The TCFD framework is an essential tool for uncovering climate-related financial risks and opportunities that may impact your company. By reporting on the TCFD, you can ensure you capitalize on these opportunities and implement measures to mitigate the risk of potential financial loss from climate change.
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What is the TCFD?
TCFD is an abbreviation for Task Force on Climate-related Financial Disclosures, and it is a framework for reporting on climate-related opportunities and risk factors for businesses. It was established in 2015 by the Financial Stability Board (FSB) per the request of the G20 countries in response to the 2015 Paris Agreement's lack of concrete and actionable guidelines for addressing the financial effects of climate change
What does the TCFD address?
Investors who are pursuing ESG integration in their investment decisions did not find concrete guidelines for discussing financial risks and opportunities in the Paris Agreement. The lack of disclosure and reliable data for assessing, analyzing, and tracking the process remained a problem. TCFD addresses the issues by defining several standardized recommendations for worldwide climate-related disclosures that would promote sustainable and informed investments.
CSRD is another prevalent ESG reporting framework: Explore it here
The importance of the TCFD framework
The premise behind establishing the TCFD in 2015 was to create a better incentive for investors and companies to focus on relevant consequences of climate change. If companies and investors have a clear understanding of the financial implications of climate change, the markets will help channel investments to sustainable business models.
The TCFD is closely linked to ESG disclosures as it spans across all three pillars of ESG and addresses the risks, opportunities, and financial impacts on environmental, social, and governance principles.
The TCFD framework communicates the importance of observing and assessing financial risks and opportunities associated with ESG. Better and more information will allow companies to incorporate climate-related risks and opportunities into their overall risk management and strategic planning.
You might be interested in: Get an overview of all the most relevant ESG reporting frameworks here
What is TCFD Reporting?
When you are doing TCFD reporting, you are assessing the impact that your organization has on the global climate. The TCFD framework provides guidelines for making this disclosure process more streamlined, by ensuring that the data is consistent and comparable. It can easily be amended to fit any business size and type. It is also relevant in all industries.
11 TCFD reporting recommendations
The TCFD reporting framework is based on a set of disclosure recommendations. The objective is to provide transparency about risk exposures to investors and lenders. There are 11 disclosure recommendations, summarized in four themes: governance, strategy, risk management, and metrics – as well as seven concrete principles for disclosure.
Four main reporting themes in the framework
1. Governance
When reporting on governance there is a focus on describing the board’s oversight of climate-related risks and opportunities. You must also describe management’s role in assessing and managing these risks and opportunities.
2. Business strategy
You should report on the impact of climate-related risks and opportunities on the business strategy, the daily business operations, and the financial planning of the company. Include all short-, medium- and long-term perspectives in this assessment.
A key part of reporting on the business strategy is to describe the resilience of the strategy. This includes creating various scenario analyses that delve into different types of scenarios, such as orderly or disorderly transition and physical risks.
In fact, the International Sustainability Standards Board (ISSB) announced that companies within a certain threshold must provide climate-related scenario analyses in order to sufficiently identify climate-related risks and opportunities. The ISSB was established in 2021 with a mission to develop global standards for sustainability-related disclosures that would consolidate international reporting directives like the TCFD and provide a standard for making smarter capital allocation decisions.
3. Risk management
Climate change presents financial risks to the global economy, including rising temperatures, the emergence of climate-related policies, and new technologies. These risks should all be addressed in a proper system of risk management. In the TCFD report it is done by describing the processes that are in place for identifying and assessing risks, as well as the routines that exist for managing these risks. It is also crucial that you describe how they are integrated into the overall risk management of the company, such as supply chain risk management (SCRM).
4. Metrics
Data collection is the foundation of the TCFD report, and you depend on metrics to define what data to gather and your perspective on that data. You must disclose metrics that are used to assess risks and opportunities. This includes the scope 1, 2 and 3 for GHG emissions and their related risks. You also need to describe the targets used to manage climate-related risks and opportunities, including the performance against the defined targets.
Seven principles for effective disclosure
- Principle 1: Disclosures should present relevant information
- Principle 2: Disclosures should be specific and complete
- Principle 3: Disclosures should be clear, balanced and understandable
- Principle 4: Disclosures should be consistent over time
- Principle 5: Disclosures should be comparable among organizations within a sector, industry or portfolio
- Principle 6: Disclosures should be reliable, verifiable ,and objective
- Principle 7: Disclosures should be provided on a timely basis
How to report on TCFD
1. Initial assessment
You must assess the risks, which are often divided into two categories of climate-related risks:
- Physical risks: Physical risks, related to the physical impacts of climate change, are often acute and driven by extreme weather events like hurricanes or wildfires. Others are chronic, resulting from long-term shifts in climate patterns, such as increased temperatures. These risks can financially impact transportation, supply chains, and employee safety.
