Taskforce for Climate-Related Financial Disclosures (TCFD)
Sustainability-related financial disclosures on the material financial impacts of climate change
The Taskforce for Climate-related Financial Disclosures (TCFD) was established by the Financial Sustainability Board in 2015. Its goals are two-fold:
- Encourage the uptake of unified climate risk and opportunity measurement
- Strengthen sustainability disclosure across the private sector so that financial markets can price risk effectively.
The TCFD first published its framework in 2017, outlining guidance for disclosures regarding governance, strategy, risk management and climate targets.
The UK Government introduced the first mandatory TCFD-aligned reporting requirements for the private sector from 6 April 2022. It applies to all companies currently required to produce a non-financial information statement annually – listed and non-listed companies, banks, or insurers with more than 500 employees.
Although many large organisations, and some Small Medium Enterprises, have reached a reasonable level of maturity on climate change mitigation and emissions reduction, there is a generally lower level of understanding of climate related risk and opportunity.
Besides the necessity to report according to the regulations, businesses are failing to capitalise on opportunities and prepare for future scenarios that could impact their resilience. With each subsequent report from credible global institutions increasing the predicted risk that global warming will exceed the limits of the Paris Agreement, the degree of climate risk that companies need to prepare for is becoming similarly extreme, as illustrated by this quote from the World Meterological Association’s Global Annual to Decadal Climate Update in May 2023:
“The chance of global near-surface temperature exceeding 1.5°C above preindustrial levels for at least one year between 2023 and 2027 is more likely than not (66%).”
WMO Global Annual to Decadal Climate Update (Targe… | E-Library
Adaptation is becoming as important as climate transition in terms of protecting lives, assets and the productive capacity of the economy over time. Accelerated action to adapt to climate change is essential to close the gap between existing adaptation and what is needed. Meanwhile, keeping warming to 1.5°C above pre-industrial levels still requires deep, rapid and sustained greenhouse gas emissions reductions i.e. climate mitigation.
As investor demands for climate-related disclosure continues to grow, TCFD-aligned reporting can provide an edge in the competition for capital:
| Compliance TCFD is already mandatory for UK premium listed companies reporting from 2022 and will be for all UK companies by 2025. | Informed Investment The TCFD encourages clear and consistent reporting leading to informed investment decisions and reduced capital losses. |
| Preparedness for Net Zero The TCFD’s recommendations can help strengthen understanding of the risks and opportunities along the road to Net Zero. | Competitive Advantage Standard and Poor’s global credit ratings incorporate the TCFD recommendations, providing the potential for competitive advantage. |
| Risk and Opportunity Aligning to the TCFD’s recommendations can help organisations understand and mitigate against climate risks, identify opportunities and support strategic decision making. | Secured Investment In January 2022, BlackRock issued a letter to CEOs calling for reports to align with TCFD because it believes it is an essential tool for understanding a company’s ability to adapt for the future. |
Physical and Transition Climate Risks
Climate risks fall into two main categories: physical and transition.
Physical risks include the acute and chronic impacts of climate change, from the immediate and urgent issues associated with extreme weather events to long-term, gradual changes such as rising sea levels and higher mean temperatures.
Transition risks are concerned with the transition to a low-carbon economy and include factors such as policy interventions like carbon taxes, growing demand for sustainable products, stakeholder pressure and the emergence of low-carbon technologies.
We can help your organisation navigate the TCFD requirements by:
- adopting the 11 disclosure recommendations of TCFD including Scenario Analysis
- identifying climate-related risks and opportunities – aid to climate adaptation
- evaluating their relative impact and importance to both the organisation and its stakeholders
- developing strategies to manage the material risks systematically- future proofing
- complying with reporting obligations and enhancing the effectiveness of climate communications
Our 3 stage approach
Our approach to TCFD comprises a three stage evolution that provides a pathway towards compliance:
1. Gap Analysis
Determine where current practice falls short of TCFD requirements.
2. Action Plan
Implementation of the necessary actions to close the gaps.
3. Report Optimisation
Development of a robust and compliant report.
Assessing Climate Risk for UKAR
How we can help
With the aid of the TCFD framework in responding to adaptive needs, Acclaro can support organisations with Climate risk assessments and scenario analysis, providing the foundation to implement physical risk adaptation plans that prepare them for the effects of extreme weather events on their business and the broader economy.