What is TCFD? – Everything you need to know

Find out all about TCFD and consider your future in relation to climate change risk with Ignite's insights.

The UK government confirmed in 2021 that it will be mandatory to declare company risks in line with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations in 2022. But what does this mean? And how does it affect your organisation?

With many climate-related issues now a reality, it’s important for organisations to fully engage with climate-related risks. You need to prepare for different eventualities and identify opportunities for reducing your carbon footprint. Luckily, Ignite is here to introduce you to TCFD disclosure requirements and answer your questions.

Find out more on our full TCFD compliance service or call us today on 0333 023 2222.

What is the Task Force on Climate-related Financial Disclosures?

Established by the Financial Stability Board, the Task Force on Climate-related Financial Disclosures is designed to help businesses navigate possible climate-related risks. It provides clarity surrounding your business’ sustainability strategies and processes.

The TCFD recommendations provide a framework for you to share publicly how climate change impacts your strategy and operations. It also allows you to detail what actions you are taking to improve your response.

By assessing current risks, organisations can identify opportunities within their processes to become a green business. It allows for long-term strategy planning, looking at various areas of an organisation to gain a comprehensive outlook years into the future.

What is the purpose of TCFD?

The Task Force on Climate-related Financial Disclosures provides guidance for organisations wanting to prepare for the future. These reporting guidelines encourage you to pay close attention to the current environment, so you have a better understanding of what may happen later down the road.

By disclosing your current business processes and assessments in line with the TCFD’s guidelines, you can test the resilience of your strategy. It helps you protect your business from various scenarios and pave the way for a greener future.

TCFD’s reporting guidelines were published in June 2017. Below, we’ll take a closer look at the TCFD annual report in detail, so you know exactly what they entail and how the report can help your business. You can also find more information on the TCFD website.

What are the benefits of TCFD?

Financial sectors have long been aware of the correlation between a company’s sustainability and its long-term profitability. The adoption of the Environmental, Social and Governance (ESG) reporting criteria to screen prospective investments is commonplace. TCFD is a market-driven initiative that was set up to address climate-related risks that fall within the ‘Environmental’ part of ESG criteria.

TCFD provides a framework for consistent climate-related financial risk disclosures in mainstream company filings. This allows companies to better inform investors, lenders, and insurers of the value of the company’s assets.

What is TCFD reporting?

TCFD reporting helps businesses provide effective disclosures regarding their sustainable practices, promoting informed decisions and understanding of carbon-related assets within their financial systems.

When you have compiled all the required information into your annual report, you should be left with a better understanding on how your organisation can operate in a greener way.

What are the TCFD requirements?

The TCFD reporting requirements are structured around four core areas of business operations:

  • Governance
  • Strategy
  • Risk management
  • Metrics and targets

There are a total of 11 disclosures across these four areas. The TCFD disclosures guide you through the reporting process, helping you understand the information required. They also highlight any areas for improvement within your organisation – both short and long term.

When reporting on these four pillars, you must state whether the information you’re disclosing aligns with TCFD’s guidelines. If not, you should also explain why. We’ll explore these disclosures below.

If you’re looking for full support around TCFD then Ignite can help – view our TCFD service page or contact us on 0333 023 2222.

TCFD reporting requirements and recommendations

The recommendations of the Task Force on Climate-related Financial Disclosures are applicable to a wide range of sectors. So, if you’re a UK organisation, you should be able to apply the TCFD framework to your business processes and decision making.

Each thematic area comes with guidance to ensure that your final report meets the TCFD best practices and is set up to make a difference within your organisation. You can read through the recommendations here, but we’ve broken down the TCFD recommendations and disclosures below:

  • Governance – disclose your organisation’s view into climate-related risks, as well as the role of stakeholders in evaluating these risks and opportunities.
  • Strategy – state the climate-related risks your business has identified and their impact on strategy and financial planning. You must also include your sustainability strategy’s resilience to various scenarios.
  • Risk Management – declare your organisation’s risk management process, including how you identify climate change risks, how these risks are managed and how your overall process aligns with your business’s overarching risk management system.
  • Metrics and Targets – disclose the targets and metrics used to assess climate-related risks, plus scopes 1, 2 and 3 of the greenhouse gas emissions report.

Let’s explore these in further detail.

TCFD Disclosures

Under each of the four core recommendations are 11 TCFD disclosures. These ensure that the right data is included in your report, including historical trends and strategy tests for various climate-related scenarios. You can find the TCFD supplemental guidance for each pillar here, including advice for specific business sectors.

Here’s what’s recommended when filing your report for the Task Force on Climate-related Financial Disclosures:

TCFD Governance Disclosures:

This is an opportunity to describe your overarching sustainability strategy, the roles your team plays and how your strategy plays into your business processes. This includes:

  • How often board members are made aware about climate-related risks, and whether these risks are discussed when considering business plans and budgets.
  • If team members in managerial positions have been assigned climate responsibilities and how they are processed, plus a description of the organisation’s structure with these responsibilities included.
  • How progress towards climate-related goals are assessed.

