Find out more about:
- The Task Force’s Recommendations
- Benefits of Disclosure
- Scope of the Recommendations
- Location of Disclosure
- Scenario Analysis
- GHG Emissions and Other Metrics
- About the Task Force
- The Task Force's Recommendations and Supporting Recommended Disclosures
The Task Force’s Recommendations
1. What are the three documents released by the Task Force and how are they related?
- The Task Force’s report—Recommendations of the Task Force on Climate-related Financial Disclosures— describes its final recommendations and guidance for all sectors. It also provides background on why the Task Force was created and information on climate-related risks and opportunities, scenario analysis, and key issues the Task Force considered in developing its recommendations and areas of further work.
- The Task Force developed an annex to the report—Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures—as a resource for companies to use as they implement the recommendations. The annex includes information on applying the recommendations, a short primer on assessing financial impacts of climate-related risks and opportunities, guidance for all sectors, as well as the supplemental guidance for the financial sectors and non-financial groups.
- The Task Force also provides further information on scenario analysis to assist companies in its technical supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities. The technical supplement answers questions such as: what is scenario analysis, why is it useful, and how can a company develop and apply scenario analysis? In addition, it describes key publicly available scenarios and resources on scenario analysis.
- The best way to think about the relationship between the three documents is as building blocks. The report provides context, background, and the general framework for climate-related financial disclosures—it is intended for broad audiences. The annex provides the next level of detail to help companies implement the recommendations, and the technical supplement is a further level of detail that can be helpful for companies in considering scenario analysis.
2. What are the TCFD recommendations?
- The recommendations describe information that companies should disclose to help investors, lenders, and insurance underwriters better understand how companies’ oversee and manage climate-related risks and opportunities as well as the material risks and opportunities to which companies are exposed.
- The recommendations focus on four key areas that are relevant in virtually all types of companies: governance, strategy, risk management, and metrics and targets.
- Governance: The organization’s governance around climate-related risks and opportunities
- Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.
- Risk Management: The processes used by the organization to assess and manage climate-related risks.
- Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.
- These areas also reflect the types of information investors and other market participants expressed that they need to make better, more informed decisions.
3. Does the Task Force provide guidance to help implement the recommendations?
- Yes. The Task Force developed broad guidance to help all organizations, in all sectors implement the recommendations as well as “supplemental” guidance to provide additional support to specific sectors and industries.
- The supplemental guidance provides additional context and suggestions for implementing the recommendations and should be used alongside the guidance for all sectors.
- Supplemental guidance exists for the financial sector and non-financial sectors and industries that may be most affected by climate change.
- Financial sector: The financial sector was organized into four major industries largely based on activities performed. The activities are lending (banks), underwriting (insurance companies), asset management (asset managers), and investing (asset owners).
- Non-financial groups: The four non-financial groups identified by the Task Force account for the largest proportion of GHG emissions, energy usage, and water usage:
- Materials and Buildings
- Agriculture, Food, and Forest Products
- Since the supplemental guidance was developed based on the types of activities that companies may be engaged in, a company may need to consult more than one area to identify the types of information it should consider disclosing.
4. Who supports the Task Force’s recommendations?
- Over 270 organizations have stated support for the TCFD. The full list of supporters is available on the Task Force’s website.
- We have also seen growing demand for climate-related disclosures from investors and others through our outreach, public letters, and shareholder proposals.
Benefits of Disclosure
5. What are the benefits to preparers of implementing the recommendations?
Some of the potential benefits associated with implementing the Task Force’s recommendations include:
- easier or better access to capital by increasing investors’ and lenders’ confidence that the company’s climate-related risks are appropriately assessed and managed
- more effectively meeting existing disclosure requirements to report material information in financial filings
- increased awareness and understanding of climate-related risks and opportunities within the company resulting in better risk management and more informed strategic planning
- proactively addressing investors’ demand for climate-related information in a framework that investors are increasingly asking for, which could ultimately reduce the number of climate-related information requests received
