TCFD: Where are we now?

Published 25th October 2018 by Marientina Laina

In our 2018 Sustainability Reporting Performance report we identified that alignment with guidelines set out by the Task Force for Climate-Related Financial Disclosure was one of the main trends of improved strategy and governance across FTSE 100 companies. The TCFD Status report published last month confirms our findings. The latest report from the Task Force provides an overview of current disclosure practices related to the TCFD recommendations as well as additional information on implementing the recommendations.

Growing number of supporters

In just over a year since the 2017 TCFD recommendations report was released, the Task Force has seen significant momentum around its work. Today, the TCFD has more than 500 supporters, including 457 companies and 56 other organisations, such as industry associations and governments. The companies represent a broad range of sectors with a combined market capitalisation of over $7.9 trillion. This includes over 287 financial firms, responsible for assets of nearly $100 trillion. In addition to the 457 companies that support the TCFD, the Task Force’s review identified another 104 companies that stated they are have already aligning their reporting with the TCFD or expressed intent to implement the recommendations.

Support from governments

Apart from companies, the TCFD has received support from governments, including Belgium, France, Sweden, and the United Kingdom, as well as financial regulators around the world, for example in Australia, Belgium, France, Hong Kong, Japan, the Netherlands, Singapore, South Africa, Sweden, and the United Kingdom.

The Task Force reviewed disclosures of several companies and found alignment with its recommendations helpful to users, such as investors and analysts. However, it also found climate-related disclosures are still in the early stages and further work is needed for disclosures to contain more decision-useful climate-related information.

Main conclusions

  • The majority of companies disclose some climate-related information. Most companies disclosed information aligned with at least one recommended disclosure, usually in sustainability reports.
  • Disclosures are not limited to individual reports. Companies often provided information aligned with the TCFD recommendations in multiple reports– financial filings, annual reports, and sustainability reports.
  • Disclosures vary across industries and regions. Companies’ areas of focus in terms of climate-related financial disclosures vary significantly. For example, a higher percentage of non-financial companies reported information on their climate-related metrics and targets compared to financial companies, but a higher percentage of financial companies indicated their enterprise risk management process included climate-related risk.

There is still a lot of work to be done:

While many companies report on environmental issues, most have not so far provided the market with consistent information on the financial implications of climate change for their businesses. Equally, climate scenario analysis and financial implications of risk are still a work in progress:

  • Information on strategy resilience under climate-related scenarios is limited. Few companies describe the resilience of their strategies under different climate-related scenarios, including a 2°C or lower scenario, which is a key area of focus for the Task Force.
  • Financial implications are often not disclosed. While many companies disclose climate-related financial information, few disclose the financial impact of climate change on the company.

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Case study on climate scenario analysis

Our annual Sustainability Reporting Performance report ranks FTSE 100 companies on their sustainable business practices. This year Unilever was ranked third across the whole indices once again demonstrating their leadership in sustainability reporting. The company also received similar acknowledgement in the TCFD Status Report as an example of a company implementing disclosure recommendations that an investor, analyst or other users of the information consider having decision-useful information.

Climate scenario analysis plays an important part in the TCFD recommendations. In 2016 Unilever conducted a scenario analysis to understand the impact of 2 and 4-degree climate scenarios on its business. The company found that bringing this analysis of the long-term implications of climate change and the financial impacts to the table helped secure senior management support and trust.

As recommended by the TCFD, Unilever publish relevant information in an integrated reporting format, combining both financial and non-financial data. The company allocated two pages at the end of the risk section in their report to provide a deep-dive on scenario analysis, as well as climate risks and opportunities, structured around the main headings of the TCFD framework. This not only enables Unilever to be future-fit when it comes to the impending risks of climate change, it helps to satisfy and secure the needs of their key stakeholders and continues to keep them out in front when it comes to best practice on business disclosures.

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To find out more about the TCFD and other trends in Sustainability Reporting, download our new report.

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