The Task Force on Climate-related Financial Disclosures (TCFD) recently published their fifth annual status report. This report reflects on milestones related to the implementation of the TCFD recommendations since they were released in 2017 and other encouraging developments in climate-related disclosure since their last report in October 2021.
TCFD's 2022 Status Report provides an overview of current disclosure practices in terms of their alignment with the Task Force’s recommendations. It also highlights progress associated with the implementation of the TCFD recommendations over the past five years — including progress relative to key milestones identified in 2017, implementation trends and challenges that may be useful for companies beginning to implement the recommendations, and investors and other users’ views on the usefulness of climate-related financial disclosures and improvements needed.
Below is a summary of the key takeaways from the TCFD annual Status Report:
The percentage of companies disclosing TCFD-aligned information continues to grow, but more urgent progress is needed.
For the fiscal year 2021 reporting, 80% of companies disclosed in line with at least one of the 11 recommended disclosures; however, only 4% disclosed in line with all 11 recommended disclosures and only around 40% disclosed in line with at least five.
All regions have significantly increased their levels of disclosure over the past three years.
In particular, the average level of disclosure across the 11 recommended disclosures for European companies was 60% for the fiscal year 2021, growing 23 percentage points since the fiscal year 2019; 36% for Asia Pacific companies — an increase of 11 percentage points; and 29% for North America companies — an increase of 12 percentage points.
A majority of asset managers and asset owners report to their clients and beneficiaries.
Over 60% of asset managers and over 75% of asset owners surveyed indicated they currently report climate-related information to their clients and beneficiaries, respectively. The majority of asset managers report through sustainability reports or directly to clients, while the majority of asset owners report through annual, sustainability, or climate-specific reports.
Nearly 50% of asset managers and 75% of asset owners reported information aligned with at least five of the 11 recommended disclosures.
Based on survey responses, 60% of asset managers and nearly 80% of asset owners indicated they report information aligned with at least one recommended disclosure, whereas only 9% of asset managers and 36% of asset owners report on 10 recommended disclosures. None indicated they report on all 11.
The percentage of companies disclosing the TCFD recommendations in financial filings or annual reports has increased each year.
Based on the TCFD survey, over 70% of companies implementing the TCFD recommendations disclosed climate-related information in financial filings or annual reports (including integrated reports) for the fiscal year 2021 compared to 45% for the fiscal year 2017.
The availability and quality of climate-related financial disclosures has increased since June 2017.
Ninety-five per cent (95%) of survey respondents saw an increase in the availability of climate-related financial disclosures since the release of the TCFD recommendations, with 88% of respondents citing improvements in the quality of disclosures.
Investors and others use disclosures in decision-making and pricing.
Based on the TCFD survey, 90% of investors and other users incorporate climate-related financial disclosures in financial decision-making, and 66% of these indicated such disclosures factor into the way they price financial assets.16 In addition, based on a literature review, there is a growing body of evidence that climate-related risks are beginning to affect prices for certain types of assets.
Conclusion and Next Steps
Overall, the Task Force is encouraged by companies’ progress in disclosing climate-related financial information aligned with the TCFD recommendations and by the support of regulators and standard setters in using the recommendations as a basis to develop laws, rules, and standards on climate-related financial disclosure.
Nevertheless, the Task Force remains concerned that not enough companies are disclosing decision-useful climate-related financial information, which may hinder investors, lenders, and insurance underwriters’ efforts to appropriately assess and price climate-related risks. This is supported by the analysis summarised in this report as well as broader assessments on the state of climate change, including those in the IPCC’s April 2022 report.
Over the next several months, the Task Force will continue to monitor companies’ progress in disclosing climate-related financial information aligned with the TCFD recommendations and will prepare another status report for the Financial Stability Board in October 2023.
About the TCFD
The Task Force on Climate-related Financial Disclosures (TCFD) works to improve and increase reporting of climate-related financial information. In 2017, the TCFD released climate-related financial disclosure recommendations designed to help companies provide better information to support informed capital allocation. Nearly 4,000 organizations around the world have declared support for the TCFD and its recommendations.
Greenstone and TCFD
Greenstone is a formal supporter of The Task Force on Climate-Related Financial Disclosures (TCFD) and enables its clients to align their reporting with the TCFD recommendations through its ESG software solutions and support services.