The Task Force on Climate-related Financial Disclosures, short TCFD, announced just a few months ago that it is now supported by more than 1,000 organizations. This implies a significant shift among market actors towards the acknowledgement that climate change can pose major financial risks to organizations.
TCFD supporters now have a combined market capitalization of roughly 12 trillion USD. By publicly declaring support for the TCFD, companies demonstrate that they take the establishment of resilient financial systems through climate-related disclosures seriously. In addition to a growing number of supporters, two thirds of FTSE 100 (Financial Times Stock Exchange Index) now mention TCFD in their reporting.
Drivers of the Task Force on Climate-related Financial Disclosures recommendations
One of the main drivers of implementing the framework is the growing pressure from asset managers. Some corporations, especially in carbon-extensive industries, had taken on the TCFD recommendations early on. But other factors were necessary to make the TCFD more mainstream.
In January 2020, Larry Fink, CEO of BlackRock, gave an additional boost to the TCFD by referring to it as a ‘valuable framework’ for reporting on the climate risk in his letter to all CEOs. In this letter he acknowledges that “climate risk is investment risk”. Furthermore, “every government, company, and shareholder must confront climate change”. Seeing BlackRock shifting into this direction is an important sign.
Strong alignment with CDP
Another significant driver of interest and adoption of the framework is TCFD’s strong compatibility with CDP disclosures. CDP, formerly known as the Carbon Disclosure Project, has turned 20 this year. By now, it has thousands of companies reporting through its framework.
According to CDP, the Covid-19 pandemic has not hindered companies in committing to long-term climate targets. In contrast, corporations such as Airbus, have now committed to engaging its suppliers, despite struggling through this year’s major crisis.
Customers and governments
Another important driver is the pressure coming from customers and governments. Canada, for example, announced in May 2020 that any corporation applying for a bail-out package due to the Covid-19 crisis, must commit to report its climate impacts in line with the TCFD.
Task Force on Climate-related Financial Disclosures recommendations
A widespread implementation of the Climate-Related Financial Disclosures recommendations can provide investors with the required information to understand a corporation’s opportunities and risks arising from climate change. Companies can benefit from implementing the recommendations in different ways:
- Easier or better access to capital by increasing investors’ confidence
- Better ability to meet existing disclosure requirements by reporting material information in financial filings
- Increased awareness and understanding of climate-related risks and opportunities
- Better ability to manage risk and enforce strategic planning
- Proactively addressing investors’ demand for climate-related information