The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 by the Financial Stability Board (FSB) with the aim of improving transparency and consistency in disclosing climate-related financial risks and opportunities. TCFD reporting has become increasingly important for companies looking to manage and disclose their climate-related risks and opportunities to investors and other stakeholders.

TCFD Reporting Framework

The TCFD provides a framework for companies to disclose information on four key areas: Governance, Strategy, Risk Management, and Metrics and Targets.

• Governance: This section focuses on the role of the board and senior management in overseeing climate-related risks and opportunities, as well as the board's composition and expertise on climate change issues.

• Strategy: This section addresses how the company is addressing climate-related risks and opportunities, and how climate considerations are integrated into the company's overall strategy.

• Risk Management: This section focuses on the company's processes for identifying, assessing, and managing climate-related risks, as well as opportunities, and how these risks are integrated into the company's overall risk management framework.

• Metrics and Targets: This section looks at how the company measures and reports on its climate-related risks and opportunities, including any targets the company has set to manage its emissions and other climate-related risks.

Which companies does TCFD target?

The FCA listing rules require premium-listed and standard-listed companies to make disclosures under the TCFD framework. Such companies are required to include a statement in their annual report stating whether they have made disclosures consistent with the TCFD framework on a ‘comply or explain’ basis. For premium-listed companies this requirement has been in effect since 1 January 2021 while for standard-listed companies it came into effect from 1 January 2022.

TCFD reporting is targeted at companies and organisations that operate in sectors that are exposed to climate-related risks and opportunities. This includes companies in:

• Energy;
• Transportation;
• Manufacturing;
• Agriculture and the;
• Financial sectors.

The TCFD reporting is targeted at companies and organisations that want to disclose their climate-related risks and opportunities to their stakeholders in a standardised and transparent way, and to provide them with the information they need to make more informed investment and business decisions.

The difference between TCFD and GHG

The main difference between GHG and TCFD reporting is that GHG reporting focuses on measuring and disclosing an organisations greenhouse gas (GHG) emissions, while TCFD reporting focuses on disclosing an organisations climate-related financial risks and opportunities. GHG emissions - a carbon footprint and some emissions intensity metrics - are reported as part of TCFD but there is a great deal of other information relevant to financial governance, for investors, which is included.

GHG reporting provides information on an organisation's carbon footprint and more recently will also include emissions reduction efforts (information required by many reporting schemes). It typically involves measuring and disclosing GHG emissions from the organisation's operations, including energy use, transportation, waste, and other sources. GHG reporting can be voluntary or mandatory and is often used to demonstrate an organisation's environmental performance and accountability to stakeholders.

TCFD reporting, on the other hand, focuses on disclosing an organisation's climate-related financial risks and opportunities.  TCFD reporting is often used by investors, lenders, and insurance underwriters to make more informed decisions about the risks and opportunities associated with climate change. Importantly, it can cover the impacts the organisation has on creating climate change, as well as the organisations exposure to different kinds of risk to itself, created by climate change. This is complemented by information on how the organisation identifies, manages and reduces those risks.

In summary, GHG reporting focuses on measuring and disclosing an organisation's GHG emissions, while TCFD reporting focuses on disclosing an organisation's climate-related financial risks and opportunities. While there may be some overlap between the two types of reporting, they serve different purposes and target different stakeholders.

Benefits of TCFD Reporting

TCFD reporting can provide a number of benefits to companies, including:

• Improved understanding and management of climate-related risks and opportunities: TCFD reporting can help companies identify and assess climate-related risks and opportunities more effectively, and develop strategies to manage them.
• Increased transparency and accountability: TCFD reporting can help companies be more transparent about their climate-related risks and opportunities, and demonstrate their commitment to addressing these issues.
• Enhanced investor confidence: TCFD reporting can help investors make more informed decisions about the companies they invest in, and assess the risks and opportunities associated with climate change.
• Improved access to capital: TCFD reporting can help companies access capital from investors who are looking to invest in companies that are taking climate change seriously.

Writing an effective TCFD Report

First, climate-related financial information should be provided through the company’s mainstream financial filings, where they are integrated with other financial and accounting data.

The task force also recommends reporting to beneficiaries and clients. In addition, climate related financial disclosure can be publicly shared on the company’s website.

The TCFD advises to apply seven reporting principles outlined in its implementation guide. It is advisable to produce a high quality and useful climate related financial disclosure rather than just completing a tick box exercise.

Climate related financial disclosures should:

• detail relevant information;
• be complete, specific and clear ;
• be consistent;
• be comparable within a sector or an industry ;
• be reliable and objective;
• be delivered on a defined time basis.

Conclusion

In conclusion, TCFD reporting has become an important tool for companies looking to manage and disclose their climate-related risks and opportunities. By providing a framework for companies to disclose information on governance, strategy, risk management, and metrics and targets, TCFD reporting can help companies improve their understanding and management of climate-related risks and opportunities, increase transparency and accountability, enhance investor confidence, and improve access to capital. As such, it is likely to become increasingly important for companies to adopt TCFD reporting in the coming years.

What about Expect?

At Expect, we launched UNA to make an organisation's decarbonisation journey simple, collaborative and profitable and with this objective in mind we continue to make it as easy as possible for customers to report on their carbon emissions as well as create an accelerated and profitable path to NetZero. As an Expect customer, you will receive a fast and transparent view on all of your organisations Scope 1, 2 and 3 CO2e data in a format that enables successful reporting.

Get in touch with us over at zero@xct.ai to talk to one of our experts in TCFD reporting, or to talk about your wider NetZero implementation strategy.