TCFD: A Path to Carbon Transparency

TCFD in Context

Launched by the FSB in 2015 to address the growing need for consistent and reliable climate-related financial information, the TCFD helps investors, lenders, insurers, and regulators to make informed decisions and support the shift to a low-carbon economy. It also helps companies to identify and manage their climate-related risks and opportunities, and to communicate their climate performance to their stakeholders. 

Why is TCFD relevant?

Embracing the TCFD framework offers companies a consistent and transparent way to reveal their climate-related financial risks and opportunities. The benefits are clear:

Firstly, it enhances access to capital by boosting investor and lender confidence. It also simplifies compliance with disclosure requirements, streamlining financial reporting.

Furthermore, TCFD elevates the quality and comparability of climate-related financial data, aiding more informed decision-making for companies and investors alike.

Reducing capital costs is another significant advantage, as it minimises performance and valuation volatility.

Additionally, TCFD aligns companies with international standards like the Paris Agreement and the EU Taxonomy, reducing regulatory risks and bolstering financial system resilience.

Lastly, it supports the shift towards a low-carbon economy by identifying and managing climate-related risks and effectively communicating climate performance to stakeholders.

Who is Subject to the TCFD?

The TCFD's reach extends far and wide. It applies to a wide array of organisations, encompassing both public and private companies. If your business is engaged in financial activities and is publicly listed, you're likely within the TCFD's jurisdiction. Additionally, organisations that have a significant impact on the environment and climate, such as energy companies, manufacturing firms, and financial institutions, are particularly compelled to adhere to TCFD recommendations.

TCFD Requirements

The specific requirements for TCFD reporting vary depending on the sector, size, and jurisdiction of the company. However, the TCFD provides a general framework of 11 recommended disclosures that are grouped around four pillars: governance, strategy, risk management, and metrics and targets. These are:

Governance:

• Disclosure a: Describe the board’s oversight of climate-related risks and opportunities.
• Disclosure b: Describe management’s role in assessing and managing climate-related risks and opportunities.

Strategy:

• Disclosure c: Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term.
• Disclosure d: Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
• Disclosure e: Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

Risk management:

• Disclosure f: Describe the organisation’s processes for identifying and assessing climate-related risks.
• Disclosure g: Describe the organisation’s processes for managing climate-related risks.
• Disclosure h: Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management.

Metrics and targets:

• Disclosure i: Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.
• Disclosure j: Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
• Disclosure k: Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.

Where and When Should Disclosures be Made?

TCFD disclosures are typically made in a company's annual financial reports, sustainability reports, or integrated reports. However, the TCFD also recommends that organisations consider interim reporting, particularly when significant developments arise. To enhance transparency, these disclosures should be easily accessible on the company's website.

Timing is of the essence when it comes to TCFD reporting. Companies are encouraged to begin implementing TCFD recommendations as soon as possible. It's important to note that the TCFD is not a one-size-fits-all framework. Flexibility is allowed in the timing and scope of disclosures, ensuring that companies can tailor their reporting to their specific circumstances.

Are There Any Penalties?

Unlike some environmental regulations, the TCFD does not impose direct financial penalties for non-compliance. However, non-compliance can have significant financial and reputational consequences. Investors and stakeholders increasingly view TCFD reporting as a benchmark for responsible business practices. Failure to disclose climate-related financial information can result in diminished investor confidence, reduced access to capital, and potential legal risks.

Moreover, regulatory bodies in various jurisdictions are moving towards mandatory climate-related reporting, which may entail legal penalties for non-compliance in the future. Therefore, embracing TCFD recommendations not only demonstrates commitment to environmental stewardship but also aligns a company with emerging global reporting standards.

‍

Discover how Carbon Analytics can empower your organisation to embrace TCFD recommendations and steer towards carbon neutrality. Book a demo today to unlock a sustainable future.

‍