Overview: Task Force on Climate-related Financial Disclosures (TCFD)
March 23, 2023
5 min read
What you need to know about the TCFD
What is the task force here to do?
The Task Force on Climate-related Financial Disclosures (TCFD) was created to increase and improve reporting of climate-related financial reporting, to give businesses greater clarity on how markets affected by climate change are operating now and into the future.
For financial markets to operate effectively in the face of an oncoming climate crisis, they need clear, comprehensive, reliable information on the impacts of climate change. Businesses around the world have never been more vulnerable to the effects of climate change as they are right now. Heat waves, wildfires, hurricanes, rising sea levels, the increased spread of tropical diseases; these climate change induced events are occurring in greater intensity and greater frequency, disrupting the way businesses and their supply chains operate.
The certainty with which a business can make predictions about their future supply and demand of goods will diminish as these climate change induced events continue to occur.
Accountants are key in helping businesses identify and disclose risks. Those risks are increasingly environmental.
The TCFD has developed voluntary, consistent disclosure recommendations so that companies can provide information to their stakeholders, such as investors, lenders and insurance providers in relation to their climate-related financial risks.
Who does it impact?
Listed companies - they are encouraged by regulators to use the recommendations prepared by the TCFD as the key framework for voluntary climate related disclosures.
Companies who voluntarily want to disclose climate-related information, the recommendations can form the starting point for doing so.
New Zealand has become the first country to make TCFD mandatory through amending its financial markets act in 2022. Japan and the UK have also since made TCFD disclosure mandatory.
Australia is currently planning for mandatory climate reporting in line with the TCFD framework as part of a new push by the government in December 2021 to develop a sustainable finance strategy that aims to “address opportunities presented by surging global momentum in sustainable finance”. In the October 2022 budget, the government committed to introduce standardised and internationally aligned climate disclosure requirements. The consultation proposes that various requirements to disclose scope 3 emissions will apply once finalised. The consultation period closes on the 17th February 2023.
What are the recommendations?
There are four primary TCFD recommendations and you can read about them in full here.
The report states:
“The Task Force structured its recommendations around four thematic areas that represent core elements of how organizations operate—governance, strategy, risk management, and metrics and targets. The four overarching recommendations are supported by key climate-related financial disclosures—referred to as recommended disclosures—that build out the framework with information that will help investors and others understand how reporting organizations think about and assess climate-related risks and opportunities.”
Those four areas include:
Governance. Disclose the organisations governance around climate-related risks and opportunities.
Strategy. Disclose the actual and potential impacts of climate related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
Risk management. Disclose how the organisation identifies, assesses and manages climate-related risks.
Metrics and Targets. Disclose the metrics and targets used to assess and manage climate related-risks and opportunities.
Eleven more specific objectives exist within these recommendations as seen in the image below: