What is the Task Force on Climate-Related Financial Disclosures?

The Task Force on Climate-Related Financial Disclosures (TCFD) is an organization that was established in December of 2015 with the goal of developing a set of voluntary climate-related financial risk disclosures which can be adopted by companies so that those companies can 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. The Task Force is charged with considering "the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries," per the organization's mission statement.

How the 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. Per a report by Bloomberg, a goal of the TCFD is to encourage sustainable investments so as to build an economy which is resilient in the face of climate-related uncertainties.

The TCFD consists of 31 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.

Key Takeaways

  • The Task Force on Climate-Related Financial Disclosures (TFCD) is an organization of 31 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.

The 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. Further, companies themselves will be better 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 in this area. Although many NGOs and other organizations have also contributed to this initiative, the TCFD has the potential to bring about dramatic, industry-wide shifts. The TCFD has committed itself to engaging with stakeholders in all areas of this work.

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

Since the 2017 publication of its recommendations, the TCFD has published two status reports—one in September of 2018 and another in June of 2019—addressing progress and developments that have been made. This progress includes, as of the 2019 report, the conclusion of a 3-year review of the disclosures of more than 1,000 large companies across sectors and regions aimed at determining how companies disclose climate-related risks and how that reporting has evolved. The report found that, while disclosure of climate-related financial information has grown since 2016, it is generally not up to the standards set by the Task Force.

The TCFD has 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.

In its initial recommendations and subsequent status reports, the TCFD has repeatedly stressed that its efforts are ongoing and will evolve as more information about the impact of climate change on businesses becomes available.