Application of the Task Force for Climate-Related Financial Disclosures (TCFD)

Speaker: John Coley

Hi and welcome to this video on sustainable finance, which focuses on the Task Force for Climate-Related Financial Disclosures (or TCFD). TCFD was established by the Financial Stability Board to develop recommendations for more effective climate-related disclosures, so that more informed decision-making takes place and to help enable stakeholders to better understand concentrations of carbon-related assets and exposures to risk in the financial sector. The TCFD has four core elements: governance; strategy; risk management; and metrics and targets, and beneath these there are 11 supporting recommended disclosures that provide further detail on what should be disclosed.

In terms of when the requirements become mandatory, in its green finance strategy last year, the UK government set an expectation that all listed issuers and large asset owners, amongst others, would be disclosing in line with the recommendations by 2022 and on 9 November last year the Treasury published an indicative roadmap for the phased introduction of mandatory TCFD-aligned disclosure sectors by 2025.

So what does this mean when you look across your business and how do you practically implement? So across governance it is important to understand what levels of oversight, challenge and understanding the Board has, what sort of management information it receives, and also how the organisational structure enables and facilitates the effective management of risk. In terms of strategy, it’s important to understand what risks and opportunities have a material impact, how these vary across business lines and geographies, and also how the strategy may change, and need to change, to address potential risks and opportunities over time. Risk management is very important so both how processes operate in practice, requirement related risks, how the relative significance of climate-related risk versus others is determined and also how embedded in your BAU risk management processes is climate risk itself, so its fully aligned the process. Metrics and targets is the last area and here it is really important to determine the right sort of metrics across areas relevant to climate change, so water, energy, main use of waste for example, and also thinking about emissions by scope category that are relevant to your business. Then it’s important to put together the right targets across the metrics you’ve thought about and also considering the time frames for achieving these and the base year from which progress is measured.

In the UK, in respect of implementing the TCFD recommendations, for accounting periods beginning on or after 1 January 2021, companies with a UK premium listing are required to include a compliance statement in their annual financial reporting stating whether they have made disclosures consistent with the TCFD recommendations. Where disclosures are not consistent, such companies will be required to explain them.

Lastly, the FCA also plans to separately consult on potential client-focussed TCFD-aligned disclosures by UK authorised asset managers, life assurance and FCA regulated pensions providers and other persons in 2021.

Thank you for watching this video.