Your complete guide to TCFD

The TCFD Framework - An Introduction

As climate-related disclosures and ESG compliance pave their way through organizational vocabulary, continuous and dependable disclosure standards will inevitably become crucial. In the midst of all this, the TCFD framework is quickly gaining popularity among some of the biggest ESG companies worldwide.

The UK government has made it mandatory for large corporations to align their ESG reporting with the recommendations of the Task Force on Climate-Related Financial Disclosures, this is just the beginning as the TCFD framework swiftly transitions into becoming a regulatory policy in numerous countries to come rather than voluntary decision taken by companies.

But what is the TCFD framework and why is it so important to incorporate it in your ESG reporting?

What is TCFD?

The Task Force on Climate-Related Financial Disclosures (TCFD) was created to equip businesses and other entities with a framework to increase the effectiveness of their climate related disclosures through their existing reporting procedure, furthermore to encourage better informed investment. The 2015-developed TCFD framework focuses more on what to report against than how to disclose. The TCFD recommendations have therefore been aligned against already-existing disclosure frameworks and operate as a roadmap to create a more efficient reporting process, rather than increasing the reporting load on ESG compliant companies.

Why was TCFD set up?

Since 1970, global surface temperatures have risen more rapidly than in any 50-year-period over the last 2,000 years. The world faces major sustainability challenges such as climate change which require immediate and extreme solutions that will cause significant changes to the global financial system.

In light of the serious financial risks that climate change poses to the financial system as a whole including businesses, investors and all stakeholders, there is a greater need now than ever before for climate-related disclosures that are notably elaborate but may aid in decision making as well, by a range of stakeholders in the market.

This growing need for climate-related disclosures has resulted in ESG companies worldwide following their own climate related disclosure procedures and methods. The lack of common ground or comparability between varying disclosure practices across the world has resulted in shortcomings such as inconsistencies.

The Financial Stability Board (FSB) gathered representatives from the public and commercial sectors to discuss how the financial industry can account for climate-related challenges. In order to provide a set of recommendations for uniform disclosures that would aid financial market players in understanding potential climate-related concerns, the FSB created the industry-led Task Force on Climate-related Financial Disclosures.

What are the TCFD recommendations?

TCFD consists of 3 key parts, Core recommendations, Principles for effective disclosure and Scenario analysis. The first component; core recommendations are organized around four topics that advise ESG companies to report governance regarding climate-based threats and prospects, mitigation measures, risk management considerations, and metrics and objectives that may be utilized to evaluate those variables.

Organizations should take into account seven principles for efficient and high-quality disclosures in addition to TCFD's advice on what and how to disclose information. Last but not least, companies are advised to examine several climate-related scenarios in order to strengthen the resilience of their strategy because financial risks associated with climate change are so unpredictable. Businesses will be able to discover and evaluate any potential ramifications of conceivable outcomes with the use of scenario analysis.

Why is TCFD of such great importance to businesses?

A wide range of decision-makers, international leaders, investors, and activists have endorsed the set of suggestions. It is truly regarded as the ideal method for finding out more about firms and how they integrate climate change. With New Zealand, Switzerland, the UK, and China announcing plans to mandate TCFD-aligned disclosures, TCFD has swiftly emerged as the world's best approach for climate-related risk and opportunity reporting. Understanding the opportunities that come with a low-carbon transition is one aspect of being resilient to climate change. The TCFD suggestions offer ideas on how businesses might consider possibilities in their industry.

Owing to the fact that it draws on the latest climate science and modeling, TCFD is an evergreen set of recommendations and will always stay up to date. ESG Companies are reporting their climate maturity, but TCFD doesn't analyze disclosures or make recommendations about the kinds of climate-related benchmarks that companies should fulfill. The robustness of the world financial system is TCFD's objective. This makes it possible for climate disclosures to include the most recent data into the reliable and practical TCFD frameworks.

To conclude with

Ultimately, the widespread adoption of TCFD recommendations will lead to smarter, more efficient allocation of capital, and help smoothen the transition to a more sustainable, low-carbon economy.

Make ESG compliance your goal and measure carbon footprint precisely and consistently to abide by the TCFD guidelines, simplifying disclosures to your many stakeholders, and remain on top of future changes to laws and regulations. Join the Breathe ESG team now to synchronize and report your data in accordance with the Task Force on Climate-Related Financial Disclosures, hassle-free!