Where Next for the TCFD?

Posted on October 11, 2019 by Editor

The demand for climate-related financial disclosures has been growing. However, for climate risk and resilience to make it into the heart of financial decision making, there is still more to be done to ensure climate disclosures are comprehensive, high quality and useful to investors.

Mark Carney, Governor of the Bank of England, speaking at the Task-Force for Climate-Related Financial Disclosures (TCFD) Summit in Tokyo this week, has warned corporations that they have two years to develop reporting rules that document their resilience to climate related risk – before global regulators make it mandatory.

Since the TCFD was founded, appetite for climate-related disclosures in line with TCFD recommendations has significantly expanded. Supply of disclosure is responding, with four fifths of the top 1100 global companies now disclosing climate-related financial risks in line with some of the TCFD recommendations.

The TCFD recommendations provide a necessary foundation from which the risks and opportunities offered by the transition to a more sustainable economy can be navigated. However, there is more to be done. Markets need comprehensive, comparable information, with a better quantity and quality of climate-related disclosures.

Despite increasing support for the TCFD, only a quarter of companies reported comprehensive information – that is, disclosures aligned with six or more of the TCFD’s recommendations. The UK and Europe have signalled that they intend to make TCFD disclosure mandatory, increasing the quantity of data.

However, before that happens, the quality of disclosure must also be addressed. Carney argues that the recommendations should be refined to those that investors consider most useful. It is essential to ensure that that the TCFD metrics are as comparable, efficient and decision-useful as possible, with reporting harmonisation a key aim.

Investors need searchable, comparable data in order to “assess which companies can seize the opportunities of a low carbon economy and which are strategically resilient to the physical and transition risks associated with climate change.”

In our view it is essential that disclosures need to be digital, comprehensive and comparable.

Read the speech in full here.

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