En Grupo de trabajo sobre divulgación de información financiera relacionada con el clima (TCFD) has set a precedent in guiding organizations worldwide on how to disclose potentially material climate-related financial information. As concerns about environmental impacts continue to rise, the framework encourages companies to evaluate and report the risks and opportunities that climate change poses to their business. This proactive approach not only helps in the assessment of financial implications but also in fostering transparency and informed decision-making among investors, lenders, and insurance underwriters.
Adopting the TCFD recommendations aligns businesses with a growing movement towards sustainability and climate resilience. The framework’s core elements—governance, strategy, risk management, and metrics and targets—serve as the foundation for disclosing relevant information. Through these disclosures, organizations can demonstrate their commitment to addressing climate change while providing stakeholders with the clarity needed to understand how they are positioned for the challenges and opportunities it may bring.
Understanding TCFD Framework
The TCFD Framework, established by the Financial Stability Board, provides essential guidelines for companies to disclose climate-related financial risks and opportunities. It is crafted to promote more informed investment, credit, and insurance underwriting decisions, thereby enabling stakeholders to understand the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks. The framework is underpinned by four core pillars:
- Gobernanza This pillar focuses on the company’s governance around climate-related risks and opportunities. It emphasizes the importance of leadership and board oversight in managing climate-related issues.
- Strategy Under strategy, the framework asks organizations to disclose their approach to dealing with climate-related risks and opportunities, considering different future scenarios. This includes the implications for the business model, strategy, and financial planning.
- Gestión de riesgos This aspect of the framework details how the company identifies, assesses, and manages climate-related risks. It encourages organizations to integrate these risks into their overall risk management plan and strategies.
- Metrics and Targets The final pillar relates to the metrics and targets used to assess and manage relevant climate-related risks and opportunities. This includes the sectors’ greenhouse gas emissions footprint, targets for managing these impacts, and progress towards achieving these targets.
Together, these pillars form the foundation of the TCFD Framework, guiding companies in developing a more resilient financial future in the face of climate change.
11 Recommended Disclosures
In the pursuit of fostering greater clarity and consistency in the disclosure of climate-related information, the TCFD has recommended a set of eleven disclosures [1]. These recommendations are designed to provide stakeholders with a comprehensive overview of an organization’s exposure to climate-related risks and opportunities.
By adhering to these guidelines, companies not only enhance their own risk management and strategic planning but also contribute to the overall stability of the financial system in the face of climate change. The following section outlines these eleven key disclosures, segmented according to the TCFD’s four foundational pillars, offering a roadmap for organizations aiming to align their reporting with global best practices in climate-related financial disclosure.
Gobernanza |
Strategy |
Gestión de riesgos |
Metrics & Targets |
Disclose the company’s management strategies towards climate-related threats and potentials. | Disclose the real and possible effects of climate-related risks and opportunities on your organization’s business operations, strategic planning, and financial arrangements when this information is of significance. | Disclose the methods your organization employs to spot, evaluate, and handle risks related to climate change. | Disclose the criteria and objectives employed to evaluate and control pertinent climate-related dangers and prospects, where such data is of substantial importance. |
Recommended Disclosures |
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a) Describe the board’s supervision of risks and opportunities related to the climate. | a) Describe the discovered short, medium, and long-term climate-related risks and opportunities of the organization. | a) Discuss the procedures implemented by the organization to detect and evaluate risks related to climate change. | a) Disclose the metrics utilized by the organization to evaluate and manage climate-related risks and opportunities, adhering to its strategic and risk management plan. |
b) Explain the part that management plays in evaluating and handling opportunities and risks related to climate concerns. | b) Describe the influence of climate-related risk factors and possibilities on the company’s business approach, strategic planning, and financial forecasts. | b) Explain the procedures of the organization in handling risks related to climate changes. | b) Disclose Scope 1, Scope 2, and potentially, Scope 3 greenhouse gas (GHG) discharges, along with the associated threats. |
c) Depict the robustness of the company’s approach while factoring in various climate-focused scenarios, especially those involving a 2°C or lesser change. | c) Explain how the methods for identifying, evaluating, and handling climate-related risks are incorporated into the company’s comprehensive risk management strategy. | c) Outline the objectives set by the company to handle climate-related risks and opportunities and evaluate how well the company is doing in reaching those objectives. |
Where To Start
Organizations looking to align with the TCFD framework and enhance their climate-related financial disclosures should consider the following general tips:
- Start Small: Begin by integrating climate-related financial disclosures within existing reporting frameworks or processes. This could involve including climate-related risks in annual financial reports or sustainability updates. Starting with a manageable scope allows for gradual improvement and sophistication in reporting.
