Task Force on Climate-related Financial Disclosures (TCFD) - Recommendations
The Task Force on Climate-related Financial Disclosures (TCFD) adopted its set of recommendations in 2017. The implementation guidance was last updated in 2021.
The Recommendations published by the Task Force on Climate-related Financial Disclosures (TCFD) are designed to help companies provide better climate-related information to support market transparency and more informed capital allocation. The set of recommendations differs from many disclosure frameworks as it considers how climate change will impact the future of a company and not how the company will impact climate change. It is structured around four thematic areas that represent core elements of how companies operate: governance, strategy, risk management, and metrics and targets.
The PSCI is not a certification or compliance body but it offers tools to members that can used as part of your company’s due diligence processes.
Please note that this summary was drafted by the PSCI Secretariat. PSCI members and suppliers are advised to read the legislation in its entirety.
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TCFD Recommendations (2017)
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TCFD Implementation Guidance (2021)
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A brief overview of the TCFD (2021)
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Latest TCFD Status Report (2023)
Legislative provisions
- Processes and frequency by which the board and / or board committees (e.g., audit, risk, or other committees) are informed about climate-related issues
- Whether the board and / or board committees consider climate-related issues when reviewing and guiding strategy, major plans of action, risk management policies, annual budgets, and business plans as well as setting the organization’s performance objectives, monitoring implementation and performance, and overseeing major capital expenditures, acquisitions, and divestitures
- How the board monitors and oversees progress against goals and targets for addressing climate-related issues
Management’s role in assessment and management of climate related issues
Recommended disclosures:
- Whether the organization has assigned climate-related responsibilities to management-level positions or committees; and, if so, whether such management positions or committees report to the board or a committee of the board and whether those responsibilities include assessing and/or managing climate-related issues
- A description of the associated organizational structure(s)
- Processes by which management is informed about climate-related issues
- How management (through specific positions and/or management committees) monitors climate-related issues
PSCI Principles
Legislative provisions
The following legislative provisions are included:
Climate-related risks and opportunities over the short, medium, and long term
Recommended disclosures:
- A description of what they consider to be the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of the organization’s assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms
- A description of the specific climate-related issues potentially arising in each time horizon (short, medium, and long term) that could have a material financial impact on the organization
- A description of the process(es) used to determine which risks and opportunities could have a material financial impact on the organization
Organizations should consider providing a description of their risks and opportunities by sector and / or geography, as appropriate.
Please note that the Task Force divided climate-related risks into two major categories:
- Risks related to the transition to a low-carbon economy, e.g. policy and legal, technology, market, reputation (see examples in the Implementation Guidance, p. 75)
- Risks related to the physical impacts of climate change, e.g. acute, chronic (see examples in the Implementation Guidance, p. 75)
And the climate-related opportunities into five major categories (see details in the Implementation Guidance, p. 76):
- Resource efficiency
- Energy source
- Products and services
- Markets
- Resilience
Impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
Recommended disclosures:
- Impact of identified climate-related issues on the organization's businesses, strategy, and financial planning, and especially in the following areas:
- Products and services
- Supply chain and/or value chain
- Adaptation and mitigation activities
- Investment in research and development
- Operations (including types of operations and location of facilities)
- Acquisitions or divestments
- Access to capital
- How climate-related issues serve as an input to the organization's financial planning process, the time period(s) used, and how these risks and opportunities are prioritized. Disclosures should reflect a holistic picture of the interdependencies among the factors that affect their ability to create value over time.
- Impact of climate-related issues on the organization's financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities). If climate-related scenarios were used to inform the organization’s strategy and financial planning, such scenarios should be described.
- Organizations that have made GHG emissions reduction commitments, operate in jurisdictions that have made such commitments, or have agreed to meet investor expectations regarding GHG emissions reductions should describe their plans for transitioning to a low-carbon economy, which could include GHG emissions targets and specific activities intended to reduce GHG emissions in their operations and value chain or to otherwise support the transition.
Resilience under different climate scenarios
Recommended disclosures:
- How resilient the organization's strategies are to climate-related risks and opportunities, taking into consideration a transition to a low-carbon economy consistent with a 2°C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks
- Where the organization believes its strategies may be affected by climate-related risks and opportunities
- How its strategies might change to address such potential risks and opportunities
- The potential impact of climate-related issues on financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities)
- The climate-related scenarios and associated time horizon(s) considered
TCFD Recommendations Implementation Guidance, pp. 18-19
PSCI Principles
Resources
Legislative provisions
The following legislative provisions are included:
Processes for identifying and assessing climate-related risks
Recommended disclosures:
- The organization's risk management processes for identifying and assessing climate-related risks. An important aspect of this description is how the organization determines the relative significance of climate-related risks in relation to other risks.
