There is mounting pressure on businesses, governments, investors, and consumers to act more sustainably to protect the planet, the task force on climate-related financial disclosures (TCFD) offers a set of recommendations to help businesses take action and reduce their impact, enhancing business sustainability.
Companies that do the reporting framework gain a better understanding of their climate-related opportunities and risks. As a result, they can better assess the effects and impact of their organization on climate change and take action.
About the task force on climate-related financial disclosures (TCFD)
The Financial Stability Board (FSB) created the Task Force on Climate-Related Financial Disclosures (TCFD) in 2015. They developed this framework to create consistent climate-related financial risk disclosures for use by banks, investors, and companies. These disclosures enable them to provide information to stakeholders.
It is believed that increasing reliable information on financial institutions’ exposure to risks related to climate and opportunities will boost the stability of the financial system. Moreover, this will encourage a better understanding of climate risks and enable financing for the transition to a more sustainable and stable economy.
The focus of the TCFD is to report on the impact an organization is having on the worldwide climate. They have created a reporting framework that is based on a number of consistent disclosure recommendations. Companies can use it to offer transparency about their risks in relation to climate to lenders and investors.
All of this enables economies to have the necessary information to better assess the effects and impact on an organization on the warming climate. There are around 1,700 organizations globally, including government entities in the private and public sectors, that support the TCFD.
What are the recommendations from the TCFD?
As mentioned above, TCFD created a reporting framework based on several consistent disclosure recommendations. There are 11 recommendations which span four different areas. They span risk management, strategy, metrics and targets, and governance. Under governance, companies have to describe management’s role in managing and assessing climate-related opportunities and risks.
Additionally, they must describe the board’s oversight of climate-related opportunities and risks. Under risk management, they must explain the organization’s processes for managing climate-related risks and identifying and assessing these risks. They also must share how the processes are integrated into the organization’s complete risk management strategy.
For strategy, organizations have to describe climate-related opportunities and risks in the short, medium, and long term. They also must explain the impact of these opportunities and risks on the organization’s strategy, financial planning, and businesses. Finally, organizations must share their resilience strategy, taking into account different climate-related scenarios, for example, a 2 degrees Celsius or lower scenario
Under metrics and targets, organizations have to disclose the metrics they use to assess climate-related opportunities and risks in line with their risk management process and strategy. Also, they must disclose scope 1, 2, and 3 greenhouse gas emissions and any related risks here. Finally, they need to explain the targets they use to manage opportunities and risks and performance against their targets.
Summary
This framework is vital in helping businesses enhance their understanding of their long-term climate-related opportunities and risks. There is growing pressure on businesses to respond to climate change, and the TCFD recommendations are one way they can take action.
