As countries increase the pace of mandatory climate risk disclosure measures aligned with the recommendations of the Task Force on Climate-related Financial Disclosures, the Task Force’s most recent status report highlights the extent of the commitment necessary to embed climate risk and opportunity analysis into governance, strategy, risk analysis and performance management – and the need to start early.


The Task Force on Climate-related Financial Disclosures (TCFD) was established by the G20’s Financial Stability Board in 2015 to develop a set of consistent disclosure recommendations in relation to climate-related financial risk. It has emerged as the global reference for climate risks and opportunities.

In late October, the TCFD released its 2020 Status Report, its third annual update since the release of its final recommendations in 2017. As with previous instalments, the report makes several key findings, highlighting both areas of existing improvement and those in need of further effort.

The report underscores the multi-year effort necessary to integrate the assessment of climate risks and opportunities into a business. This comes against the backdrop of an increasing drive for “pathways to mandatory disclosure” ahead of the rescheduled COP26 in Glasgow in November 2021, and recent developments in New Zealand and the UK.

The report is a warning to business that waiting for mandatory disclosure will be too late to determine and disclose the financial materiality of climate risks and to take full advantage of commercial opportunities afforded by the energy transition.

A marathon, not a sprint

The report leads with the finding that “nearly 60% of the world’s 100 largest companies support the TCFD, report in line with the TCFD recommendations, or both,” noting that nearly 700 organisations have become TCFD supporters since the publication of the previous report – “an increase of over 85%.” At the same time, the report notes that “disclosure of climate-related financial information has increased since 2017, but continuing progress is needed.”

The distinction between “supporting the TCFD on the one hand” and “reporting in line with the TCFD recommendations” on the other belies the significant commitment and resources required to implement the recommendations. The recommendations stress the need for engagement from the board down and across business functions to interrogate climate risks and opportunities through governance, strategy and risk management to arrive at a set of well-defined metrics and targets suitable for disclosure.

The cross-functional challenges were a point specifically emphasised in the 2019 Status Report. It noted that “while sustainability and corporate responsibility functions are the primary drivers of TCFD implementation efforts, risk management, finance, and executive management are increasingly involved,” and that it was only through “the involvement of multiple functions” that the “mainstreaming of climate-related issues” would be achieved.

Organisations that have engaged with the TCFD recommendations have found that implementation is an iterative process that plays out over multiple financial years.

This process includes achieving the necessary degree of internal alignment and buy-in, engaging in and interpreting scenario analysis (including through the use of multiple scenarios) and determining possible financial impacts before finally moving to measurement and disclosure.

As noted by one of the case studies in the report, the implementation process is best approached “as a marathon, not a sprint.”

Disclosure on resilience still a work in progress

The report also finds that only “one in 15 companies reviewed disclosed information on the resilience of its strategy.” This echoes findings in last year’s report that “of companies using scenarios, the majority do not disclose information on the resilience of their strategies.”

The report finds that disclosure in relation to resilience was “significantly lower than that of any other recommended disclosure” and, at 7%, was as much as ten percentage points lower than the next lowest recommended disclosure.

As conceived of by the TCFD recommendations, resilience is a means of disclosing the sensitivity of a business to different climate outcomes and, by extension, its adaptive capacity and climate agility.

The concept of resilience is reflective both of the uncertainty inherent in the range of climate outcomes and that disclosure in accordance with the TCFD framework is not about adopting a particular position on a particular climate outcome. Rather, it is an exercise in interrogating and then disclosing what climate challenges mean to a business, its strategy and its risk profile and what, if anything, it intends to do in response.

The report acknowledges that understanding the resilience of a strategy typically comes at a late phase of TCFD implementation, recognising that “companies may need time internally to work through using scenario analysis and determining whether the results of such analyses warrant disclosure.”

However, despite having been emphasised in last year’s status report, disclosure rates continue to run low, reflecting the complexity of interrogating corporate strategy through multiple climate scenarios and disclosing relevant findings in a way that is useful to end users.

