TCFD adoption grows, with support from companies worth over US$25t combined

MORE companies are showing their support for the Task Force on Climate-related Financial Disclosures (TCFD), and disclosures in line with the task force's recommendations have also increased more between 2019 and 2020 than in previous years.

These findings were published in the TCFD's 2021 status report on Thursday (Oct 14), and the task force also announced new guidance on certain recommended disclosures in its framework.

Since the previous status report last year, the TCFD said the number of supporters has grown by more than 1,000 new organisations to over 2,600 worldwide.

The combined market capitalisation of TCFD supporters - over US$25 trillion - is nearly double from a year earlier. Financial institutions make up around 40 per cent of the TCFD supporters and these companies are responsible for some US$194 trillion in assets, up from US$150 trillion last year.

"The task force has had an exceptional year in rallying global support for climate risk reporting - but we still have a long way to go," said Michael Bloomberg, chair of the TCFD and founder of Bloomberg. "As governments and businesses around the world work to accelerate the transition to a clean energy economy, they should continue to draw on the TCFD recommendations as a critical tool in their efforts."

The TCFD was established in 2015 by the Financial Stability Board, with a goal to develop consistent climate-related financial risk disclosures for use by companies, banks and investors. The recommendations were published in mid-2017, structured around 4 themes: governance, strategy, risk management and metrics and targets; and 11 recommended disclosures.

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In its fourth status report released on Thursday, the task force used artificial intelligence technology to review over 1,650 public companies' reports and found that disclosure in line with TCFD recommendations has accelerated, growing 9 percentage points from 2019 to 2020, more than in any previous year assessed.

"However, significant progress is still needed as an average of only one in three companies reviewed disclosed climate-related information aligned with the TCFD recommendations," the report noted. Disclosure of TCFD-aligned information was at 32 per cent across the companies analysed, based on the average score across the 11 recommended disclosures.

The task force noted that growth was bolstered by official announcements of TCFD-aligned climate reporting requirements from several jurisdictions as well as support from investors, international standard setters and regulators.

In this year alone, official entities in eight jurisdictions have referenced the TCFD in announcements to require climate-related reporting, the task force noted. Singapore is among the jurisdictions where authorities have looked towards the TCFD recommendations.

Singapore Exchange Regulation proposed a roadmap in August towards mandatory climate-related disclosures for listed issuers based on the recommendations of the TCFD. In May, the Green Finance Industry Taskforce, convened by the Monetary Authority of Singapore, also published an implementation guide for climate-related disclosures by financial institutions, which adopts the TCFD's recommendations as "the guiding framework for disclosure".

Mary Schapiro, head of the TCFD, said: "There is clear and growing consensus among investors and regulators on the importance of climate-related disclosure and the need for standardised, transparent data to support capital allocation decisions."

Europe remained the leading region for companies making disclosures, while Asia Pacific was second.

Schapiro noted that it is not surprising that Europe is in the lead, as the European Commission has been aggressive about climate reporting, but Asian countries are also catching up.

"In fact, the highest number of TCFD supporters are in Japan," she said. "And we have seen the Singaporean government and the Hong Kong government be very forward leaning about mandatory climate risk disclosure based on TCFD, New Zealand as well."

She added: "Parts of the world are moving at different paces, but I think everybody is gaining speed, and I think we will actually have convergence globally around climate risk disclosure in the not very distant future."

With climate-related reporting evolving since the initial recommendations in 2017, the TCFD has also unveiled fresh guidance on Thursday. The key recommendations and recommended disclosures have not changed, but updates have been made to the implementation guidance in the annex.

The revised annex updates specific elements of the implementing guidance for all sectors, and supplemental guidance for the financial sector, for certain recommended disclosures within the Strategy and Metrics and Targets recommendations.

"To help drive comparability in reporting, the updated guidance elevates seven categories of cross-industry metrics as particularly important for assessing financial impact: Scope 1, Scope 2, and Scope 3 greenhouse gas (GHG) emissions, metrics on climate-related transition and physical risks and opportunities, capital deployment, internal carbon price, and remuneration," TCFD said.

The task force now recommends all organisations disclose Scope 1 and 2 GHG emissions independent of a materiality assessment, while Scope 3 GHG emissions would still be subject to materiality.

The TCFD also published a guidance on metrics, targets, and transition plans, "to further support financial statement preparers in disclosing decision-useful information and linking those disclosures with estimates of financial impacts".

This information can help users better assess their investment, lending, and underwriting risks - and inform paths and progress toward net zero, TCFD noted.

Schapiro said: "Although we are enormously proud of the progress the TCFD has made this year, we are still very far from where we need to be in terms of global implementation of the framework."

The task force hopes governments will consider reporting requirements built around the TCFD framework to unite global efforts on comparable, consistent, climate reporting, she added.

"Without a healthy planet, there can be no healthy economy, the private sector must act now and meet the moment for their own benefit, and more importantly for the benefit of generations to come."