- Involucrar a las partes interesadas: Understanding the concerns and informational needs of various stakeholders, such as investors, customers, and regulatory bodies, is crucial. Engaging with these groups can provide valuable insights into what information is most relevant and how it can be effectively communicated.
- Leverage Interdepartmental Collaboration: Climate-related financial disclosures require input from across the organization, including finance, sustainability, operations, and executive leadership teams. Facilitating collaboration between these departments can ensure a comprehensive and cohesive disclosure strategy.
- Invest in Training: Building internal expertise on climate-related issues and reporting standards is essential. Providing training for key personnel involved in the disclosure process can enhance the quality and accuracy of the information reported.
- Use Technology and Tools: Several tools and software solutions can streamline the process of collecting, analyzing, and reporting climate-related financial data. These technologies can also help in scenario analysis and tracking progress toward climate-related targets.
- Seek External Support: Consultation with external experts, such as environmental consultants, legal advisors, or industry groups, can provide additional insights and help ensure that disclosures meet the high standards expected by the TCFD and stakeholders.
- Prioritize Transparency: Being transparent about the organization’s current capabilities, as well as the challenges faced in addressing climate-related issues, can build trust with stakeholders. It’s also important to be clear about the assumptions used in any scenario analysis or risk assessment.
By adopting these practices, organizations can improve their approach to climate-related financial disclosures, align more closely with the TCFD recommendations, and demonstrate leadership in addressing climate-related risks and opportunities.
2023 TCFD Status Report
The 2023 TCFD Status Report [2] marks a significant milestone in the global endeavor towards transparency in climate-related financial disclosures. This annual report assesses the progress of adoption of the TCFD recommendations by companies worldwide, identifying key trends, challenges, and opportunities in the reporting landscape. It serves as a barometer for how effectively organizations are incorporating climate risks and opportunities into their financial reporting and strategic planning.
Here’re some notable insights from the report:
- The trend of businesses embracing TCFD-aligned disclosures continues to gain momentum, however, there is still room for further development. In the fiscal year 2022, TCFD saw an increase to 58% of firms revealing information in accordance with at least five recommended disclosures, which is a substantial rise from 18% in 2020. Yet, only 4% of businesses complied fully with all eleven recommendations.
- In the span between fiscal years 2020 and 2022, there was a significant rise in the number of companies reporting on climate-related risks or opportunities, board oversight, and climate-related targets, with increases of 26, 25, and 24 percentage points respectively.
- In most jurisdictions, the regulatory requirements for climate-related disclosures dictate that they should be included in financial statements or annual reports.
- Furthermore, over 80% of the biggest asset managers and half of the largest asset owners complied with at least one of the 11 recommended disclosures. Upon reviewing publicly accessible reports, it was found that close to 70% of the top 50 asset managers and 36% of the leading 50 asset owners adhered to at least five of the suggested disclosures.
Resumen
In an era where the impact of climate change on global markets cannot be overstated, the movement towards robust and transparent financial disclosures stands out as a crucial step forward. It signifies not just an alignment with emerging regulatory frameworks but also a commitment to sustainability and responsible governance. By adopting forward-thinking practices, organizations not only secure their own future but also contribute significantly to the collective effort in combating climate change. This evolution towards openness and accountability is a testament to the resilience and adaptability of modern businesses in the face of environmental challenges.
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