TCFD Status Report: Key Messages

Since the publication in June 2017 of the “Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures,” companies, NGOs, and industry groups around the world have begun using this reporting framework. To date, 457 public and private companies support the TCFD’s recommendations, representing 7.9 trillion U.S. dollars.   The TCFD decided to take stock of the progress made in improving and standardizing climate-related financial disclosures. The “TCFD Status Report” was published in September 2018. As part of this study, the report focused on eight groups of stakeholders: banks, insurers, asset managers, asset owners, as well as companies in the energy, transportation, materials & construction, and agriculture sectors.

Key messages:

The main conclusion is that companies are increasingly reporting on environmental issues; however, information on the financial consequences of climate change is being overlooked.   On the one hand, the majority of companies incorporate at least one recommendation. On the other hand, few companies publish details on the cost of physical and transition climate risks. Furthermore, few companies use scenario analysis as a tool to measure their climate resilience. Carbone 4 has published a report on the importance of this type of analysis for corporate strategies: “ Scenario Analysis: A Powerful Tool for Assessing Your Company's Resilience ". It is interesting to note that the The extent to which the TCFD recommendations have been implemented varies by sector : With regard to climate metrics, non-financial companies disclose more information than financial companies. In terms of risk management, banks handle this issue best, while companies in the construction and materials sectors disclose virtually nothing on this topic. Regional differences are also apparent : Europe publishes by far the most climate-related financial informationcompared to other regions.

Key messages by stakeholder:

  The goal of the TCFD recommendations is to be both usefulfor the financial users of this information and practicalfor businesses. In order to make the information “useful for decision-making,” Investors and analysts have suggested several improvements. The use of scenario analysisto assess the resilience of businesses to climate change is considered very important; in particular, a scenario that anticipates a high carbon taxis recommended. As for metrics, some Both relative and absolute carbon footprint reduction targets are necessaryso that investors know how close—or how far—a company is from achieving these goals. In the banking sector, physical climate risksIn particular, these are often overlooked and require greater attention. Carbone 4 has published a report on the importance of physical risk analysis for corporate strategies: “ What rolefor physical risks in corporate reporting ". Finally, the disclosure of financial information regarding the expenses that will enable companies to achieve their objectives is crucial for investors. In order to make the recommendations as practical as possible, Standardization of reporting appears to be necessary. On the one hand, NGOs and companies have come together by sector to standardize climate reporting practices: for example, the WBCSD has partnered with companies in the oil and gas industry, and UNEP FI is currently working on standardizing financial reporting. On the other hand, there is a global movement to align climate reporting criteria with the TCFD guidelines. This year, CDP and the PRI amended their reporting criteria to incorporate the TCFD’s recommendations.

Conclusion:

  The TCFD recommendations are now widely known across all sectors, the disclosure of climate-related financial information is improving, and climate reporting is becoming more standardized. However, there is still a long way to go before investors and analysts are able to make decisions based on credible and useful climate-related information. To facilitate and accelerate companies’ transition toward low-carbon and resilient strategies, these TCFD recommendations must be adopted at the international level.