Financial markets need clear, comprehensive information on the impacts of climate change. This includes the risks and opportunities presented by rising temperatures, climate-related policy, and emerging technologies in our changing world.
The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information.
The TCFD has developed a framework to help public companies and other organizations more effectively disclose climate-related risks and opportunities through their existing reporting processes. Our recommendations encourage clear reporting on how climate change financially impacts companies across four pillars: governance, strategy, risk management, and metrics and targets.
The TCFD singles out physical and transition risk as the main sources of climate risk. It splits physical risk in two subtypes: acute and chronic. It splits transition risk into four subtypes: policy and legal, technology, market, and reputational.
TCFD recommendations state that firms should disclose on four key parameters, ranging from the concrete to the abstract, so that firm shareholders and other stake-holders are aware and fully informed of the progress the firms have made in their preparedness to tackle climate change. These are metrics and targets, that is, the met-rics used by the firm in question to assess climate-related risks and opportunities; risk management, that is, what processes the firm has in place to manage climate risks; the firm’s strategy surrounding climate change; and the governance structures the firm has in place to address and take responsibility for climate issues, including at board level.
Key features of the recommendations are that they are intended to be
adoptable by all organizations;
included in financial filings;
designed to solicit decision-useful, forward-looking information on financial impacts; and
strongly focused on risks and opportunities related to transition to lower-carbon economy.