Pathways to mandatory disclosure

In September, New Zealand was the first jurisdiction to announce a mandatory regime for climate-related financial disclosures.

The announcement, made by James Shaw, Minister for Climate Change, followed a public consultation in late 2019 in tandem with the passing of the Climate Change Response (Zero Carbon) Amendment Act 2019. The Act requires New Zealand to develop and implement policies for climate change adaptation and mitigation in support of its target of net zero emissions of all greenhouse gases, other than biogenic methane, by 2050.

The New Zealand proposal would be implemented by amendments to the Financial Markets Conduct Act 2013. It would require New Zealand entities operating in the financial sector (in general, with total assets or assets under management of more than NZD1 billion) to make disclosures on a “comply-or-explain” basis, in accordance with a TCFD-aligned standard yet to be issued by the External Reporting Board. It is estimated around 200 entities in New Zealand would be required to produce climate-related financial disclosures, starting in 2023 at the earliest.

The developments in New Zealand are reflective of increasing calls for countries to “publish pathways to making climate-related financial reporting, based on TCFD recommendations, mandatory.” This is a key feature of the Building a Private Finance System for Net Zero, a set of priorities for private finance ahead of the rescheduled COP26 in Glasgow in November 2021, launched by Mark Carney as UN Special Envoy for Climate Action and Finance and the Prime Minister’s Finance Adviser for COP26, during the Green Horizon Summit in November.

The same day, Rishi Sunak, Chancellor of the Exchequer, published the Interim Report of the UK’s Joint Government Regulator TCFD Taskforce and A Roadmap towards mandatory climate related disclosures. This incorporated the announcement of an intent “to introduce fully mandatory climate-related financial disclosure requirements across the UK economy by 2025, with a significant portion of mandatory requirements in place by 2023.”

A complementary announcement from Nikhil Rathi, CEO of the Financial Conduct Authority (FCA), confirmed it would move to introduce a new Listing Rule requiring TCFD-aligned disclosures for “premium listed companies” from 1 January 2021, following consultation earlier this year.

The same announcement reflected the FCA’s readiness to “support the UK Government to fulfil its commitment to at least match the ambition of the EU Sustainable Finance Action Plan” – the EU having published climate-related reporting guidelines late last year as an adjunct to the EU’s Non-Financial Reporting Directive.

While the precise manner in which other jurisdictions will take up the cause of mandatory climate risk disclosure is an area to watch, it now appears largely a matter of when, not if.

In Australia, the Australian Securities and Investments Commission revised regulatory guidance last year to clarify that climate-related risk should be disclosed in prospectuses and operating and financial reviews, where material, and suggesting (without requiring) TCFD-aligned language.

In Japan, companies have signed up to the TCFD recommendations at a faster rate than companies in any other jurisdiction, and the Ministry of Economy, Trade and Industry hosted the world’s first TCFD summit in Tokyo in 2019, with a second instalment held virtually this year. Almost 300 companies and other organisations have publicly announced their support for the TCFD without the need for regulatory intervention. Whether Japan’s position as a beacon of voluntary disclosure will be maintained remains to be seen.

In the US, the current administration has resisted moves in relation to expansion of disclosures. However, the change in administration is expected to lead the SEC to focus on climate-related and other ESG disclosures in 2021. This brings the possibility that a framework developed under the leadership of Michael Bloomberg, and with substantial input from US stakeholders, may finally start to be reflected in mandatory frameworks.

Start early, and with ambition

While there are multiple pathways to mandatory disclosure, the lessons of the most recent TCFD status report underscore the need for businesses to start well in advance of any mandatory requirements, and to plan for an ongoing, iterative process.

In a number of jurisdictions, the TCFD framework is likely to act as a pilot for broadening mandatory ESG disclosures. Businesses that successfully embed climate risk and opportunity analysis as part of a broader interrogation of ESG risks and opportunities will be in an enviable position ahead of subsequent waves of regulatory reform – and better businesses too.

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