6. What are some of the overall benefits of the recommendations?
- Widespread adoption will facilitate companies’ and investors’ routine consideration of the effects of climate change in business and investment decisions. The Task Force believes that climate-related risk is unique and pressing because:
- Climate-related risk is a non-diversifiable risk that affects nearly all industries
- Climate-related risk is often prematurely perceived as being longer-term and not relevant to financial plans and other decisions made today
- The recommendations:
- Promote board and senior management engagement on climate-related issues
- Bring the “future” nature of issues into the present through scenario analysis
- Support understanding of financial sector’s exposure to climate-related risks
- Are designed to solicit decision-useful, forward-looking information on financial impacts
- Disclosure in mainstream financial filings should also foster shareholder engagement and broader use of climate-related financial disclosures, promoting an informed understanding of climate-related risks and opportunities by investors and others.
- Ultimately, we are hopeful that widespread adoption will lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy.
7. Are the Task Force’s recommendations mandatory for companies?
- No. The Task Force was asked to develop voluntary disclosures.
- The Task Force was deliberately designed to include strong private sector participation. We performed significant outreach to the private sector and carefully considered issues raised to maximize the ease of adoption while still recommending key information for disclosure.
- Companies that adopt the recommendations will likely be driven to do so to realize the benefits of implementation, by peer adoption, and by demand for disclosure from investors and others.
8. Which companies are encouraged to implement the recommendations and why?
- Organizations with public debt or equity: widespread disclosure by these organizations in particular is necessary to promote more informed investing, lending, and insurance underwriting decisions.
- Asset managers and asset owners (including public- and private-sector pension plans, endowments, and foundations): implementation by asset managers and asset owners would help support their clients and beneficiaries in better understanding the performance of their assets, considering the risks of their investments, and making more informed investment choices.
9. Does the Task Force specify a timeframe for implementing the recommendations?
- No. The TCFD encourages companies to adopt and implement the recommendations as soon as possible, recognizing that different organizations may be in different positions regarding their capabilities to do so.
- The Task Force knows this is a journey that will take time and that we all need to “learn by doing”—the most important part is to get started.
10. How long should the resulting disclosures be?
- Each company will develop and tailor its disclosures to reflect its particular circumstances so we expect the amount of information provided will vary. We do not expect the resulting disclosures to add significantly to the length of existing reporting.
11. Should preparers implement the guidance for all sectors before the supplemental guidance?
- No. The supplemental guidance is directly tied to the recommended disclosures developed by the Task Force and provides sector- or industry-specific context and suggestions for implementing the recommended disclosures. They are not intended to create additional requirements. The supplemental guidance should be used in conjunction with the guidance for all sectors.
Key Elements of the Recommendations
Scope of the Recommendations
12. What is unique about the Task Force’s recommendations?
- The Task Force’s recommendations are the result of the first industry-led effort to create guidelines for disclosing climate-related risks and opportunities.
- The recommendations:
- Are adoptable by all organizations, across sectors and jurisdictions
- Are designed to solicit decision-useful, forward-looking information on financial impacts, including through scenario analysis
- Have a strong focus on risks and opportunities related to the transition to a lower-carbon economy, and
- Are a solution by the market for the market
13. Are the recommendations limited to certain jurisdictions?
- The recommendations are primarily intended for companies with public debt or equity in G20 countries, but can be adopted by organizations across industries and jurisdictions worldwide.
- The diverse geographic membership of the Task Force itself is testament to our intention to be globally relevant while also considering regional differences.
14. How do the recommendations relate to other climate-related disclosure frameworks?
- The Task Force considered existing voluntary and mandatory climate-related reporting frameworks (including CDP, CDSB, GRI, IIRC, and SASB) in developing its recommendations and provides alignment of its recommendations and guidance to those frameworks in the annex.
- Since the release of the final TCFD report, several of these climate-related reporting frameworks have made adjustments to align more closely with the TCFD recommendations.
