Task force on climate-related financial disclosures (TCFD): Overview
What is the TCFD?
In December 2015, the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosure (TCFD) to develop voluntary, consistent climate-related financial risk disclosures for companies to use when providing information to investors, lenders, insurers and other stakeholders. The final recommendations of the TCFD were released in June 2017 after a collaborative process of global stakeholder consultations. The TCFD recommendations are about enhancing market transparency and enabling the efficient allocation of capital in the transition to a low-carbon economy as envisioned by the Paris Agreement. The TCFD will continue into 2019 and will launch a resource hub with best practice guidance for organizations.
Why are the TCFD recommendations important to investors?
Robust disclosure plays a critical role in enabling financial markets to price risk correctly. It also helps ensure efficient allocation of capital. Investors increasingly recognize the wide array of risks and opportunities that climate change poses to their portfolios and are incorporating climate considerations into their investment decision making. They are seeking access to reliable, consistent and comparable information about the climate-related risks and opportunities that companies face. The TCFD recommendations were developed to address this specific information gap.
Who needs to disclose?
The TCFD recommendations are applicable to all organizations, including asset owners and managers.
Where should all climate-related disclosures be made?
The TCFD recommendations are intended for use in mainstream annual public financial filings. Asset owners and asset managers should report to their beneficiaries and clients, respectively, through existing means of financial reporting, where relevant and where feasible.
What should be disclosed?
The TCFD recommendations fall into four key areas:
- risk management
- metrics and targets
All organizations should disclose:
- governance around climate-related risks and opportunities
- how the organization identifies, assesses and manages its climate-related risks
Asset owners and asset managers should disclose:
- carbon foot printing information in reports to clients and beneficiaries, regardless of any assessment of materiality
For all organizations, if assessed as material, additional disclosure should be provided about:
- actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy and financial planning
- metrics and targets used to assess and manage relevant climate-related risks and opportunities. Recommended disclosures include Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2C or lower scenario.
All organizations that omit a recommended disclosure should disclose their rationale for doing so.
The TCFD also provide supplementary guidance for banks, insurance companies, asset owners, and asset managers.
How should materiality be determined?
Organizations should determine materiality for climate-related issues consistent with how they determined the materiality of other information included in their annual financial filings.
How do the recommendations of the TCFD interact with existing regulatory disclosure requirements?
Under Canadian securities regulations, public companies must disclose information material to investor decision making. This encompasses material environmental matters, including climate change (Canadian Securities Administrators Staff Notice [CSA] Staff Notice 51-333).
One could argue that existing securities regulations already require many of the disclosures called for by the TCFD, albeit not with the same specificity, and assuming that climate-related information is deemed material. For example, some key differences include:
- There is no regulatory requirement to disclose management's processes for identifying, assessing, and managing risks or to disclose the materiality determination.
- There is no regulatory requirement to define and disclose climate-related risks and opportunities that the organization has identified over the short, medium, and long term, or to do scenario planning.
It is worthwhile to note that the CSA launched a climate change disclosure review project in March 2017. The focus of the review is the disclosure of risks and financial impacts associated with climate change. The project is gathering information on the current state of climate change disclosure in Canada and internationally, including consultation with investors and reporting issuers.
In April 2018, the CSA issued its final report with the study findings, key themes, and next steps. In future work plans, the CSA intends to develop new guidance and initiatives to educated issuers about the disclosure of climate change-related risks, opportunities, and financial impacts.
What is CPA Canada's position on the TCFD recommendations?
CPA Canada supports the concept of a globally consistent approach to climate-related financial reporting. We encourage CPA Canada members to familiarize themselves with the TCFD recommendations and evaluate their governance, risk management and disclosure practices accordingly. CPA Canada is developing thought leadership and guidance to enable organizations to respond to increasing demands for climate-related disclosure in alignment with the TCFD recommendations.
We have compiled the following list of resources to help you better understand the TCFD recommendations:
Background on the TCFD recommendations:
- TCFD Overview video
- Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017)
Canadian perspectives on the TCFD recommendations:
- CPA Canada supports concept of consistent climate-related financial reporting
- Canadian securities regulators' report on climate change related disclosure project
- Globe and Mail Article: Task force report puts 'material risks' of climate change in focus
- CPA support of climate change recommendations 'hugely important' to achieving goals of task force, Carney says
Global support and perspectives on the TCFD recommendations:
- TCFD statement of support and supporting companies
- Accounting for sustainability (A4S) Statement of Support
- A4S CFO Leadership Network
- CFOs: Uniquely Positioned to Lead on Climate Disclosure
- United Nations Environment Programme – Finance Initiative (UNEP FI): Pilot Project on Implementing the TCFD Recommendations
- Converging on climate risk: Climate Disclosure Standards Board (CDSB) and Sustainability Accounting Standards Board (SASB), and the TCFD
- Bloomberg Interview for Mark Carney on TCFD Recommendations