TCFD goes ‘mainstream’ as investor demand grows

Nov 05, 2020
Report shows ‘substantial progress’ in implementation of recommendations in financial markets

Investor demand is pushing forward the adoption of recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), according to its latest status report – with both support for the recommendations and implementation rising on 2019.

‘To date, more than 1,500 organizations have expressed their support for the TCFD recommendations,’ notes a statement from the task force, a figure it says is an 85 percent increase on the previous year.

This doesn’t necessarily translate into reporting in line with the recommendations, but TCFD says in its report that disclosure in line with the recommendations has increased year on year since their release in 2017. ‘The task force is encouraged by the growing support for its recommendations and hopes to see similar growth in the percentage of companies disclosing TCFD-aligned information going forward,’ the TCFD states in its report.

The recommendations, aimed at guiding companies in their reporting of risks and opportunities related to climate change, saw a boost in January when Larry Fink, CEO of BlackRock, described TCFD as a ‘valuable framework’ for reporting on climate risk in his annual letter. Also mentioning the Sustainability Accounting Standards Board (SASB) reporting framework, Fink wrote:

‘This year, we are asking the companies that we invest in on behalf of our clients to: (1) publish a disclosure in line with industry-specific SASB guidelines by year-end, if you have not already done so, or disclose a similar set of data in a way that is relevant to your particular business; and (2) disclose climate-related risks in line with the TCFD’s recommendations, if you have not already done so.’

In June, communications consultancy Black Sun found that two thirds of FTSE 100 companies mention TCFD in their reporting.

TCFD’s 2020 Status Report uses artificial intelligence technology to analyze reporting from 1,700 companies, and the task force ‘found that disclosure of climate-related financial information aligned with the TCFD recommendations has steadily increased’ since 2017, with the biggest growth seen in how companies ‘identify, assess and manage climate-related risk.’ TCFD adds that those companies seen as most exposed to material climate risk have been leading the way, with TCFD-aligned disclosures seen at 40 percent of energy companies and 30 percent of materials and buildings companies in the fiscal year 2019.

Each status report published by the TCFD surveys a panel of what it calls ‘expert users’ of disclosure. This year it says those users ‘identified the impact of climate change on a company’s business and strategy as the most useful information for financial decision-making.’

One area where increased focus is needed, however, is in scenario planning – something that is highlighted in the Black Sun research into FTSE 100 reporting. It found that just 7 percent of companies in the FTSE 100 discuss the resilience of their strategy to climate change, and only one in five mention both climate-related risks and opportunities. TCFD is now launching two new guidance documents: one to assist companies in scenario planning and a second focused on integrating climate-related risks into existing risk-management processes.

Although the report doesn’t overly focus on Covid-19, having assessed company reporting for fiscal year 2019, Michael Bloomberg, chair of the TCFD and founder of Bloomberg and Bloomberg Philanthropies, describes the pandemic as an ‘opportunity’ for a more sustainable future. ‘The work governments and businesses are doing to address the devastation caused by the coronavirus is also an opportunity to build a stronger, more resilient and more sustainable economy – and transparency and disclosure have an important role to play,’ he says in a press statement from the TCFD.

‘The more companies know about their risks and opportunities related to climate change, and the more information investors have, the better we’ll be able to allocate resources and make progress – so it’s encouraging to see leaders in the public and private sector implementing the TCFD recommendations, as outlined in this report.’

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