TCFD's Final Status Report Reveals Remarkable Gains in Climate-Related Financial Disclosures
The Task Force on Climate-Related Disclosures (TCFD) recently published its sixth and final status report, shedding light on both the progress in corporate climate reporting and the persisting data collection challenges. The TCFD, formed in 2017, aimed to enhance consistency and comparability in climate-related financial information among companies. As shown below, the 11 TCFD Recommended Disclosures are centered around the impact of climate change on a company as opposed to the company’s impact on the environment.
Source: TCFD 2023 Report
TCFD’s 4 Recommendations and 11 Supporting Recommended Disclosures:
Source: TCFD 2017 Report
TCFD 2023 Report Findings
The TCFD's 2023 status report was compiled using artificial intelligence to analyze public reports from over 1,350 large corporations spanning different sectors and regions over three years. Overall, the analysis uncovered a significant increase in companies aligning with TCFD recommendations, with 90% of firms making disclosures in line with at least one of TCFD's 11 recommendations in 2022, a significant rise from previous years. Companies, on average, adhered to 5.3 of the 11 recommendations in the 2022 fiscal year, compared to an average of 3.2 in 2020. European companies led the way with an average of 7.2 disclosures, while firms in the Middle East and Africa lagged behind at 3.8. In terms of size, large-cap firms significantly outperformed their smaller counterparts. Public companies made significant strides, with 58% of them meeting at least 5 of the 11 disclosures, a remarkable increase from the mere 18% in 2020. Similarly, approximately 70% of the top 50 asset managers have disclosed in line with at least five of the standards.
Source: TCFD 2023 Report
Despite these improvements, only 4% of public companies reported all 11 recommended disclosures. In particular, reporting on companies' strategies under various climate-related scenarios remained low, with only 11% of firms disclosing. The report found that 90% of companies considered this recommendation challenging to implement. It also highlighted that climate-related financial filing remained limited, with information corresponding to the 11 recommendations being four times more likely to appear in sustainability and annual reports than in financial filings. This trend, despite many jurisdictions requiring such disclosures in financial filings or annual reports, raises concerns about transparency.
Source: TCFD 2023 Report
Transition to ISSB and Future Considerations
As the TCFD's work comes to a close, it has transferred the responsibility for overseeing progress on climate-related reporting to the International Sustainability Standards Board (ISSB), created in 2021. The ISSB, which recently released its 2023 disclosure standards based on TCFD recommendations, represents a culmination of the TCFD's efforts.
In reviewing its eight years of work, the TCFD highlighted 5 main areas that they believe require ongoing attention or additional work by the ISSB in the future:
1. Ensure ISSB standards align with jurisdictional frameworks for consistent company reporting, as it was done for TCFD recommendations:
Source: TCFD 2023 Report
2. Develop implementation guidelines for climate-related risk assessments, adaptation planning, sector-level scenario analysis, and Scope 3 GHG emissions measurement
3. Emphasize the importance of companies demonstrating their resilience under various climate scenarios, including international climate agreements
4. Promote the disclosure of other sustainability topics like biodiversity, water, and social issues, as well as exploring linkages with climate issues
5. Create a consistent climate-related financial disclosure framework for countries, with the aim of helping companies develop comprehensive disclosures that are tailored to their specific operating environment
Although these efforts are essential to fully integrate climate data into the global economy, the TCFD's work has already laid a strong foundation for improved transparency in climate reporting. Mary Schapiro, head of the TCFD secretariat states: “The TCFD has helped to drive immense progress on climate-related financial disclosures, and this year’s Status Report shows how far we have come (...) I look forward to continued efforts to further progress on transparency, particularly in support of the development of net zero transition plans.”
