TCFD: Is it the most important climate organisation in the world?

There is a task at hand for business sustainability

Climate change is real. And it is here. That much should no longer be up for debate, as overwhelming evidence of the adverse effects of climate change pile up all over the world.

Action to stop climate change and counter its effects needs to be taken now. And this realisation is, thankfully and as a result of massive efforts from organisations, governments, universities, scientists and even businesses, prevalent enough to cause serious action.

And serious action is being taken, with stronger regulation from governments and regulatory bodies from countries around the globe. There are many factors that drive these regulations. Factors that should be studied and emulated to produce results where they are not so common.

However, this article will not be looking at what factors are driving these regulations. Instead, we will look at an organisation that helps regulatory bodies decide what changes are required.

What is the TCFD?

The Task Force on Climate-related Financial Disclosures was created as recently as 2015, by the Financial Stability Board (FSB). The FSB itself was founded in 2009 in the aftermath of the global financial crisis of 2008 to promote financial stability. So it is within their mission to promote sustainability in business as a means to achieve financial stability.

TCFD provides recommendations to be followed by companies, organisations as well as regulatory bodies to improve and increase reporting of climate-related financial information.

These recommendations encompass 4 areas, in particular, namely Governance, Strategy, Risk Management and Metrics & Targets. They are designed to help bring about consistency and comparability in reporting financial data that is relevant to climate or the broader environmental issues.

Why should your business care about TCFD?

While their mission and activities are easy enough to see, why should you, a business owner, professional or investor, care about what they’re offering?

It is easy to dismiss the recommendations as only relevant to large, publicly listed companies. However, regardless of whether your company is listed or not, there are still strong reasons why you should care about and be aware of TCFD recommendations.

TCFD recommendations are used by governments already 

Even though they began as a set of recommendations to be used voluntarily, jurisdictions like New Zealand have already mandated climate risk disclosures to be in line with TCFD by 2023. As more countries and regulatory bodies like the UK and EU respectively begin mandating the TCFD recommendations, their relevance becomes increasingly easy to see.

If you are a business owner, it is likely that you will have to integrate TCFD recommendations in your annual reports sooner rather than later. 

If you are a sustainability professional or an auditing professional, understanding the recommendations will pay dividends as an increasing number of companies integrate them into their reporting processes.

If you are an investor, the use of these recommendations by companies will help you make well-informed decisions. With a consistent, comparable system of reporting climate data in place, you can easily assess your options and make the best decision.

TCFD recommendations are widely accepted and recognised

The recommendations are one of the most widely accepted and recognised guidelines for integrating climate-related information in organisations’ reports. 

Over 1000 global organisations across 55 countries have already declared support for the TCFD and its recommendations. These organisations combine to have a market capitalisation of nearly $12 Trillion, a significant number. This number was in February 2020, and since the COVID-19 pandemic and its impacts were felt after that time, it is likely that this number continues to grow.

They do not call for the preparation of a separate sustainability report. Rather, the intention is to highlight climate data within a company’s regular reports in financially relevant terms. The idea is to understand the financial effects of climate-related issues and be prepared for them. 

TCFD recommendations a powerful tool for hedging risk

Integrating these recommendations into your reports will help you identify short as well as long-term climate-related risks. Risks arising from extreme weather events and the adverse effects of global warming could be identified and their potential impacts quantified.

This helps a business to be better prepared to deal with these risks and look for solutions.

The recommendations are very useful in identifying opportunities.

With more regulation in place, businesses and individuals will inevitably be looking towards ways to become more sustainable. As more investments are made in sustainable businesses, opportunities will arise for those who are aware to take advantage.

Firms engaged in the energy industry, for example, could look toward renewable sources of energy like solar and wind for potentially massive market opportunities. 

Companies in all industries are bound to have to make changes to become more sustainable due to mounting regulations. And firms that can service this need will have a lot to gain.

How the TCFD recommendations help make a business sustainable

The recommendations are comprehensive and help companies and organisations become more effective in disclosing risks and opportunities related to climate. This is meant to be accomplished by improving the organisation’s existing reporting processes.

The four primary areas where the scope of TCFD’s recommendations lies in helping an organisation identify short and long term risks and opportunities. 

Governance

Governance is one of the most important parts of a corporate business. And disclosing the organisation’s governance practices around climate-related risks and opportunities is highly recommended.

Strategy

Climate-related risks and opportunities can have a wide-ranging impact on an organisation’s overall strategy in the short and long terms.

It is recommended that an organisation discloses the risks and opportunities that it has identified, as well as the impacts that they may have on the strategy and finances. There is also an emphasis on the resilience of the organisation’s strategy in different climate-related scenarios.

Risk Management

It is clear that climate-related issues present very real risks to many business organisations. 

TCFD recommends the disclosure of the risk identification and management processes in an organisation when it comes to climate-related issues. It also recommends describing how they are integrated into the overall risk management activities and processes.

Metrics and Targets

It is key that the specific metrics used to analyse climate-related issues are well understood. Also, the targets that an organisation may use to assess or manage its relevant risks and opportunities are also to be disclosed alongside the metrics.

Making the Task Force’s recommendations useful

All these recommendations are made useful only when principles of the disclosure are followed. Factors like representing the relevant information and being consistent over time are necessary for ensuring the goals of the disclosure are achieved. 

For an organisation to make good use of these recommendations, the focus should not just be on reporting the data to investors. The recommendations must be viewed as a tool to improve the organisation’s risk management and overall performance.

Effective use of the recommendations will allow organisations to identify, understand and eliminate climate-related risks that they may face. 

Identifying opportunities that arise as a result of climate issues will allow a firm to take advantage. Something that others that do not follow the recommendations are unlikely to manage.

Doing these two things will help your organisation gain a significant competitive advantage. One that it can use to improve its overall performance, attract new investments and keep existing investors satisfied.

How you can use TCFD recommendations in your sustainable business

The Task Force on Climate-related Financial Disclosure offers several resources through its website for businesses, professionals and investors to learn from.

There is also a knowledge hub, with resources that explain the core elements in detail, as well as case studies from various organisations. The full recommendations are also available as a downloadable resource.

You can also find this review of the recommendations and their local relevance by the European Union and the UN PRI. 

Integrating sustainability into your organisation’s reporting processes is easier said than done, despite the large number of resources that help guide it. It pays to have professionals who focus on sustainability reporting, especially if you are in the initial stages of business sustainability.

We at Sustinaro focus on sustainability communication, for sustainability that makes sense.

Make sense of your sustainability efforts, for yourself as well as your stakeholders. Connect with us now, and begin integrating sustainability in your business.