enhancement and Standardization of Climate-Related Disclosures Fact Sheet. Retrieved from: https://www.sec.gov/files/33-11042-fact-sheet.pdfDickinson, Paul. (January 2022). “Environmental disclosure—so much progress, but so far still to go. Retrieved from: https://www.responsible-investor.com/environmental-disclosure-so-much-progress-but-so-far-still-to-go/.