Where did it come from?
The Task Force on Climate-related Financial Disclosures (TCFD) has developed recommendations for more effective climate-related disclosures.
Driven G20 Finance Ministers and Central Bank Governors, the objective is to:
- “promote more informed investment, credit, and insurance underwriting decisions”
- “enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks”
Who is it for?
The Task Force was primarily aiming at organisations with public debt or equity, and asset managers and asset owners. Because climate-related issues are relevant for other types of organizations as well, all organizations are encouraged to implement these recommendations.
Chancellor at the time, Rishi Sunak, announced in November 2020 that the UK is aiming for mandatory TCFD-aligned disclosures across non-financial and financial sectors of the UK economy by 2025, with a significant portion of mandatory requirements in place by 2023. For publicly quoted companies, large private companies and LLPs, It is now a legal requirement to make mandatory climate-related financial disclosures for all reporting years starting in or after April 2022. Further guidance is here, and as a rule of thumb if you have over 500 employees and aren’t sure if this is you check out page 7.
What is it?
Organisations are expected to make disclosures around four core elements that will help stakeholders understand how they assess climate-related risks and opportunities. From the TCFD report, these elements are:
- Governance – The organization’s governance around climate-related risks and opportunities
- Strategy – The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
- Risk Management – The processes used by the organization to identify, assess, and manage climate-related risks
- Metrics and Targets – The metrics and targets used to assess and manage relevant climate-related risks and opportunities
How we help
ESG strategy and processes and data availability vary by organisation. Your existing non financial reporting maturity is another factor to consider. Sustainable X can support you through a full journey or on specific aspects of your TCFD reporting. A typical process for our customers is:
Gap analysis
Existing disclosures and data in relation to the standard. Organisations with strong governance processes and experienced in non financial reporting typically have a smaller gap. An analysis and comparison to TCFD reports of closest competitors is also useful at the stage. The output at this stage is a road map to enable the evolution of your TCFD reporting over time.
Risk and opportunity assessment
Reviewing already identified climate related risks and opportunities. Assessing how they were identified and whether the associated processes are adequate for the requirements of the TCFD. Then running a wider assessment with a range of stakeholders to consider and document further climate related risks and opportunities for your organisation.
Scenario analysis
As part of the risk and opportunity assessment, or as a separate exercise, apply stress testing scenarios for the physical and transition risks of different climate change outcomes. We then work with you to establish modelling approaches that identify the financial implications arising.
Reporting
Creating the outputs to help you prepare your TCFD disclosures. And support your wider ESG communication to your various stakeholders.