What is the Climate-Related Financial Disclosure (CRFD)?

The evolution of the Climate-Related Financial Disclosure regulations

CRFD regulations have evolved significantly over the past decade, transitioning from voluntary guidelines to mandatory requirements in many jurisdictions. The shift began with the 2015 Paris Agreement, which heightened awareness of climate risks in financial markets. In response, the G20’s Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosures (TCFD) in 2017. This voluntary framework provided businesses with a structured approach to assessing and reporting climate risks under four key pillars: governance, strategy, risk management, and metrics. 

Despite being optional, TCFD quickly gained traction among major investors and financial institutions, pushing companies to disclose their climate-related financial risks more transparently. By the early 2020s, CRFD regulations began moving towards mandatory reporting. In 2021, the UK became the first country to require TCFD-aligned disclosures for premium-listed companies, later expanding this mandate to large private firms, asset managers, and pension funds. 

CRFD requirements and frameworks 

The Climate-Related Financial Disclosure regulations require businesses to disclose climate-related risks, opportunities, and financial impacts to improve transparency and align with global climate goals. While requirements vary by jurisdiction, most CRFD frameworks mandate companies to report on key areas such as governance, strategy, risk management, and emissions. Below is an overview of the main reporting requirements under CRFD.

Governance and oversight

Businesses must disclose how climate-related risks and opportunities are integrated into their corporate governance structure. This includes:

• Board oversight: How the board of directors monitors and oversees climate-related financial risks.
• Management’s role: The responsibilities of executives and management in assessing and implementing climate strategies.
• Decision-making processes: How climate risks influence strategic and financial planning.

Climate risk and opportunity assessment

Companies must assess and disclose the financial risks and opportunities associated with climate change, including:

• Physical risks: Risks from extreme weather events, rising temperatures, or sea-level rise affecting operations, supply chains, or assets.
• Transition risks: Regulatory changes, carbon pricing, shifting market demands, and reputational risks linked to climate policies.
• Opportunities: Potential for cost savings, new revenue streams, or competitive advantages from sustainability initiatives (e.g., energy efficiency, low-carbon products).

Financial impact disclosure

Businesses must report how climate-related risks affect their financial statements, including:

• Revenue and costs: Potential impacts on operational expenses, insurance costs, and supply chain disruptions.
• Asset valuation and liabilities: Changes in asset values due to climate risks (e.g., stranded assets in fossil fuel industries).
• Capital allocation: Adjustments in investment decisions due to climate-related financial risks and transition planning.

Greenhouse gas emissions reporting

Businesses must disclose their greenhouse gas emissions to provide transparency on their carbon footprint. This includes:

• Scope 1 (Direct emissions): Emissions from company-owned operations and facilities.
• Scope 2 (Indirect emissions): Emissions from purchased electricity, heat, or cooling.
• Scope 3 (Value chain emissions): Indirect emissions from upstream and downstream activities, including supply chains and product lifecycle emissions.

Climate transition plans

Many Climate-Related Financial Disclosure frameworks now require businesses to disclose their climate transition plans, detailing how they intend to align with global net-zero goals. This includes:

• Decarbonisation strategies: Targets for emissions reduction and key initiatives to achieve them.
• Investment in sustainability: Capital expenditures on renewable energy, efficiency improvements, or carbon offsets.
• Regulatory compliance plans: Steps taken to meet national and international climate regulations.

Climate scenario analysis

Companies are increasingly required to conduct scenario analysis to assess how different climate change scenarios impact their business. This includes:

• 1.5°C and 2°C scenarios: Evaluating financial risks under global warming limits set by the Paris Agreement.
• High-emissions scenarios: Assessing business exposure to worst-case climate change scenarios.
• Regulatory and market shifts: Modelling impacts of carbon pricing, net-zero regulations, and changing consumer demand.

Assurance and verification

To ensure credibility, some CRFD regulations require independent assurance or third-party verification of climate-related disclosures. This includes:

• Audits of GHG emissions data: Ensuring accuracy and consistency in emissions reporting.
• Verification of financial impacts: Independent reviews of climate risk disclosures.
• Compliance checks: Ensuring companies adhere to local and global reporting standards.

Conclusion

As regulatory frameworks tighten and investor scrutiny increases, businesses that integrate robust climate risk management into their financial reporting will gain a competitive advantage. Emerging trends indicate that Scope 3 emissions reporting, scenario analysis, and independent assurance will become fundamental components of the Climate-Related Financial Disclosure requirements. 

Additionally, the harmonisation of global standards – particularly with the widespread adoption of ISSB’s IFRS S2 and the EU’s Corporate Sustainability Reporting Directive (CSRD) – will push companies to enhance the accuracy, comparability, and depth of their climate disclosures. Struggling to navigate complex reporting requirements? Our expert-led CSRD training equips you with the knowledge and tools to achieve compliance with confidence.