Why is this important?
It is widely recognized that continued emission of greenhouse gases will cause further warming of the Earth and that warming above 2° Celsius (2°C), relative to the pre-industrial period, could lead to catastrophic economic and social consequences. As evidence of the growing recognition of the risks posed by climate change, in December 2015, nearly 200 governments agreed to strengthen the global response to the threat of climate change by “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. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making. Moreover, the current understanding of the potential financial risks posed by climate change—to companies, investors, and the financial system as a whole—is still at an early stage.
There is a growing demand for decision-useful, climate-related information by a range of participants in the financial markets. Creditors and investors are increasingly demanding access to risk information that is consistent, comparable, reliable, and clear. There has also been increased focus, especially since the financial crisis of 2007-2008, on the negative impact that weak corporate governance can have on shareholder value, resulting in increased demand for transparency from organizations on their risks and risk management practices, including those related to climate change.
In general, inadequate information about risks can lead to a mispricing of assets and misallocation of capital and can potentially give rise to concerns about financial stability since markets can be vulnerable to abrupt corrections.
What does "climate related risk and opportunity" mean?
The Task Force has divided climate-related risks into two major categories: (1) risks related to the transition to a lower-carbon economy, and (2) risks related to the physical impacts of climate change. Efforts to mitigate and adapt to climate change also produce opportunities for organizations, for example, through resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain. Climate-related opportunities will vary depending on the region, market, and industry in which an organization operates.
Read more about the definitions of climate-related risk and opportunity.
What are the "financial impacts" of climate change?
The long-term impact of climate change is unpredictable and complex. Risks, including physical and transitional, may have impacts across the entire structure of a business. This might include revenues affected by shifting customer demands, or physical risks to assets.
Read more about assessing financial impacts and examples of the financial impact of climate-related risks and opportunities.
What do you need to start?
Read though the application of the recommendations to find out who should report and where to report.
You may also want to consider the existing processes in your organization. This includes the risk management processes, governance structure (including audit and risk committees), and the tools you already use to help collect and report climate-related information.
How are the recommendations related to existing reporting frameworks?
The Task Force expects preparers disclosing climate-related information under other regimes and standards will be able to use existing processes and content when developing disclosures based on the Task Force’s recommendations.
Find out how the recommendations align with other reporting frameworks.
Principles for effective disclosure
To underpin its recommendations and help guide current and future developments in climate-related financial reporting, the Task Force developed a set of principles for effective disclosure. As understanding of, and approaches to, climate-related issues evolve over time, so too will climate-related financial reporting. These principles can help achieve high-quality and decision-useful disclosures that enable users to understand the impact of climate change on organizations. The Task Force encourages organizations adopting its recommendations to consider these principles as they develop climate-related financial disclosures.
What is scenario analysis?
Scenario analysis is a well-established method for developing strategic plans that are more flexible or robust to a range of plausible future states. The use of scenario analysis for assessing the potential business implications of climate-related risks and opportunities, however, is relatively recent. While several organizations use scenario analysis to assess the potential impact of climate change on their businesses, only a subset have disclosed their assessment of forward-looking implications publicly, either in sustainability reports or financial filings.
Find out more about scenario analysis.
Resources to get you started
- TCFD Good Practice Handbook
- Implementing the TCFD recommendations: Practical examples
- 10 things companies can do now to prepare for the TCFD recommendations
- Transparency in transition: A guide to investor disclosure on climate change
- Guidance for Utilizing Climate-related Information to Promote Green Investment (Green Investment Guidance)
- TCFD Final Report: A summary for business leaders
- Chapter Zero – The Directors’ Climate Forum
- The Climate Registry’s guidance for measuring, reporting and verifying GHGs
- Are Accountants ready for climate change? – Climate Hub
- TCFD Maturity Map
- UNEP FI TCFD Banking Pilot Projects
To explore each of the thematic areas and supporting recommended disclosures, click on the recommendations below.