Blog Updated 5th April 2022.
1. What is TCFD?
TCFD is an acronym for the Task Force on Climate-Related Financial Disclosures. These are a set of recommendations regarding the information that companies should publicly disclose on climate change. They were developed by the international Financial Stability Board with the aim of improving how companies communicate on climate change to investors and other stakeholders.
There are 11 disclosures categorised into four areas – governance, strategy, risk management and metrics/targets. An excellent summary of the recommendations can be found on page 14 on the TCFD Recommendations Report.
2. Does TCFD apply to my company?
Complying with TCFD was historically voluntary however, the UK government has stated its intention to make TCFD-aligned disclosures mandatory by 2025, and according to their planned roadmap this would include all UK-registered companies complying in 2022. This role-out has been delayed but legislation has been introduced that means from 6th April 2022 most large companies (500+ employees) will need to include climate-related financial disclosures in their Annual Report. Further, the London Stock Exchange requires all premium listed companies to report TCFD disclosures. A proposal to introduce this reporting requirement in the US has also been published.
For information on other environment, social and governance (ESG) related reporting requirements that might apply to your business, read our blog here.
3. What do we have to do?
In short, your company needs to conduct a comprehensive climate change risk and opportunity assessment. This requires a number of steps:
Collection of sufficient carbon data to assess your company’s risk exposure. This will include your operational (scope 1 and 2) emissions at a minimum, but also, if appropriate, your scope 3 emissions too (see point 4 below).
Identification of all actual and potential climate change risks and opportunities to your business (e.g. policy/legal, technology, market, reputation and physical risks). These should consider different climate change scenarios, including a 2 degrees Celsius or lower scenario.
Evaluation of the impact of these risks and opportunities on your business, strategy and financial planning.
This risk process should be integrated into the company’s overall risk assessment processes and the board should have oversight.
With risks and opportunities identified, the final two steps are to decide on, and implement, appropriate mitigation and management measures, and to set relevant targets.
Depending on your company’s current approach to climate change you can leverage work already done. Indeed, companies that have participated in the CDP Climate Change will already be very familiar with climate change risk/opportunity assessments.
4. Do we need to measure our Scope 3 emissions?
Scope 3 emissions are your company's indirect carbon emissions, i.e. those that arise from your supply chain (e.g. when manufacturing part/all of your product), or those that arise from your customers (e.g. using your product), or those that arise indirectly from any other source (e.g. from your waste; the commuting travel of your employees etc.).
The TCFD guidance says scope 3 should be measured, "if appropriate". Your company therefore has to make a judgement call on whether climate change will, or could have, a significant impact on your business indirectly by impacting on your supply chain/customers/other sources.
As a rough guide, the Science-based targets initiative deems Scope 3 emissions to be significant if they equate to 40% or more of the company’s overall emissions.
Need some help with implementing the TCFD recommendations? Contact Rawstone Consulting here.