Recommendations of the TCFD
Regulatory Extracts from this
The TCFD developed four widely adoptable recommendations that are supported by key climate related financial disclosures—referred to as recommended disclosures. In addition, there is guidance to support all organizations in developing disclosures consistent with the recommendations as well as supplemental guidance for specific sectors and industries.
Describe management’s role in assessing and managing climate related risks and opportunities.
Describe the climate related risks and opportunities the organization has identified over the short, medium, and long term.
Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.
Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
Describe the organization’s processes for identifying and assessing climate-related risks.
Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.
Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.
Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.
The Task Force believes that all organizations exposed to climate-related risks should consider (1) using scenario analysis to help inform their strategic and financial planning processes and (2) disclosing how resilient their strategies are to a range of plausible climate-related scenarios.
The Task Force recommends disclosing how resilient, qualitatively or directionally, the organization’s strategy and financial plans may be to a range of relevant climate change scenarios.
Non financial organization should consider disclosing information about the resiliency of the organization’s strategy, including strategic performance implications under the various scenarios considered, potential qualitative or directional implications for the organization’s value chain, capital allocation decisions, research and development focus, and potential material financial implications for the organization’s operating results and/or financial position
The Task Force determined that preparers of climate-related financial disclosures should provide such disclosures in their mainstream (i.e., public) annual financial filings.
For purposes of adopting the Task Force’s recommendations, asset managers and asset owners should use their existing channels of financial reporting to their clients and beneficiaries where relevant and feasible. Likewise, asset managers and asset owners should consider materiality in the context of their respective mandates and investment performance for clients and beneficiaries.
Efforts to mitigate and adapt to climate change also produce opportunities for organizations, for example, through resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain.
It refers to the annual reporting packages in which organizations are required to deliver their audited financial results under the corporate, compliance, or securities laws of the jurisdictions in which they operate. While reporting requirements differ internationally, financial filings generally contain financial statements and other information such as governance statements and management commentary.
System by which an organization is directed and controlled in the interests of shareholders and other stakeholders.”67 “Governance involves a set of relationships between an organization’s management, its board, its shareholders, and other stakeholders. Governance provides the structure and processes through which the objectives of the organization are set, progress against performance is monitored, and results are evaluated.”
Greenhouse Gas (GHG) Emissions Scope
Scope 1 refers to all direct GHG emissions. Scope 2 refers to indirect GHG emissions from consumption of purchased electricity, heat, or steam. Scope 3 refers to other indirect emissions not covered in Scope 2 that occur in the value chain of the reporting company, including both upstream and downstream emissions. Scope 3 emissions could include: the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g., transmission and distribution losses) and outsourced activities.
Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organizations’ premises, operations, supply chain, transport needs, and employee safety.
Scenario analysis is a process for identifying and assessing the potential implications of a range of plausible future states under conditions of uncertainty. Scenarios are hypothetical constructs and not designed to deliver precise outcomes or forecasts. . In the case of climate change, for example, scenarios allow an organization to explore and develop an understanding of how various combinations of climate-related risks, both transition and physical risks, may affect its businesses, strategies, and financial performance over time.
Organization’s desired future state. An organization’s strategy establishes a foundation against which it can monitor and measure its progress in reaching that desired state. Strategy formulation generally involves establishing the purpose and scope of the organization’s activities and the nature of its businesses, taking into account the risks and opportunities it faces and the environment in which it operates.
Organizational report that gives information about economic, environmental, social, and governance performance and impacts. For companies and organizations, sustainability —the ability to be long-lasting or permanent—is based on performance and impacts in these four key areas.
Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations.