TCFD, Climate Risks, Guidelines and Reporting

The Financial Stability Board created the TCFD in 2017 to improve and enhance the reporting of climate-related financial information.

Companies work with TCFD to better identify climate-related financial risks and opportunities with the underlying common purpose of reducing carbon emissions and better understanding the impact of climate change.

When climate-related financial risks (specific to the company) are identified and mapped, the disruptions caused by climate change are easier to manage and prevent.

TCFD is About Climate Risks

Basically, TCFD is about financial reporting linked to Risk Management and aims to create insight into how climate change will affect the business financially in the future.

For you and your company, it is therefore about including climate-related risks in your Risk Management and thus contributing to sustainable development.

TCFD is about the effects of the climate on your company, not the company's effects on the climate. Unlike, for example, ESG (Environmental, Social and Governance).

Positive side effects are that you will be able to make more informed decisions, meet market demands for sustainability and comply with laws and regulations, which will give your company better conditions for growth and profitability.

TCFD Guidelines

The framework (guidelines) aims to guide companies (and organisations) in their sustainability reporting, and serves as a template:

Governance

Report the organisation's governance around climate-related risks and opportunities.

Strategy

Report the actual and potential impacts of climate-related risks and opportunities on the organisation's operations in Strategic and Financial planning (where such information is material).

Risk Management

Report how your organisation identifies, assesses and manages climate-related risks.

Metrics and Targets

Report the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

TCFD reporting

According to the TCFD recommendations, TCFD reporting should be integrated into existing financial reporting, such as the annual report.

What to consider when doing TCFD reporting:

Consider what your company can report. The company's direct climate impact (scope 1) may be enough, if only as a first step.

Map out the guidelines and what reporting means for your company. It may be that another framework (e.g. ESG) suits you better.

Transparency in reporting is key to building trust internally and externally. Be honest about shortcomings to show that you are aware of them. Also, think about opportunities and how you can highlight the good sustainability work you are doing.

Consider climate-related risks as part of your Risk Management and include them in your company's Risk Analysis and Quality Management.

Any company (or organisation) can report under the TCFD guidelines. It is therefore possible to look at how others do it and create reports based on how your company reports today and based on best practice.

Criticism of TCFD reporting

Most companies that work with TCFD are financial companies, and there has been criticism that sustainability reporting has not been integrated into annual reports and can therefore be seen as a side product and a way for companies to kill two birds with one stone; by appearing both aware and responsible and at the same time examining their own risks in relation to the climate threat.

The EU has chosen to include the Task Force on Climate-related Financial Disclosures (TCFD) in the Non-Financial Reporting Directive (NFRD). Critics argue that it should instead be integrated with the International Financial Reporting Standards (IFRS).

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