The Task Force on Climate-Related Financial Disclosures (TCFD) pursues the mission of helping companies improve their reporting of financial risks associated with climate change. Created in 2015 by the Financial Stability Board (FSB), the organization developed its TCFD recommendations as a set of principles to guide companies in providing forward-looking information relevant to financial decision-making. While much of the information may be included in other types of financial filings, companies that use TCFD recommendations typically issue a specific TCFD report with extensive data and details. 

More than 4,000 organizations in over 100 countries have registered as supporters of the TCFD framework. According to the TCFD’s most recent status report, 92 of the 100 largest public companies in the world support the TCFD or issue reports in line with TCFD recommendations, and many companies do both. Although TCFD reporting began as a voluntary set of guidelines and standards, several countries or regions—with the European Union and the United Kingdom being the most prominent examples—have incorporated TCFD standards into mandatory regulations for climate-related disclosures.  

Both trends—growing voluntary reporting and increasing regulatory requirements—are expected to accelerate. Increasingly, companies that are not already creating TCFD reports may find that they need a better understanding of TCFD recommendations and how they apply to business operations in order to meet the expectations of key stakeholders. 

The TFCD framework is designed to provide information to a variety of financial entities, including investors, debt issuers, insurers, and more. The ultimate goal is to help financial markets operate better. With more accurate and timely disclosures about climate-related business factors, financial decision-makers can price risks, value assets, and allocate capital more efficiently.  

To help achieve this vision, TCFD recommendations define a voluntary framework for reporting about business practices in four thematic areas: 

To comply with TCFD recommendations, disclosures about the four core elements above should meet general criteria for information quality. The reporting framework defines seven principles to guide the decision-making process. Accordingly, disclosures should be:

• Relevant 
• Specific and complete 
• Clear, balanced, and understandable 
• Consistent over time 
• Comparable among companies within a sector, industry, or portfolio 
• Reliable, verifiable, and objective 
• Provided on a timely basis 

An emphasis on risk analysis distinguishes the TCFD recommendations relative to other reporting frameworks. TCFD guidelines divide risk assessment into two categories:  

Organizations may include scenario analysis into their risk management. TCFD reporting helps narrow the focus to concentrate on identifying potential business implications of climate-related risks and opportunities. Some companies report that this aspect of the TCFD reporting process is the most challenging to implement but that it also can generate some of the most valuable insights.  

Partnering with a third-party, like Nasdaq ESG Solutions, can streamline scenario analysis and maximize outcomes. The Nasdaq ESG Advisory team can help organizations with scenario analysis exercises and Nasdaq Metrio™, end-to-end sustainability reporting platform, can help with TCFD reporting.  

Because TCFD recommendations are meant to be adaptable for different circumstances, even companies in the same industry may have very different processes and experiences. But even with a wide variety of approaches and processes, some key takeaways have emerged from companies that have been working with TCFD recommendations for multiple years. Companies that are new to TCFD reporting may learn some helpful lessons from such real-world examples. 

If climate-related sustainability goals are to be achieved on a global scale, financial markets will have to play a key role because they provide effective mechanisms for allocating capital to change business practices and drive the transition to sustainable economies. The TCFD reporting framework has become an increasingly influential factor in this transformation by providing a set of standards for increasing transparency and improving disclosures relevant to financial decision-makers. Moreover, government regulators in a growing number of jurisdictions are aligning their disclosure requirements with TCFD recommendations.  

The potential benefits do not stop with improving outcomes for the global climate and environmental impacts. Individual companies can use the TCFD reporting process as a tool capable of driving business value in multiple ways. In addition to identifying opportunities to boost resiliency, efficiency, and cost savings, companies with experience applying TCFD recommendations have found that their operations can benefit from enhanced communication, coordination, and engagement. Some companies can gain this from seeking outside expertise, such as from the Nasdaq ESG Advisory team. To streamline the reporting process, companies can benefit from dedicated sustainability software, such as Nasdaq Metrio, to help with TCFD reporting.