What Is the Task Force on Climate-Related Financial Disclosures (TCFD)?

The Task Force on Climate-Related Financial Disclosures (TCFD) is an organization that was established in December 2015 with the goal of developing a set of voluntary climate-related financial risk disclosures. These disclosures would ideally be adopted by companies which would help inform investors and other members of the public about the risks they face related to climate change.

The organization was formed by the Financial Stability Board (FSB) as a means of coordinating disclosures among companies impacted by climate change. According to the organization's website, the disclosure recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.

Key Takeaways

  • The Task Force on Climate-Related Financial Disclosures (TFCD) is an organization of 32 members aiming to develop guidelines for voluntary climate-centered financial disclosures across industries.
  • The TCFD was established in 2015 and made its first recommendations in 2017.
  • Through consistent, reliable disclosures by companies facing risks related to climate, market participants of all kinds will be better prepared to evaluate and manage risks and opportunities.

How the Task Force on Climate-Related Financial Disclosures (TCFD) Works

The TCFD, chaired by Michael Bloomberg, began issuing recommendations to companies to aid them in their disclosures of pertinent information related to climate-related financial risks in 2017. The goal of these recommendations was to provide companies a structure and impetus for disclosing this information so as to better inform financial markets and investors.

These recommendations are voluntary and are in place as guidelines to assist businesses in identifying and sharing both risks and opportunities they face as a result of climate change. In turn, investors, lenders, insurers, and other participants in the market will have a more complete picture when assessing the value of those companies and the risks they face. A goal of the TCFD is to encourage sustainable investments so as to build an economy that is resilient in the face of climate-related uncertainties.

The TCFD consists of 32 members selected by the FSB. Members are made up of both users and preparers of disclosures, representing a broad swath of the G20, as well as numerous sectors and industries.

Benefits of the TCFD

As companies complete consistent, reliable disclosures related to climate-based risks and opportunities, markets will be better equipped to evaluate, price, and manage those risks. Furthermore, companies themselves will be able to evaluate their own risks as well as those related to business partners. Investors will also have superior information with which to make decisions regarding the allocation of capital.

The TCFD represents an industry-led effort at unifying disclosures related to climate. Although many NGOs and other organizations have also contributed to this initiative, the TCFD has the potential to bring about dramatic, industry-wide shifts.

TCFD Recommendations

The TCFD released three documents in June of 2017 which outline future work regarding the Task Force's recommendations. The Final Report includes general information and background related to financial disclosures pertaining to climate-based risks; this document is intended for a general audience. The Annex document is intended for companies impacted by climate-related risk and includes details on implementing recommendations regarding disclosures. The Technical Supplement document focuses on scenario analysis resources for companies providing disclosures.

TCFD recommendations suggest that companies disclose governance surrounding climate-based risks and opportunities, strategies for addressing such factors, risk management considerations, and metrics and targets which can be used to assess those factors.

The Task Force on Climate-Related Financial Disclosures was established by the Financial Stability Board, an international body based in Switzerland and dedicated to promoting global financial resiliency by monitoring risks and recommending adjustments.

The TCFD Going Forward

The TCFD publishes an annual status report that addresses the progress and developments that have been made since the organization released its initial 2017 recommendations.

According to the organization, in the fifteen months between the release of the 2019 and 2020 status report, "the number of organizations expressing support for the TCFD has grown more than 85%, reaching over 1,500 organizations globally, including over 1,340 companies with a market capitalization of $12.6 trillion and financial institutions responsible for assets of $150 trillion."

The latest report also notes that "over 110 regulators and governmental entities from around the world support the TCFD, including the governments of Belgium, Canada, Chile, France, Japan, New Zealand, Sweden, and the United Kingdom."

However, there is a lot of room for improvement. According to the 2020 TCFD report, while "disclosure of TCFD-aligned information increased by six percentage points, on average, between 2017 and 2019" companies’ disclosure of the potential financial impact of climate change on their businesses and strategies remains low.

The TCFD has also called for additional clarity related to discussions of potential financial impacts of climate-based issues for companies. Those companies using scenario analysis to assess the resilience of their strategies in the face of climate risks generally do not disclose information related to the results of those scenarios.