– an overview of TCFD implementation among industries and a guidance on effective climate-related disclosures
In June 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (Task Force) released its recommendations on climate-related financial disclosures, which provide a systematic and robust framework for companies and other organisations to develop more effective disclosures in adapting to climate crisis through reporting processes. Disclosure in line with the TCFD recommendations, among global businesses, has risen every year since 2017, and climate change considerations are becoming increasingly common in the private sector.
The 2020 Status Report, as the third annual report of the Task Force on Climate-related Financial Disclosures, describes the alignment of companies’ reporting with and supporting the TCFD recommendations, as well as highlighting and addressing highlights the challenges of more consistent and robust implementation. From five pillars, namely State of Climate-Related Financial Disclosures, Effective Climate-Related Financial Disclosures, Addressing Implementation Issues, Case Studies on Implementation and Initiatives Supporting TCFD, the Task Force summarises its important findings in the current status of TCFD alignment among users and supports, and provides insights on how to implement and enhance TCFD recommendations in a stepwise manner by undertaking a review of hundreds of public companies’ reports for climate-related financial information using artificial intelligence technology.
State of Climate-Related Financial Disclosure
- Disclosure of climate-related financial information has increased since 2017. Disclosure increased, on average, across the 11 recommended disclosures by six percentage points between 2017 and 2019;
- Disclosures are mainly made in sustainability reports, instead of in financial filings or annual reports;
- Larger companies are more willing to disclose information in line with TCFD recommendations;
- Energy companies and materials and buildings companies lead on disclosure;
- TCFD-aligned reporting by asset managers and asset owners to the PRI increased dramatically between 2019 and 2020, driven by the PRI’s mandatory reporting requirements for specific climate-related indicators in 2020;
- One of the lowest levels of reporting for both asset managers and asset owners relates to the weighted average carbon intensity metric (Metrics and Targets b).
Effective Climate-Related Financial Disclosures
- Expert users were nearly unanimous in rating a company’s description of how climate-related issues have affected its business and strategy as extremely useful, making it the “most useful” piece of information for financial decision-making;
- Expert users also identified information about a company’s material climate-related issues for each sector and geography and its key metrics as extremely useful for financial decision-making;
- Expert users’ insights on the most useful information for decision-making may provide a road map for preparers who are encouraged to work toward full TCFD implementation with considerations of expert users’ relative ranking of specific types of climate-related information — from most useful to least useful.
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