The TCFD's recommendations
Global warming and energy transition are crucial challenges for the global economy.
In the context of 2C scenario, despite a wide acceptance of the need to reduce emissions, information failures limit understanding of climate-related financial risks. Indeed the demand for meaningful market information is broad, ranging from depositors, policyholders, shareholders, creditors, through to rating agencies, credit and market analysts, and the financial media. Data are needed by companies to accurately assess their vulnerability to climate change and by investors to meet the decarbonisation objectives of their portfolios.
In this context, in 2015, at COP 21, the Financial Stability Board set up an international working group, the Task Force on Climate-related Financial Disclosures (TCFD).
More specifically, the aim of the TCFD is to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.”
The TCFD’s final report provides a new framework with a set of recommendations for companies to improve their climate change disclosure practices and are structured around four main themes:
- Risks management
- Targets and metrics
These recommendations are on the way to becoming the international reference for climate issues. The number of firms supporting this initiative has indeed risen sharply since 2017, which can be explained by
- a desire to anticipate regulatory constraints;
- the need to respond to users’ expectations;
- the fact that it is the only grid that makes it possible to identify the effects (negative and positive) of climate change on the company.
The ongoing widespread adoption of this new framework would ensure that the effects of climate change become routinely considered in business and investment decisions. It would also help companies to be more responsible and far-sighted in their approach to climate issues, which would lead to smarter, more efficient allocation of capital, and help smooth the transition to a more sustainable, low-carbon economy.