The sixth and final status report prepared by the Task Force on Climate-related Financial Disclosures (TCFD) was released in October. The Task Force said it continued to see “significant momentum around adoption and support of its recommendations” but more progress is needed. Thus far, progress has included the International Sustainability Standards Board’s release of its disclosures, based on the TCFD’s recommendations.
A Few Highlights of the 150+ Page Report
For FY 2022, 58% of companies disclosed “in line with” at least five of the 11 recommended disclosures (up from 18% in 2020). Just 4% disclosed in line with all 11 recommendations.
The percentage of companies reporting on climate-related risks and opportunities, board oversight, and climate targets increased by as much as 24%, 25%, and 26% between FY 2020 and 2022.
Asset managers and owners are on board; more than 80% of the largest asset managers and 50% of the largest asset owners reported in line with at least one of the 11 recommendations. Almost 50% of the top 50 asset managers and 36% of the top 50 asset owners disclosed in line with at least five of the 11 recommended disclosures.
Overall, the Task Force is encouraged by companies’ progress in disclosing climate-related financial information aligned with the TCFD recommendations and by the support of governments, regulators, and other authorities in using recommendations to develop laws, rules, and standards on disclosure.
But – the concern is that too few companies are disclosing decision-useful climate-related financial disclosure.
Important Background for Understanding the 80 Year History of the TCFD
The Financial Stability Board (FSB) was created in 2009 following the global financial crisis of 2008. FSB clout: the heads of governments of the G20 (largest economies in the world) agreed to organize the group to play a key role in promoting “reforms” in international finance and supervision. FSB today is headquartered in Switzerland as a not-for-profit organization.
Think of the FSB as a public sector “think tank” focused on issues in finance (in banking, finance, securities) and possible steps in regulation to address the issues. The usual appointees to FSB are ministers of finance, heads of central banks, and sovereign financial sector regulation authorities. The current representatives of the United States to FSB are: (1) Nellie Liang, Under Secretary of Treasury for Domestic Finance; (2) Gary Gensler, Chair of the Securities and Exchange Commission; and (3) Michael Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve System.
In 2015, the FSB established the Task Force on Climate-Related Financial Disclosures (TCFD) (at the request of G20 leaders) to consider the financial stability risks associated with climate change. The TCFD deliberations concluded that an effective way to address financial stability risks posed by climate change was disclosures to help financial markets understand the risks. This could help to avoid “an abrupt repricing of risks” and reduce risks to financial stability.
TCFD’s recommendations were presented to the G20 Leaders’ summit; in December 2016, the leaders released the group’s recommendations for “consistent, comparable, reliable, and clear and efficient climate-related financial disclosures” to provide “a framework for the disclosure of these risks to meet existing reporting requirements.” The recommendations are intended to provide for disclosures “that relate to the way firms consider the impact of climate change on their governance, risk management, and strategy” and set out metrics and scenarios firms should consider in their disclosures.
The work of the TCFD comes to a close in 2023 with the release of the status report; the Task Force 11 original recommendations will endure as a solid foundation for expanding corporate disclosure on climate-related risks and opportunities. Looking to the future, the ISSB will now assume responsibility for monitoring progress and for producing the report on the state of corporate climate-related disclosure.
You’ll want to read the important commentary by G&A Institute’s Louis Coppola (Co-founder and EVP) on cross-border ESG regulations. EU’s CSRD (directive); SEC’s pending climate disclosure rule; California’s GHG disclosure law…and more. Challenges for corporate issuers writes Lou, and opportunities as well: Cross-Border ESG Regulations: Navigating the New Age of Disclosure.
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