Date posted: 19/10/2021 7 min read

TCFD: here’s what you need to know

Here is a brief explanation of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, sustainability reporting and what it all means for accountants

In Brief

  • The recommendations form the core of the new climate standard being developed by the IFRS Foundation
  • The multi-stakeholder TCFD developed a set of voluntary, consistent climate-related disclosure recommendations
  • Access a recorded webinar for an overview of the current international and local developments in sustainability and climate

The multi-stakeholder Task Force on Climate-Related Financial Disclosures (TCFD) has developed a set of voluntary, consistent disclosure recommendations for companies to provide information to investors, lenders and insurance underwriters about their climate-related financial risks.

The Financial Stability Board (FSB) was established the TCFD in 2015 in response to a request from the G20, which is an intergovernmental forum comprising 19 countries, including Australia, and the European Union.

The 11 recommendations are structured across four interconnected elements: governance, strategy, risk management, and metrics and targets.

Page 22 of Task Force on Climate-Related Financial Disclosures

Source: Page 22 of Task Force on Climate-Related Financial Disclosures

TCFD 2021 status report and updated guidance

Access the fourth annual report describing progress on climate-related financial reporting and implementation of the TCFD, as well as updated guidance on implementation and metrics, targets and transition plans

Read more

Climate-related risks

The TCFD categorised climate-related risks into two types: transition and physical, which we explain further here.

Common misconceptions about the TCFD

Mardi McBrien, the Climate Disclosure Standards Board (CDSB) Managing Director, noted the following common myths and misconceptions about the TCFD during a recent presentation (access the recording below) to members on the importance of climate-related financial disclosures for the property sector in Australia. 

The CDSB is an international consortium of business and environmental NGOs that has developed a framework for companies to report on environmental and climate-related matters. 

Myths and misconceptions Response
Financial disclosure has to be quantified Financial disclosures can be found in other areas of an annual report (not just financial statements), and this is recognised by the different pillars of the TCFD. 
Net zero commitments address climate-related risks Making these commitments is a good step towards addressing the risks, but not the only step needed for mitigating and adapting to climate-related risks.
Scenario analysis is a tool to help identify climate-related risks Scenario analysis models risks that have already been identified. It is a tool to enhance critical strategic thinking and to support the development of resilient business. 
The TCFD recommendations need to be disclosed separately  The TCFD did not set out to require organisations to write separate reports but to build on existing disclosures in established reports, e.g. the annual report. 
You’re expected to predict future climate-related uncertainties Climate-related matters are inherently uncertain and the requirement on organisations is to develop a risk management framework based on existing information about possible future scenarios.  

McBrien observed that existing corporate disclosure regimes already included an obligation to report on risk: “You are required to report [on] risk full stop. Climate is a material foreseeable risk … and you need to start using the [reporting] approaches sooner rather than later.” 

You are required to report [on] risk full stop. Climate is a material foreseeable risk … and you need to start using the [reporting] approaches sooner rather than later.
Mardi McBrien CDSB

How does the TCFD fit into the current landscape

First, it’s necessary to explain a few more acronyms: 

  • VRF: Value Reporting Foundation

A merger of SASB (the Sustainability Accounting Standards Board) and the IIRC (the International Integrated Reporting Council) – two organisations that developed non-financial reporting frameworks (SASB standards and the <IR> Framework). 

  • CDP (formerly the Carbon Disclosure Project)

A UK-based not-for-profit that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. 

  • GRI: The Global Reporting Initiative

Formed in 1997 and developed the first and most widely adopted global standards for sustainability reporting. The GRI Standards are broader in scope than some of the other frameworks.

Together with the CDSB, these organisations form the ‘Group of 5’ that is working towards a shared and harmonised vision of corporate reporting

The Group of 5 is working with two other pertinent organisations (among others) towards this goal: 

  • The IFRS Foundation: International Financial Reporting Standards Foundation
    A not-for-profit accounting organisation, developing and promoting accounting standards, and more recently working towards the establishment of an International Sustainability Standards Board (ISSB) and the development of sustainability related standards. The IFRS Foundation already develop International Financial Reporting Standards through the International Accounting Standards Board.
  • IOSCO: International Organisation of Securities Commissions
    An association of organisations that regulates the world's securities and futures markets.

But what about the TCFD recommendations? McBrien notes that the recommendations form the core of the new climate standard being developed by the IFRS Foundation with support from the Group of 5. The new standard is expected to be launched for consultation in early 2022 following the establishment of the ISSB in November.

For completeness, the TCFD recommendations can be used for reporting under other initiatives such as the United Nations Sustainable Development Goals (e.g.  Goal 13: Climate Action).

Accountants are pivotal in identifying and managing non-financial risk

For more background on the non-financial reporting landscape, CA ANZ has produced a guide that can be accessed here

Read our guide

What do we do in the meantime?

McBrien suggests the TCFD recommendations are a good place to start, particularly given they have been a significant driver of climate-related reporting. 

The CDSB has a range of resources to support organisations. For example, it has guidance on how climate-related matters should be factored into a company’s financial reporting, along with examples to illustrate what such reporting might look like. The CDSB will publish supplemental guidance in the coming months. 

In addition, there’s also the TCFD knowledge hub and the Accounting for Sustainability (A4S) resources. 

Across these websites, there are guides, infographics, templates and free short online courses. 

McBrien spoke at a recent member event alongside KPMG’s Mark Spicer CA, and Lendlease’s Simon Wild, on “The importance of climate-related financial disclosures for the property sector”. 

The slides and recording from this session are available here, providing an overview of the current international and local developments in sustainability and climate as illustrating the important role finance functions play in producing insightful, meaningful and measurable sustainability disclosures. 

Complimentary Webinar 

In case you missed the live version, you can view the recording of our webinar “Importance of Climate Related Financial Disclosures for the Property Sector” here.