- Whether the organization considers existing and emerging regulatory requirements related to climate change (e.g., limits on emissions) as well as other relevant factors considered
- Processes for assessing the potential size and scope of identified climate-related risks
- Definitions of risk terminology used or references to existing risk classification frameworks used
Processes for managing climate-related risks
Recommended disclosures:
- Processes for managing climate-related risks, including how the organization makes decisions to mitigate, transfer, accept, or control those risks
- Processes for prioritizing climate-related risks, including how materiality determinations are made within the organization
In describing their processes for managing climate-related risks, organizations should address the following risks:
- Risks related to the transition to a low-carbon economy, e.g. policy and legal, technology, market, reputation (details provided in the Implementation Guidance, p. 75)
- Risks related to the physical impacts of climate change, e.g. acute, chronic (details provided in the Implementation Guidance, p. 75)
Integration of processes for identifying, assessing, and managing climate-related risks into overall risk management
The organization should describe how its processes for identifying, assessing, and managing climate-related risks are integrated into its overall risk management.
TCFD Recommendations Implementation Guidance, pp. 27-28
PSCI Principles
SAQ & Audit Template
Management Systems section:
- Question 6: Does the facility and/or company have policies and/or practices in place to risk assess their programs and potential impacts on responsible business conduct principles? Do these assessments include: [...] Business interruption risks (example: flood, severe weather)?
Resources
Legislative provisions
The following legislative provisions are included:
Metrics to assess climate-related risks and opportunities
Recommended disclosures:
- Key metrics used to measure and manage climate-related risks (e.g. policy and legal, technology, market, reputation, physical impacts; for details, see the Implementation Guidance, p. 75), and opportunities (e.g. resource efficiency, energy source, products and services, markets, resilience; for details, see the Implementation Guidance, p. 76), as well as metrics consistent with the following cross-industry, climate-related metric categories (for more details, see here, p. 79):
- GHG emissions: Absolute Scope 1, Scope 2, and Scope 3; emissions intensity
- Transition risks: Amount and extent of assets or business activities vulnerable to transition risks
- Physical risks: Amount and extent of assets or business activities vulnerable to physical risks
- Climate-Related Opportunities: Proportion of revenue, assets, or other business activities aligned with climate-related opportunities
- Capital Deployment: Amount of capital expenditure, financing, or investment deployed toward climaterelated risks and opportunities
- Internal Carbon Prices: Price on each ton of GHG emissions used internally by an organization
- Remuneration: Proportion of executive management remuneration linked to climate considerations
- Metrics on climate-related risks associated with water, energy, land use, and waste management where relevant and applicable
- Where climate-related issues are material, the organization should consider describing whether and how related performance metrics are incorporated into remuneration policies
- Where relevant, the organization should provide its internal carbon prices as well as climate-related opportunity metrics such as revenue from products and services designed for a low-carbon economy
- Metrics should be provided for historical periods to allow for trend analysis. Where appropriate, the organization should consider providing forward-looking metrics for the cross-industry, climate-related metric categories as listed above, consistent with its business or strategic planning time horizons. In addition, where not apparent, the organization should provide a description of the methodologies used to calculate or estimate climate-related metrics
Disclosure of Scope 1, Scope 2, and Scope 3 emissions, and related risks
Recommended disclosures:
- Scope 1 and Scope 2 GHG emissions independent of a materiality assessment
- If appropriate, Scope 3 GHG emissions and the related risks. All organizations should consider disclosing Scope 3 GHG emissions.
GHG emissions should be calculated in line with the GHG Protocol methodology to allow for aggregation and comparability across organizations and jurisdictions. As appropriate, the organization should consider providing related, generally accepted industry-specific GHG efficiency ratios.
GHG emissions and associated metrics should be provided for historical periods to allow for trend analysis. In addition, where not apparent, the organization should provide a description of the methodologies used to calculate or estimate the metrics.
Targets used to manage climate-related risks and opportunities, and performance against targets
Recommended disclosures:
- Key climate-related targets such as those related to GHG emissions, water usage, energy usage, etc., consistent with the cross-industry, climate-related metric categories outlined above (see details here, p. 79), where relevant, and in line with anticipated regulatory requirements or market constraints or other goals
- Other goals may include efficiency or financial goals, financial loss tolerances, avoided GHG emissions through the entire product life cycle, or net revenue goals for products and services designed for a low-carbon economy
In describing their targets, organizations should consider including the following:
- whether the target is absolute or intensity based;
- time frames over which the target applies;
- base year from which progress is measured; and
- key performance indicators used to assess progress against targets.