15. Does the Task Force define "materiality"?
- To ensure as much compatibility as possible with national disclosure requirements for financial filings, the Task Force believes companies should determine materiality for climate-related issues consistent with how they determine the materiality of other information included in their financial filings.
- The Task Force does caution organizations against prematurely concluding that climate-related risks and opportunities are not material based on perceptions of the longer-term nature of some climate-related risks.
16. How do the recommendations incorporate materiality?
- The disclosures related to the Strategy and Metrics and Targets recommendations are subject to an assessment of materiality.
- The Task Force recommends disclosures related to the Governance and Risk Management recommendations be provided in annual financial filings because many investors want insight into the governance and risk management context in which organizations’ financial and operating results are achieved. Nonetheless, the Task Force recognizes that some companies may want to begin by incorporating these disclosures in other reports.
Location of Disclosure
17. Where should preparers disclose?
- The Task Force recommends that organizations provide climate-related financial disclosures in their mainstream (i.e., public) annual financial filings.
- The Task Force does not specify where in financial filings information should be disclosed as it will depend on the type of information being disclosed as well as national disclosure requirements or standards on how financial filings are structured. Our general thinking is that organizations would put most, and perhaps all, of the information related to the recommendations in their management discussion and analysis in the US or management reports in the EU, for example.
- Asset managers and asset owners should use their existing means of financial reporting to their clients and beneficiaries where relevant and feasible.
- In addition, the Task Force encourages certain organizations—those in the four specified non-financial groups that have more than one billion U.S. dollar equivalent (USDE) in annual revenue—to consider disclosing information related to the Strategy and Metrics and Targets recommendations in other official company reports when the information is not deemed material and not included in financial filings.
18. Are companies being asked to develop a new, separate “TCFD” report?
- The recommended information is not intended to be provided in its own separate report. Rather, companies are encouraged to include the disclosures in the relevant sections of their financial filings or other reporting as appropriate.
19. What if the recommendations are in conflict with national disclosure requirements for financial filings?
- The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not be seen as superseding national disclosure requirements. Importantly, companies should make financial disclosures in accordance with their national disclosure requirements.
- If a company believes certain elements of the recommendations are incompatible with national disclosure requirements for financial filings, the Task Force encourages the company to disclose those elements in other official company reports that are issued at least annually, widely distributed and available to investors and others, and subject to internal governance processes that are the same or substantially similar to those used for financial reporting.
20. What are "financial filings"?
- “Financial filings” refer to the annual reporting packages in which organizations are required to deliver their audited financial results under the corporate, compliance, or securities laws of the jurisdictions in which they operate. Importantly, financial filings generally contain information beyond the financial statements or accounts such as governance statements and management commentary.
21. What are "other official company reports"?
- Other official company reports are those that are issued at least annually, widely distributed and available to investors and others, and subject to internal governance processes that are the same or substantially similar to those used for financial reporting. As an example, in the US, annual reports to shareholders would likely be considered other official company reports.
22. What is "scenario analysis" and what does the Task Force recommend on scenario analysis?
- Scenario analysis is a tool for companies to consider, in a structured way, potential scenarios that are different from business-as-usual and to evaluate how their strategies might perform under those circumstances.
- Recommended disclosure (c) under Strategy and the related guidance asks organizations to describe the resilience of their strategies, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
23. What is the significance of a "2°C or lower" scenario?
- A 2°C scenario lays out a pathway and an emissions trajectory consistent with holding the increase in the global average temperature to 2°C above pre-industrial levels.
- In December 2015, nearly 200 governments agreed to work towards “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels,” referred to as the Paris Agreement. As a result, a 2°C scenario provides a common reference point that is generally aligned with the objectives of the Paris Agreement and will support investors’ evaluation of the potential magnitude and timing of transition-related implications for individual organizations; across different organizations within a sector; and across different sectors.
24. How does the Task Force address different organizations’ capacity to perform scenario analysis?
- The Task Force developed its guidance with the understanding that companies have different approaches to climate-related scenario analysis, and, therefore, different disclosure capabilities.
