TCFD Update Finds More Companies Providing Climate-Related Disclosure, Driven by Investor Demand
The Task Force on Climate-related Financial Disclosures (TCFD) announced today the publication of its 2022 Status Report, indicating a significant increase in the number of companies reporting on climate-related risks and opportunities, and in the amount of information provided. Despite the improvements, however, the report indicated significant room for continued advances, with only a small minority of companies reporting across all of the organization’s recommendations.
The status report marks five years since the initial publication of the TCFD’s climate-related disclosure recommendations. The TCFD was established by the Financial Stability Board in 2015, with the goal of developing consistent disclosure standards for companies, in order to enable investors and other stakeholders to assess the companies’ climate-related financial risk. The recommendations were published in June 2017, and have become the industry standard for climate-related disclosure, requested by many investors, and heavily informing the requirements of a series of emerging sustainability reporting systems by regulators across the world.
The status report included the results of a study carried out by the Task Force, using artificial intelligence to examine over 1,400 company reports for climate-related financial information, as well as two surveys aimed at gaining insights into asset managers and asset owners’ TCFD-aligned reporting practices and on companies’ efforts to implement the TCFD recommendations, as well as investors views on the usefulness of climate-related financial disclosures for decision-making.
According to the AI study, 80% of companies in 2021 provided disclosures in line with at least one of the TCFD’s 11 recommendations, with increases over the past year across every recommendation category. The category with the greatest level of alignment in 2021 was disclosure of climate-related risks and opportunities, provided by 61% of companies, compared with 53% in 2020 and only 42% in 2019. Reporting on the integration of climate-related risk into companies’ overall risk management processes saw the greatest increase over the past 2 years, rising by 20 percentage points to 37% from 17% in 2019. 44% of companies now report on Scopes 1, 2 and 3 emissions, compared to 40% last year, and 34% in 2019.
Overall, across all 11 categories, the study found a 14 percentage-point increase in alignment by companies over the past 2 years.
Despite the increases, however, the study found significant room for continued improvement, with only 4% of companies reporting in alignment with all 11 TCFD disclosure recommendations.
Task Force Chair and Bloomberg LP founder Michael Bloomberg said:
“The 2022 TCFD Report underscores the increasing adoption of climate-related financial disclosures since the Task Force’s 2017 recommendations – as well as the urgent need for greater progress on this front and in the global fight against climate change. Climate risks are also financial risks, and more measurement and disclosure are crucial to building a more sustainable and resilient economy and a safer future.”.
According to the TCFD report, investor demand appears to be a key driver of the increase in climate-related reporting. Of the respondents to the TCFD survey, 77% said that their reasons for implementing the TCFD recommendations included requests for climate-related information from investors, and 85% said that climate-related issues are material for their companies. Only 26% reported that TCFD reporting is required by law or regulation. The report also noted that investors representing more than $68 trillion in assets as part of Climate Action 100+ are engaging major climate emitters to provide TCFD-aligned disclosures, and that over 680 financial institutions with more than $130 trillion in assets have asked over 10,000 companies to disclose through CDP, which has aligned its climate change disclosures with the TCFD recommendations.
Mary Schapiro, Head of the TCFD Secretariat and Vice Chair for Global Public Policy at Bloomberg LP, said:
“These findings demonstrate that the TCFD framework has become essential in guiding companies as they analyze how climate risks and opportunities impact their financial position. While we are proud of the progress we’ve seen since 2017 in company disclosures, and in adoption of TCFD by governments, standard setters and regulators, these findings make it clear there is more work to be done to improve transparency as companies and investors assess their risks through the lens of climate change.”
Click here to access the 2022 TCFD status report.