- Transitional risks: Transitional risks, related to the transition to a low-carbon economy, are closely associated with new climate-related policies, regulations, and disclosure requirements around greenhouse gas emissions (GHG) and carbon tax policies, among others. These risks can have a direct financial impact on the business or its reputation.
2. Data collection
Use the appropriate metrics to collect the data that you need to produce the TCFD report. In the CEMAsys software, you get access to an ESG module that acts as a centralized hub for retrieving, analyzing, and visualizing the data. By leveraging our system, you can efficiently manage and report on ESG metrics in accordance with standards such as TCFD and CSRD, ensuring comprehensive compliance and accurate ESG reporting.
Discover the ESG Metrics Module
3. Analysis
Based on the data collection, you categorize the data and conduct relevant, balanced, and comparable analyses of the potential climate-related risks and opportunities for your company.
4. Report preparation
Write the TCFD report and share it with management for review. From there, you can make it public to investors and stakeholders. If you want to communicate it to the broader public, you can also publish the results.
Is TCFD mandatory to report on?
It is not mandatory to report on TCFD. Initially, it was a framework of voluntary recommendations, but it has since become part of regulatory frameworks for climate change reporting in some jurisdictions.
In July 2023, FSB announced that its work on the TCFD had been completed. As the TCFD’s recommendations have always been practiced on a voluntary basis, companies are advised to follow them as they transition to the ISSB recommendations as well.
Get an overview of the status in countries in Europe and Asia below:
In Canada
It is mandatory to report on TCFD for certain federally regulated institutions from 2024 onward.
In Singapore
It is mandatory for listed companies in certain sectors.
In Japan
It has been mandatory to report on TCFD for prime market-listed companies since 2022.
In EU
It is not mandatory for EU-countries to report on TCFD. However, the CSRD incorporates many TCFD principles, ensuring that companies do report on key metrics. Companies report under European Sustainability Reporting Standards (ESRS).
In United Kingdom
In the UK, it became mandatory to report on TCFD disclosures in 2025.
Challenges associated with TCFD reporting
Data availability
The emissions in scope 3 are often the most significant portion of a company’s carbon footprint. It is not guaranteed that the data is available or easily traceable when assessing the GHG protocol for Scope 3 emissions. It encompasses all activities in the supply and value chain where you are dependent on many suppliers and stakeholders to collect and share data that might be incomplete or inconsistent.
Complexity of scenario analysis
Scenario analyses can be complex and therefore difficult to define. For one, choosing the right scenario is challenging. Secondly, whichever scenario relies on a certain set of assumptions that might impact the result of the analysis. A solution to combating this issue is to prioritize the risks and opportunities that are most likely to impact your business, as well as involving as many stakeholders as possible, both internally and externally. In CEMAsys, we have a lot of experience with advising clients on reaching ESG targets and reporting on these metrics.
Defining materiality
You want to target the correct area where new initiatives will have the biggest impact, which is known as determining materiality. It is important to concentrate on the issues that have a measurable impact on the business. It starts with finding the risks and the consequences of them, which will be the foundation of choosing which ESG-related vulnerabilities to prioritize first.
Lack of internal expertise
You are dependent on a diverse set of skills to effectively report on TCFD requirements, which is not necessarily readily available in all organizations. You can increase this specialized knowledge by doing internal upskilling. Another solution is to seek advice from external consultants with expertise in TCFD reporting and general ESG compliance.
Seek advice externally
At CEMAsys we support your organization at every step of the ESG reporting. Our consultants tailor the reporting process to your specific needs and provide clear guidance throughout.
Why should you report on TCFD
The increasing risks associated with climate change highlight the importance of reporting on TCFD. You can view it as a tool to address these climate-related issues, to mitigate financial risks, and to identify opportunities that will ensure healthy economic growth. More and more investors and lenders also view ESG issues as prevalent and important to consider when allocating capital among businesses. By being transparent on ESG and sustainability goals through TCFD reporting, you are already a step in front of competitors who do not have the same commitment to climate-related disclosures.
The biggest upsides to being compliant with the TCFD framework
Outside of mitigating risks and seizing opportunities, there are other advantages to reporting on and complying with TCFD.
- Enhanced access to capital: You are more likely to attract investors focused on integrating climate-related factors into their investment portfolios.
- Increased investor confidence: By ensuring transparency, you are also more accountable for your company's climate-related risks and opportunities.
- Better stakeholder engagement: The TCFD framework is also a great way to communicate climate-related initiatives to stakeholders, serving as a potential resource to enhance brand reputation and trust.
- Strengthened resilience: You are more equipped to plan for different scenarios and meet challenges head on should they arise. It is also important to mention that the TCFD reporting feeds into a long-term sustainability strategy that will impact other company initiatives.
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