Financial Disclosures with TCFD: 2022 Guide

April 18, 2022

In June 2017, the Taskforce on Climate-Related Financial Disclosures (TCFD) released the recommendations that companies should use to report their efforts on sustainability. More than 2,600 organizations support the recommendations, but some have indicated the need for additional guidance on implementation. With more parties, including governments, like the UK and New Zealand, indicating they will make TCFD mandatory, the correct implementation is becoming even more important. To get it right, here is a comprehensive guide for financial disclosures with TCFD.

Benefits of Using TCFD in Your Company 

  • Helps you analyze your company to identify challenges and opportunities for growth and success. 
  • It is important for compliance with current and emerging regulations. 
  • Correct financial disclosures with TCFD can help your company improve its strategies for growth and success. 
  • TCFD helps companies to understand how to get higher ESG scores in the capital markets. 
  • ESG reporting with TCFD can help to bring together your company and its stakeholders. 
  • It is a good path to improving governance and cutting down the cost of operations. 

Applying the Four Pillars of Financial Disclosures in TCFD 

The TCFD framework was created by the Sustainability Accounting Standards Board (SASB and Climate Disclosure Standards Board (CDSB) to help increase transparency on climate-related risks. The framework works with the four main pillars, which can help investors and other stakeholders determine how sustainable an enterprise is. Here is a closer look at the pillars: 

Governance

The leadership of an organization plays a huge role in addressing climate-related challenges and opportunities. Therefore, investors are very interested in knowing how a company of interest is governed. Governance system that focuses on sustainability should demonstrate the following: 

  1. Ensures that climate-related agenda is brought to the highest level of leadership and management. 
  2. Convenes regularly to check progress and review sustainability efforts in the company. 
  3. Has delegated a person or department to handle climate-related financial considerations
  4. Delegates a sensible budget for climate-related issues. 
  5. Works with other friendly organizations to try and encourage them to become more responsible in their operations. 

Strategy 

Today, many companies are faced by the impacts of climate-related issues. With the current trend expected to continue over time, your company must be alive to the associated risks and opportunities. Then, you have to craft a strategy to address them. So, the strategy pillar of financial disclosures by TCFD requires the following: 

  • Review and disclose the climate-related risks and opportunities faced by your organization. These should be broken into short, medium, and long-term risks, factoring in materiality impacts. 
  • Disclose the company’s strategy drawn for addressing the climate-related risks for your organization. How does it fit with the company’s strategy and financial planning? 
  • Demonstrate the resilience of the company’s strategy, factoring in the Paris Agreement that calls for the world to try and keep the global temperatures below 2°C above the pre-industrial levels. Make sure to factor in all the processes in your company, from transportation to lighting, and reflect how the adopted strategy is helping to address climate change. Remember that the data must be factual and verifiable. 

Risk Management 

While some companies use the traditional enterprise risk management (ERM) model for identifying, assessing, and managing climate-related risks, the practice is not widespread. If your firm does not have a good way of managing risks, there is a danger of facing unexpected impacts on profitability and viability. TCFD calls for companies to disclose their methods of managing risks and how they manage them. Specifically, you need to: 

  • Describe the method used by your company to manage risks. 
  • Outline the processes for managing climate-related risks. 
  • Describe the process for identifying, assessing, and managing climate-related risks. 

Metrics & Targets 

In addition to the considerations associated with governance, risk management, and strategy, financial disclosures using the TCFD framework requires the application of metrics and targets. The metrics you employ can help illuminate the effectiveness of the strategies adopted for addressing climate-related risks and opportunities. Here are the disclosures recommended by TCFD in line with the materiality assessment

  • You need to develop specific metrics, such as water withdrawn, energy used, and distance driven to make supplies, to assess climate risks and opportunities. 
  • Narrow down to the types of emissions from your company and related risks. Does your company release Scope 1, Scope 2, or Scope 3 GHG emissions? In what quantities?
  • Describe the targets for addressing climate-related risks and opportunities. If you started ESG reporting a few years ago, how are the targets aligning with previous achievements in adherence to the principle of continuity? 

As you can see, financial disclosures with TCFD can be pretty complex, but you are sure of getting it right with Diginex.com experts. Our professionals have the experience and tools, including the latest ESG reporting software, to help you correctly apply the TCFD framework in your organization. Talk to us to learn more about TCFD and start using it right away. 

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