TCFD Strategy Disclosures:

Here you should enclose details about what you consider to be short, medium and long term risks, including specific scenarios which could financially affect your organisation:

You need to include a description of the process when determining which risks would have a financial impact on your business.
Organisations must also discuss how climate-related risks have already affected their business planning, for both overall strategy and financial matters. This can be done for a number of areas, including products/services, supply chain, research and development investment, and adaptation and mitigation activities.
You should also mention how much input climate risks have in your financial planning, and how they are prioritised.

TCFD Risk Management Disclosures

For the Risk Management pillar, you need to focus on the ways in which your business identifies and manages risks related to climate change.

You should also include how your organisation assesses the size of climate-related risks.
Another aspect of this particular pillar is how you prioritise climate-related risks in comparison to other business risks.
Following on from this, disclose how you prioritise climate-related risks, and address the issues listed in Tables 1 and 2.

TCFD Metrics and Target Disclosures

This area is where you need to describe the metrics you’re using to measure risks and opportunities, where possible. This is also where you disclose your GHG emissions, although you may already be doing this if you’re compliant with SECR.
Consider disclosing metrics for risks associated with energy, water, waste and land use, if possible.
You should also include metrics from historical periods, to track performance over time.

When reporting on your GHG emissions, only Scopes 1 and 2 are mandatory. Scope 3 will only be necessary in some cases, with the exception of business travel emissions. You can read more about GHG reporting in our guide.

TCFD Climate Scenario Analysis

One of the key elements of the TCFD recommendations is to explore how strong your strategy is when faced with a climate-related issue, and how your organisation plans to adapt. This is Climate Scenario Analysis, which tests the flexibility of your strategy and helps your organisation prepare for the future.

To develop climate scenarios, you can start by considering the current issues at hand, such as the transition to a low-carbon economy. The TCFD recommends you use this particular scenario, in which countries maintain a global temperature of 2℃, in addition to two to three other scenarios that are relevant to your organisation.

Businesses should include scenario analysis in their risk management process to determine the resilience of their sustainability strategy by considering what may lie ahead in store. Remember, you’re not expected to provide exact data for TCFD’s scenario analysis – this part of TCFD’s report is strictly hypothetical.

Who has to report TCFD? Who is it for?

Currently, all UK premium listed companies are required to highlight if their disclosures follow the recommendations of the TCFD in their Annual Report.

However, the UK is now the first G20 country to make TCFD mandatory for all large UK companies and financial organisations – more on this below.

Is TCFD reporting mandatory?

As mentioned above, the UK government intends to make TCFD-aligned disclosures mandatory from April 2022. This applies to:

  • All UK companies who are currently required to provide non-financial statements
  • UK Alternative Investment Market (AIM) companies with more than 500 employees
  • LLPs and any UK companies who do not fall into the above categories but have more than 500 employees and have a turnover above £500m

However, even before it becomes compulsory for UK organisations, TCFD reporting may continue to increase as the risks of climate change become more apparent.

The UK Government has said it will widen the net for its TCFD qualifying criteria over the next three years until 2025, capturing more organisations. Regardless of whether you are captured by TCFD now or in the future – a growing number of companies are already choosing to make voluntary TCFD-aligned disclosures.

We recommended carrying out a TCFD gap analysis to identify and evaluate your current disclosures and identify areas that require attention and opportunities to maximise the value of your current disclosures.

TCFD reporting deadline

While the TCFD annual report is completed with annual report filings, there is no specific deadline for completing TCFD disclosures. Your organisation can choose when you’d like to start reporting. However, the UK government recommends starting as soon as possible.

In terms of implementing your TCFD journey, you are encouraged to start as soon as you can. It’s recommended that you set a three-to-five year plan (keeping in mind that you should report each year) and start by working on your top risks.

TCFD service from Ignite

As part of our compliance services, Ignite has been helping businesses meet the TCFD guidelines, assess future risks and plan for possible climate-related scenarios.

Our expert team will look at your current disclosures and ensure they align with TCFD requirements. This will help us identify any gaps and agree on appropriate next steps. We’ll make sure that your TCFD disclosures and reporting are of the highest standard and satisfy all requirements.

Like all of our work around climate reporting, we work hard to create actionable strategies that are truly beneficial for various organisations. We have experience in implementing large scale energy efficiency projects across multi-site businesses.

If you have any concerns or questions regarding TCFD reporting, or are unsure where to start, then our team is here to help. To find out more about our services, book an initial consultation today by calling 0333 023 2222. Alternatively, you can email us at enquiries@igniteenergy.co.uk, or make an enquiry and we’ll get back to you as soon as possible.

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