If you have a business, be it a startup or an already established brand, sustainability is one of the most important things to get right. The focus is to help address the planet's challenges, especially the monstrous problem of global warming. According to the World Meteorological Organization (WMO), the globe is warming quickly and could surpass 1.5°C in 2024. The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 to help businesses in reducing climate-related issues. Now, it is moving from being a voluntary thing to a key requirement with governments, regulatory bodies, international standards organizations, and stock markets demanding sustainability reports. TCFD is one such framework for sustainability reporting.
This post is a closer look at TCFD to answer two questions, “How does it work?” and “What are the implications?”
TCFD reporting is a framework created by the Financial Stability Board (FSB) to help organizations give consistent and accurate climate-related financial risks so that stakeholders can see and make informed decisions. With more stakeholders, from investors to customers and regulatory authorities, demanding greater sustainability, TCFD reporting ensures they get accurate and verifiable information. Other stakeholders of interest to factor include banks, underwriters, and insurance companies.
When TCFD was established in 2015, it was largely voluntary, but things are changing, and more organizations and countries are making it mandatory. In 2021, Switzerland became the first to officially support TCFD. The UK and New Zealand will require disclosures from companies in their jurisdictions based on TCFD by 2025. Other countries, such as Singapore, Japan, Canada, European Union, and South Africa, are following the same trend. It is only a matter of time before climate-related financial disclosures become the primary benchmark across the globe.
Indeed, a lot of companies are already using TCFD and creating annual reports. In its 2021 report, the Financial Stability Board (FSB) reported that more than 1,650 companies in 69 countries and jurisdictions released disclosures in line with TCFD’s recommendations.
As we have demonstrated, the business regulatory and compliance environment is adrift towards greater adoption of sustainability. Therefore, you cannot be left behind when it comes to disclosures, but what are the implications? Keep reading as we reveal the main TCFD reporting implications for your company.
● Compliance with Regulations of Different Governments and Authorities
The most notable implication of TCFD reporting is that you are sure of operating in line with the established legal frameworks. As we highlighted earlier, sustainability reporting is becoming a common requirement for most entities, and TCFD reporting comes in handy to help you comply with different regulations. If you are in Europe, TCFD reporting will help you operate in line with the new Taxonomy legislation. This legislation classifies activities by companies to help stakeholders determine those that are sustainable and those that are not. Individual governments are also very emphatic on sustainability, and TCFD disclosure will come in handy.
For companies outside the EU, TCFD disclosure comes with awesome compliance benefits. In Hong Kong, the Hong Kong Stock Exchange (HKEX) is already demanding sustainability reports. Japan for all listed firms, China, Singapore, and Australia, among others, are all in the race to promote sustainability. Therefore, you do not have to risk your operating license or stiff penalties for non-compliance. Simply adopt TCFD reporting.
● Better Understanding of Risks and Opportunities for Your Company
TCFD reporting starts with a careful company analysis to determine areas of interest that can help cut down emissions. This is an excellent moment to identify areas of your company that require urgent addressing. For example, if high emission rates are coming from poor equipment maintenance, making changes will reduce it and further enhance productivity. This might be the opportunity you are looking to grow the profitability of your business.
For most businesses, TCFD reporting offers a moment to rethink their processes and enhance them. If you take the example of the HKEX requirements for listed companies, the target is future sustainability. According to the rules, boards of companies are required to anticipate sustainability issues in the future and craft strategies for addressing them. This is an excellent way to prepare your company for success.
● Better Connection to Your Stakeholders
For your company to succeed, your eyes must always be on stakeholders. TCFD reporting amplifies this focus by ensuring they are the primary focus. So, if you are targeting investors, the reporting will demonstrate how committed you are to promoting sustainability. It will also show your firm’s plans for growth, which will make them also want to be associated with you.
This post has demonstrated that TCFD is one of the essential frameworks that companies are using to demonstrate their commitment to sustainability. The TCFD reporting implications we have listed above are only a few. You should also anticipate cutting down the cost of operations and strengthening your brand. Remember that all TCFD reports must be correct and easy to read by presenting verifiable information. Therefore, it is prudent to have the right sustainability reporting program. Visit Diginex.com to learn more about TCFD and its application in your firm.
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