Organizations disclosing medium-term or long-term targets should also disclose associated interim targets in aggregate or by business line, where available.
Where not apparent, the organization should provide a description of the methodologies used to calculate targets and measures.
TCFD Recommendations Implementation Guidance, pp. 28-30
PSCI Principles
SAQ & Audit template
Environment Section:
- Question 33: Does the facility have documented environmental objectives or goals for performance improvement, including metrics and targets?
- Energy consumption
- Greenhouse gas emissions
- Does the facility publicly report data? If so, where can the information be found?
- Question 41: Indicate which of the following types of air emissions are generated at the facility: [...] Greenhouse gas emissions
- Describe the types of pollution control activities if used.
Resources
You may find the following PSCI Resources useful as part of your company’s due diligence process on this issue:
Since 6 April 2022, over 1,300 of the largest UK-registered companies and financial institutions have to disclose climate-related financial information in line with the TCFD recommendations.
Companies in scope:
- All UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies
- UK registered companies with securities admitted to AIM with more than 500 employees
- UK registered companies not included in the categories above, which have more than 500 employees and a turnover of more than £500m
- Large LLPs, which are not traded or banking LLPs, and have more than 500 employees and a turnover of more than £500m
- Traded or banking LLPs which have more than 500 employees
Reporting requirements and scope thresholds apply on a consolidated basis. For example, where a company was a parent company at any time within the financial year, if in that year a group headed by it had more than 500 employees and an aggregate turnover of more that £500m net, then the parent company would be within the scope of the requirements.
European Union
The EU's Corporate Sustainability Reporting Directive (CSRD) is broadly aligned with TCFD Recommendations.
United States
In March 2022, the US Securities and Exchange Commission (SEC) proposed rules to enhance and standardize climate-related disclosures for investors. The proposed disclosures are very close to those in the TCFD framework. However, the requirements are still under discussion, especially regarding Scope 3 disclosures and the extent to which they will need to be assured by a third party. The SEC is expected to make a final decision by Spring 2024.
Other jurisdictions
- Support for TCFD-aligned reporting is growing globally with countries such as China, Japan, South Korea, New Zealand, Australia, Canada and Brazil proposing disclosure rules which cite TCFD as an influence.
- The latest IFRS standards are aligned with TCFD.
Eleven Recommendations, are structured around four themes:
Governance: The company must disclose its board’s oversight of, and management’s role in, assessing and managing climate-related risks and opportunities.
Strategy: The company must disclose its climate-related risks and opportunities (near, medium and long-term), and the potential impacts they have on its businesses, strategies, financial planning, and corporate governance. The company must also describe its resilience in the face of different climate scenarios.
Risk management: The company must disclose its processes for identifying, assessing, and managing climate-related risks, and how these processes are integrated into its overall risk management processes and strategy.
Metrics and targets: The company must disclose the metrics and targets it uses to measure success in countering climate-related risks and seizing climate-related opportunities.
- Board’s oversight of climate-related issues
- Management’s role in assessment and management of climate related issues
- Climate-related risks and opportunities over the short, medium, and long term
- Impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
- Resilience under different climate scenarios
- Processes for identifying and assessing climate-related risk
- Processes for managing climate-related risks
- Integration of processes for identifying, assessing, and managing climaterelated risks into overall risk management
- Metrics to assess climaterelated risks and opportunities
- Disclosure of Scope 1, Scope 2, and Scope 3 emissions, and related risks
- Targets used to manage climaterelated risks and opportunities, and performance against targets
For more detail, please click on each of the topics on the left-hand side.
Accompanying Measures Suggested
- Work to understand the TCFD Recommendations and associated guidance.
- Monitoring, leadership and management: Key climate-related elements should be recognised, examined, measured, controlled, and reported as any other business-critical issue by leadership setting the tone at the top. Defining roles of those responsible is crucial.
- Disclosure Decisions: The TCFD recommends that disclosures are made in mainstream (public) annual financial filings. However, TCFD reporting can also be done in regulatory filings, integrated reports, sustainability reports, earning presentations, websites etc (voluntary).
- Adapt your existing enterprise risk management practices to account for climate risks: Managing climate-related risks should be integrated into routine risk management activities.
- Consider undertaking a Scenario Analysis: This will allow for your organisation to consider how climate-related risks and opportunities may evolve, as well as their potential implications for business under various conditions and plausible future scenarios – built using a set of assumptions and limitations.
- Ensure your data follows the Principles for Effective Disclosures.
Non-compliance can result in fines ranging from a minimum of £2,500 to a maximum of £50,000.