TCFD: here’s what you need to know
Here is a brief explanation of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations for accountants
In Brief
- The multi-stakeholder TCFD developed a set of voluntary, consistent climate-related disclosure recommendations
- The recommendations form the core of the new climate standard being developed by the ISSB
- They are also the basis for the Aotearoa New Zealand Climate Standards effective from 1 January 2023
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) 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.
Source: Page 22 of Task Force on Climate-Related Financial Disclosures
TCFD 2022 status report and updated guidance
Access the fifth 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 moreClimate-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 presentation to CA ANZ members.
| 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.
The CDSB was an international consortium of business and environmental NGOs that developed a framework for companies to report on environmental and climate-related matters. It has now been consolidated into the IFRS Foundation to support the work of the International Sustainability Standards Board (ISSB).
How does the TCFD fit into the current landscape?
In Australia ASIC encourages listed companies to use the TCFD recommendations as the primary framework for voluntary climate-related disclosures.
In New Zealand the External Reporting Board (XRB) released the Aotearoa New Zealand Climate Standards in December 2022. Around 200 of New Zealand’s most economically significant entities are required to report against these standards from 1 January 2023.
For other organisations seeking to disclosure climate-related information, the TCFD recommendations are a good place to start.
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 guideComplimentary Webinar
McBrien spoke at a 2021 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.
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.