- We expect that most organizations perform qualitative rather than quantitative scenario analyses and will provide more qualitative disclosures.
- To address concerns about burden on smaller organizations, in its final report the Task Force established a threshold for organizations that should consider conducting more robust scenario analysis to assess the resilience of their strategies (organizations with annual revenue greater than 1 billion USDE in the four non-financial groups).
- The Task Force recommends organizations that may be more significantly affected by transition risk (e.g., fossil-fuel based industries, energy-intensive manufacturers, and transportation activities) and/or physical risk (e.g., agriculture, transportation and building infrastructure, insurance, tourism) consider more in-depth, quantitative disclosure around scenario analysis. Organizations may decide to disclose on the existing external scenarios and models they use (e.g., those provided by third-party vendors) or on their own, in-house modeling capabilities depending on their planning needs and resources.
25. How does scenario analysis differ from a stress test or forecast?
- Stress testing has many similarities with scenario analysis, but its focus is typically on the potential effects of an adverse set of conditions (worst-case analysis).
- Forecasting is the process of making predictions of the future based on past and present data and analysis of trends.
- Scenarios are hypothetical constructs and not designed to deliver precise outcomes or forecasts. Rather, they are used to enhance the resiliency of a company’s strategy through consideration of a variety of different potential future states.
GHG Emissions and Other Metrics
26. Why does the Task Force recommend disclosure of GHG emissions?
- GHG emissions are a primary focus of many climate-change policies (e.g., emission reductions, carbon pricing), technology development (renewables, carbon sequestration), and market changes (carbon markets, green finance), and can therefore present significant transition risks and opportunities for companies. GHG emissions, arguably, are also a first order driver of other climate-related risks and opportunities facing companies, such as water demand/supply and energy usage/mix, due to the physical impacts of climate change (drought, floods, and heat waves).
- GHG emissions, energy, and water use are seen as key interrelated aspects of companies’ climate-related risks and opportunities. Consistent disclosure of GHG emissions will also help with comparability (e.g., finding low-emitters in a high-emission industry).
27. Why should asset owners and asset managers disclose weighted average carbon intensity?
- The Task Force views the reporting of weighted average carbon intensity as a first step in improving information provided to investors and expects disclosure of this information to prompt important advancements in the development of decision-useful, climate-related risk metrics. The Task Force acknowledges the challenges and limitations of current carbon footprinting metrics, including that such metrics should not necessarily be interpreted as risk metrics.
28. How were the illustrative metrics for non-financial industries chosen?
- The Task Force recommends that companies disclose the metrics and targets they use to assess and manage relevant climate-related risks and opportunities. To assist with the process, the Task Force reviewed metrics in existing climate-related disclosure frameworks and selected those that are financially relevant for inclusion as illustrative examples in the annex.
29. Does the Task Force specify a carbon price?
- No, the Task Force does not specify a carbon price. The Task Force simply recommends that if companies use internal carbon prices in their planning or risk management processes that they disclose them.
About the Task Force
30. What is the Task Force?
- The Task Force on Climate-related Financial Disclosures is an industry-led effort, chaired by Michael Bloomberg, with 32 global expert members from the private sector. All members can be found here: www.fsb-tcfd.org.
- The Task Force’s remit was to develop voluntary climate-related disclosures that could “promote more informed investment, credit, and insurance underwriting decisions.”
- The FSB asked the Task Force to do this work in late 2015 in response to a request from G20 Finance Ministers and Central Bank Governors “to review how the financial sector can take account of climate-related issues.”
31. What is the Financial Stability Board (FSB)?
- The FSB is an international body that monitors and makes recommendations about the global financial system to promote financial stability. It was established in April 2009 and is chaired by Mark Carney, Governor of the Bank of England. It includes representatives from finance ministries, central banks, and financial regulators across twenty-five jurisdictions as well as representatives from four international financial institutions and six international standard-setting bodies.
- The FSB promotes international financial stability through coordinating national financial authorities and international standard-setting bodies as they work toward developing strong regulatory, supervisory and other financial sector policies.