ESG Emerging Regulations & Standards

Task ForceForce on Climate-related Financial Disclosures (TCFD) Scenarios

T3 provides expert guidance on implementing the TCFD framework, assisting you in accurately disclosing climate-related financial risks and meeting regulatory requirements in regions like the EU and the UK.

Overview of Topic

The Task Force on Climate-related Financial Disclosures (TCFD) framework guides companies in disclosing climate-related financial risks. The TCFD framework has been increasingly adopted, with over 1,500 organizations expressing support as of 2020. In the EU, the Non-Financial Reporting Directive (NFRD) aligns with these guidelines, while the UK has mandated TCFD-aligned disclosures for certain companies. This framework is essential for businesses in a financial landscape where, according to Bloomberg, climate risks could result in $2.3 trillion in losses for the financial sector over the next 15 years, underscoring the importance of accurate climate-related financial disclosures.

Here’s an extensive overview of the TCFD framework:

  • Core Elements of TCFD: The TCFD framework is structured around four thematic areas: Governance, Strategy, Risk Management, and Metrics & Targets. This structure provides a comprehensive approach for companies to disclose how they are managing climate-related risks and opportunities.
  • Governance: Companies are encouraged to disclose their governance around climate-related risks and opportunities, detailing the role of the board and management in overseeing these issues.
  • Strategy: This aspect involves disclosing the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning. Companies are encouraged to consider different climate-related scenarios, including a 2°C or lower scenario.
  • Risk Management: Companies should describe how they identify, assess, and manage climate-related risks, integrating this into their overall risk management.
  • Metrics and Targets: Disclosing the metrics and targets used to assess and manage relevant climate-related risks and opportunities is vital. This includes the disclosure of Scope 1, Scope 2, and, if relevant, Scope 3 greenhouse gas (GHG) emissions, and the targets set to manage climate-related risks and reduce GHG emissions.
  • Widespread Adoption and Support: As of 2020, over 1,500 organizations have expressed support for the TCFD, indicating its growing importance and acceptance globally.
  • Regulatory Alignment and Mandates: In the EU, the Non-Financial Reporting Directive (NFRD) aligns with the TCFD guidelines, enhancing the integration of climate-related disclosures in corporate reporting. In the UK, TCFD-aligned disclosures have been mandated for certain companies, signifying a regulatory push towards greater transparency in climate-related financial reporting.
  • Economic Significance: According to Bloomberg, climate risks could result in $2.3 trillion in losses for the financial sector over the next 15 years. This staggering figure underscores the economic imperative for businesses to assess, manage, and disclose climate-related financial risks.
  • Impact on Investor Decisions and Market Behavior: The TCFD framework helps investors make more informed decisions about where to allocate their capital, considering the potential risks and opportunities associated with climate change. As such, it influences market behavior and drives investment towards more sustainable, climate-resilient businesses.
  • Future Outlook: With the increasing impact of climate change on economies and the growing awareness among stakeholders, the TCFD framework is likely to continue gaining traction and may become a standard component of financial reporting in more regions globally.

The TCFD framework marks a significant advancement in the integration of climate considerations into financial reporting and risk management. It emphasizes the need for transparency in how businesses are addressing climate change, thereby facilitating more informed decision-making by companies, investors, and other stakeholders in the financial ecosystem.

Significance in Today's Landscape

With climate change implications growing, TCFD reporting is key for investor transparency. The EU and UK regulations underscore its importance, making it increasingly a compliance issue. Nearly 60% of the world’s 100 largest public companies support the disclosures or reporting in line with the TCFD recommendations, or both.

Approximately 60% of the world’s largest 100 public companies are now aligning their disclosures and reporting with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, or both.

Globally, various nations are either encouraging or requiring the adoption of TCFD guidelines. In the UK, the Financial Conduct Authority and the UK Government are leading the charge towards obligatory TCFD reporting. Since January 1, 2021, all UK premium-listed companies have been mandated to confirm in their annual reports whether their disclosures comply with TCFD recommendations, or to provide an explanation if they do not. Further expanding this directive, the UK Government is making TCFD-aligned disclosures mandatory for over 1,300 of its largest registered companies and financial institutions, becoming the first G20 nation to take such a step.

WHO DOES IT IMPACT?

TCFD is mandatory in regions like the European Union, the United Kingdom, and New Zealand, where regulations require financial institutions, energy companies, and high-emission industries to disclose climate-related financial risks.

Asset Managers
Banks
Commodity Houses
Fintechs

How Can We Help?

Our services assist clients at various stages of development in creating and applying frameworks that align with the four pillars of the Task Force on Climate-related Financial Disclosures (TCFD). Our approach is divided into three tailored phases — Establish, Expand, Embed, each designed to meet your organization’s unique needs and guide you from your current state to your desired outcome.

1

Establish Phase

In this initial phase, we lay the groundwork for your TCFD implementation. This involves:
– Conducting a gap analysis and benchmarking against peers to identify areas of improvement.
– Engaging with stakeholders to understand their perspectives and priorities.
– Assessing climate-related risks and opportunities specific to your organization.
– Developing a tailored TCFD roadmap to guide your journey.

2

Expand Phase:

Once the foundation is set, we delve into more complex aspects of TCFD:
– Performing scenario analysis to anticipate potential future climates and their impacts.
– Providing training and upskilling for your Board and Executive Committee to ensure they are well-equipped to handle TCFD-related challenges.
– Setting relevant metrics and targets to track progress.
– Enhancing your reporting and communication strategies to effectively convey your TCFD initiatives.

3

Embed Phase

With these critical elements in place, we support the long-term integration of TCFD into your operations:

 – Implementing the TCFD roadmap to ensure ongoing adherence to TCFD principles.

 – Developing a decarbonization strategy to reduce your environmental footprint.

 – Monitoring risks to physical assets due to climate change.

 – Offering governance support to align TCFD initiatives with organizational governance structures.

Our service is designed to be flexible and adaptable, ensuring that it aligns with your organization’s specific requirements and helps you achieve your TCFD-related goals effectively.

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