New TCFD disclosure requirements come into force from April 2022. What are they and who will be affected?
March 16, 2022
What is TCFD: The Task Force on Climate-Related Financial Disclosures industry-led group, created by the Financial Stability Board, which helps investors understand their financial exposure to climate risk. The aim of the TCFD is to increase awareness and improve the systems put in place to counter the physical disruptions that climate change could bring. TCFD helps companies to disclose climate-related financial risks in a clear and consistent way. It is estimated that financial losses due to climate change could be as high as £33 trillion. Climate change not only threatens individual firms and local economies but also the global economy as a whole.
“We see extensive and mounting evidence that the physical and transition effects of the climate crisis are real. In order to reach the goals of the Paris Agreement we need to take forceful action – this includes action from corporations and the private sector at large. Climate-related disclosures and the TCFD recommendations help companies consider the impact of climate change and associated mitigation efforts on their strategies and operations. A company that communicates its climate resiliency to its investors will have a competitive advantage over those that don’t.” – said Head of the TCFD Secretariat and Vice Chair for Global Public Policy at Bloomberg LP.
The UK is the first G20 country to have introduced mandatory TCFD disclosure requiring companies to disclose climate-related information. The rules are set to come into force from April 2022 and will affect over 1,300 of the largest UK-registered companies and financial institutions.
TCFD framework: TCFD recommends that companies disclose their climate related risks against four main principles: Governance, Strategy, Risk Management, Metrics and Targets.
The four main principles are supported by 11 specific disclosures that organisations should include into their financial filings or other reporting to provide meaningful information to investors and other stakeholders.
|Governance||Disclose the organisation’s governance around climate-related risks and opportunities.||a) Describe the board’s oversight of climate-related risks and opportunities.
b) Describe management’s role in assessing and managing climate-related risks and opportunities.
|Strategy||Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning where such information is material.||a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.
b) Describe the impact of climate-related risks and opportunities on the organization’s business, strategy, and financial planning.
c) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
|Risk Management||Disclose how the organization identifies, assesses, and manages climate-related risks.||a) Describe the organization’s processes for identifying and assessing climate-related risks. b) Describe the organization’s processes for managing climate-related risks.
c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.
|Metrics and Targets||Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.||a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
b) Disclose Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.
|Source: TCFD Booklet March 2020|
For more details please contact Margarita Skripina.