This is part 15 of a series of educational posts from the IFoA’s Climate Change Disclosures Working Party about climate reporting topics. Here we give an introduction to TCFD and a brief overview its wide-reaching recommendations.
Following the Paris Agreement, the G20 finance ministers and central bank governors asked the Financial Stability Board (a global organisation that monitors and makes recommendations on the global financial system) to review how the financial sector can take account of climate-related issues.
As part of this review, an industry-led task force – the Task Force on Climate-related Financial Disclosures (TCFD) – was formed in December 2015. TCFD published its final recommendations in June 2017. TCFD disclosures are voluntary and cover all sectors.
TCFD has a wide influence across many geographies and regulators across the globe. Although TCFD recommendations are voluntary, there are many organisations and governing bodies making TCFD disclosures either in part or full. Further, some are now making TCFD reporting a mandatory requirement.
Each year, the TCFD publishes its annual status report, which includes the current state of TCFD-related disclosures, covers a review of its current 5-year implementation, and looks at certain case studies. The latest status report was published in 2022.
The disclosure recommendations follow 4 main themes covering:
Source: TCFD 2021 implementation guide
There are also 7 underlying principles the disclosures should follow. Disclosure should1:
The main recommendations are accompanied by:
Some companies produce standalone TCFD-compliant reports while others incorporate a TCFD-section into their existing financial reports.
Though the TCFD framework is not directly targeted at actuaries, there is a wider influence on several disclosure frameworks and local legislation across several companies.
Scenario analysis is an area within TCFD actuaries may have particular interest and influence.
TCFD is filtering through to local requirements in some geographies, for example the Tokyo Stock Exchange in Japan.
The International Sustainability Standards Board (ISSB) will be taking over from TCFD for the responsibility of monitoring company climate-related disclosures from 2024.
Given that the existing strategy publication covers 2017 to 2022, it will be interesting to see if a new
5-year strategy is published and where this fits in with other bodies such as ISSB.
Below is a list of websites we hope you find useful:
What are your thoughts on the points raised in this article?
We would love to hear your views in the comments on the IFoA's Sustainability Finance Community LinkedIn page.
To find out more, visit: Sustainability: research working parties
[1] Guidance on Metrics, Targets, and Transition Plans - TCFD (fsb.org)
The views expressed in this post are those of the individual authors, and not necessarily those of the Institute and Faculty of Actuaries or those of their employers. Information within this post is correct as at the date of writing (i.e. end of July 2023). Hence, there may be subsequent updates which are not reflected. Any reader should still reference the underlying legislation and standard, and should there be any conflict, the underlying information in the relevant standard or legislation supersedes any information presented in this post.