The Financial Stability Board’s Task Force on Climate-related Financial Disclosures, commonly referred to as the TCFD, issued its second status report on June 5, 2019. This report, which follows its first status report in September 2018, states that the TCFD sees signs of progress in companies’ implementation of its recommendations on climate-related disclosures. Michael Bloomberg, TCFD Chair, commented that the TCFD is encouraged by the continued growth in the number of companies whose disclosures are aligning with its recommendations.
Nonetheless, the TCFD expressed in the report its concern that not enough companies are disclosing information on their climate-related risks or seeing the importance of incorporating climate-related information in their current business decisions. The report states that, on the whole, companies need to exhibit greater effort in delivering information that is useful for investors’ decision-making and in curtailing the rise of global temperatures.
Framework’s Purpose. In June 2017, the TCFD released its final recommendations, which constitute a voluntary reporting framework designed to aid companies in developing and disclosing consistent and comparable climate-related financial information. The recommendations focus on the business risks and opportunities associated with climate-related matters. The TCFD framework enables companies, who so choose, to integrate climate-related information into their financial statements, including those filed with the SEC. According to the TCFD, investors, particularly large asset owners and asset managers, seek this information to better inform their ownership and capital allocation decisions.
Key Takeaways. At the time the 2019 status report was written, approximately 800 organizations expressed support for the TCFD framework. This support marks a 50% uptick compared to the number reported in the 2018 version. According to the 2019 status report, the average number of TCFD recommended disclosures per company increased by 29% from 2.8 in 2016 to 3.6 in 2018. Moreover, the percentage of companies that disclosed information that aligns with at least one of the TCFD’s recommendations rose from 70% in 2016 to 78% in 2018. While companies still disclose more climate-related information that aligns with the recommendations in sustainability reports, the TCFD found that between 2016 and 2018 there was a greater percentage increase in information reported in financial filings or annual reports (by 50%) than the increase in sustainability reports (by 30%).
The TCFD’s review, which was bolstered by the use of artificial intelligence, encompassed corporate documents representing over 1,100 large companies across multiple sectors in 142 countries. TCFD also surveyed both reporting entities as well as users of reported information.
What’s Next? The TCFD will deliver its next status report to the Financial Stability Board in September 2020. In the upcoming months, the Task Force will continue to promote and monitor adoption of its recommendations. The TCFD is also considering the following initiatives:
- clarifying elements of the TCFD’s supplemental guidance contained in the annex to its June 2017 report, titled “Implementing the Recommendations of the TCFD”;
- developing process guidance on how to introduce and conduct climate-related scenario analysis; and
- identifying business-relevant and accessible climate-related scenarios.