Updates from the TCFD Second Status Report
As of the end of May 2019, nearly 800 public and private sector organizations have announced their support for the Task Force on Climate-related Financial Disclosures (TCFD) and its recommendations published in mid-2017, including global financial firms responsible for assets in excess of USD 118 trillion. The second TCFD status report, released in June 2019 provides an overview of disclosure practices that are aligned with the core TCFD recommendations, and information on the adoption and use of the TCFD recommendations. While progress is being made, the report finds that more needs to be done and provides guidance on how companies can improve on their climate-related financial disclosures.
The second TCFD status report has developed findings based on a TCFD survey (485 responses from over 3,000 companies), a review of reports from over 1,000 large companies using artificial intelligence technology (across multiple sectors and regions over the three-year period), and input from external initiatives.
The key findings from the report are listed below:
- Disclosure of climate-related financial information has increased since 2016, but is still insufficient for investors. Progress has been made to improve the availability and quality of climate-related financial information. However, given the speed at which changes are needed to limit the rise in the global average temperature—across a wide range of sectors—more companies need to consider the potential impact of climate change and disclose material findings.
- Mainstreaming climate-related issues requires the involvement of multiple functions. While sustainability and corporate responsibility functions are the primary drivers of TCFD implementation, other functions e.g. risk management, finance, and executive management are increasingly involved as well. This collaboration between multiple functions is critical to mainstreaming climate-related issues. Strong roles by the risk management and finance functions are especially important.
- A majority of companies using scenarios do not disclose information on the resilience of their strategies. Three out of five companies responding to the TCFD survey that view climate-related risk as material and use scenario analysis to assess the resilience of their strategies do not disclose information on the resilience of their strategies. This is an important gap in disclosure for companies with material climate-related risks. However, the Task Force understands that companies are still in the early stage of adopting climate-related scenarios, are evolving their approaches, and are learning how to integrate scenarios into their processes for formulating corporate strategy.
- More clarity is needed on the potential financial impact of climate-related issues on companies. The top area for improvement identified by users of climate-related financial disclosures is for companies to provide more clarity on the potential financial impact of climate-related issues on their businesses. Without such information, users may not have the information they need to make informed financial decisions.
Additionally, there is also growing interest in climate-related financial disclosures by financial regulators. In April 2019, the Network for Greening the Financial System (NGFS), which comprises 36 central banks, issued six recommendations aimed at facilitating the role of the financial sector in achieving the objectives of the Paris Agreement. One of the recommendations is to achieve robust and internationally-consistent climate and environment-related disclosure “in line with the TCFD recommendations.”
Figure 1 below provides the summary of additional findings from the second TCFD status report.
The results have emphasized the need for continued efforts to support implementation of the recommendations, especially in terms of companies using scenario analysis to assess the resilience of their strategies under a range of plausible future climate states. The second TCFD status report contains guidance to support TCFD report preparers in implementing the recommendations. The Task Force will continue to promote and monitor adoption of its recommendations over the next several months and will prepare another status report in September 2020. Future reporting might include process guidance around how to introduce and conduct climate-related scenario analysis which we believe will be extremely useful for most companies. Existing TCFD resources related to scenario analysis are here.
The success of the TCFD recommendations depends on continued, widespread adoption by companies in the financial and non-financial sectors. Through widespread adoption, climate-related risks and opportunities will become a natural part of companies’ risk management and strategic planning processes. Resulting benefits include:
- Companies’ and investors’ understanding of the financial implications associated with climate change will increase
- Information will become more useful for decision-making
- Risks and opportunities will be more accurately priced
We foresee that more and more organization will adopt TCFD recommendations to ensure the effects of climate change will be routinely considered in business and investment decisions.
ELEVATE sustainability consulting team is already helping forward-thinking companies to understand their climate risks under different future scenarios and begin their disclosure journey with TCFD. To find out more about how we can help your business, contact me at [email protected].
What did Tracking the Trends reveal about climate change in the Asia-Pacific region?
As reported in the 12th annual edition of Tracking the Trends, a survey of sustainability and supply chain professionals placed climate change as the second most relevant trend to shape the sustainability agenda for the next 2-5 years. To understand why, and gain comprehensive insight into the sustainability trends in Asia, read Tracking the Trends – Volume 1.
Spotlight on Climate Change at CSR Asia Summit 2019
This September, at CSR Asia Summit in Bangkok, we will take a deeper dive with industry leaders who have adopted frameworks including TCFD and learn how establishing climate action plans can guide economic development for companies. Learn more about the session, Climate Prosperity – Building Business Success Under Our Changing Climate, and other trending topics across corporate and supply chain sustainability at CSR Asia Summit 2019.
These blogs are written by ELEVATE staff members or associates and the views and opinions expressed are not necessarily those of ELEVATE.
 Task Force on Climate-related Financial Disclosures: 2019 Status Report
 NGFS – A call for action, climate change as a source of financial risk
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