TCFD Explained - How to report against TCFD

TCFD reporting helps businesses assess and disclose climate-related financial risks and opportunities. It focuses on four key areas: governance, strategy, risk management, and metrics/targets. Companies can use TCFD to improve transparency, meet regulatory requirements, and integrate climate risks into decision-making.

Key Takeaways:

• What is TCFD? A framework for reporting climate-related financial risks, created by the Financial Stability Board.

• Why it matters: Over 5,000 organisations globally use TCFD to align with regulations like California's Senate Bill 261 and the SEC's proposed climate disclosure rules.

• Core components:

  1. Governance: Board oversight of climate risks.

  2. Strategy: Assess short-, medium-, and long-term climate impacts.

  3. Risk Management: Incorporate climate risks into existing frameworks.

  4. Metrics/Targets: Set and track emissions reduction goals.

• How to start: Review current disclosures, conduct a GHG inventory, run scenario analyses, set clear targets, and integrate findings into financial reports.

Quick Tips:

• Engage the board for oversight and accountability.

• Use tools like Emerald Power for emissions tracking and reporting.

• Align with other frameworks like the GHG Protocol for consistency.

• Keep reports updated with quarterly reviews and stakeholder feedback.

By adopting TCFD, companies can enhance transparency, improve risk management, and prepare for future regulatory requirements.

Mastering TCFD Framework | Climate Risks & Opportunities Explained

4 Main TCFD Components

The TCFD framework centers on four core elements that guide effective climate-related disclosures. Data indicates that 58% of companies reported information aligned with at least five of the eleven recommended disclosures for fiscal year 2022, a notable increase from 18% in 2020. However, only 4% fully aligned with all recommendations ^[3]. Here's a closer look at these components and actionable steps for each.

Board Oversight

This component highlights how boards oversee climate-related risks and opportunities. Companies are expected to outline:

• How often the board reviews climate issues

• How climate factors are integrated into strategic planning

• Management's specific responsibilities related to climate

• Processes for monitoring and evaluating climate-related actions

Singapore Exchange's CEO Loh Boon Chye states, "The recommendations provide guidance for understanding of companies' climate-related risks and ultimately creates conditions for better informed markets, more accurate pricing, and greater financial stability" ^[1].

Business Planning

This focuses on how climate impacts influence operations and financial decisions over different timeframes. Companies should evaluate risks and opportunities for:

Managing Climate Risks

Incorporating climate risks into broader risk management frameworks is essential. Companies should:

• Conduct regular assessments of climate risks

• Develop strategies to address identified risks and integrate them into existing frameworks

• Clearly document methods used for risk identification

Michael Alexander, Head of Sustainability at Diageo, explains, "Measuring, managing, and reporting environmental impact is not only important for the planet and the communities in which we work, it is essential for the future growth of our business" ^[1].

Setting Goals

This involves establishing clear metrics and targets to track progress. Companies should:

• Measure and report Scope 1, 2, and 3 greenhouse gas emissions

• Set specific emissions reduction targets

• Monitor progress toward climate goals

• Report performance metrics regularly

Using concrete metrics helps organisations address climate-related risks and opportunities effectively. According to TCFD data, companies with well-defined metrics and targets are better prepared for climate challenges and communicate more effectively with stakeholders ^[3].

TCFD Reporting Guide

Preparing reports that align with TCFD standards requires a structured approach. Recent data reveals that while 58% of companies align with at least five TCFD recommendations, only 4% fully meet all requirements ^[3].

Review Current Reports

Start by evaluating your existing climate-related disclosures. Pinpoint gaps between current practices and TCFD guidelines by focusing on these areas:

List Climate Impacts

Use the gaps you’ve identified to outline your climate-related risks and opportunities. Key actions include:

• Conducting a greenhouse gas (GHG) inventory for Scope 1, 2, and 3 emissions.

• Documenting past extreme weather events and their effects on operations.

• Evaluating supply chain weaknesses related to climate risks.

• Identifying potential opportunities in emerging markets.

Plan for Different Outcomes

Run scenario analyses to evaluate how your business might respond to varying climate conditions:

1. Short-term (0-2 years)
   Analyze regulatory changes, such as carbon pricing policies.

2. Medium-term (2-5 years)
   Consider how technology advancements and supply chain changes might impact your business.

3. Long-term (5+ years)
   Assess risks tied to physical climate changes and the transition to a low-carbon economy.

The insights from these scenarios should inform your climate strategy and measurable targets.

Set Clear Targets

Define specific, actionable climate goals that align with TCFD recommendations. This might include:

• Establishing science-based emission reduction targets.

• Creating metrics to track progress over time.

• Implementing accountability measures.

• Scheduling regular reviews to evaluate performance.

Incorporate these targets into your financial disclosures to ensure transparency and alignment.

Add to Financial Reports

Integrate TCFD-related information into your primary financial filings by:

• Clearly linking climate risks to financial outcomes.

• Keeping reporting periods consistent.

• Connecting narrative disclosures with climate-related assumptions.

• Backing up claims with specific, verifiable data.

"Climate change presents financial risk to the global economy." - Task Force on Climate-related Financial Disclosures ^[1]

Ensure flexibility in your disclosures to meet regulatory standards. Treat events occurring after the reporting period with the same care as post-balance sheet events ^[5].

TCFD Reporting Tips

Creating an effective TCFD report takes careful planning and execution. These tips can help you refine your approach.

Get Board Support

Organizations with engaged boards tend to perform better in meeting climate-related goals ^[4].

To boost board involvement:

• Assign specific climate responsibilities to board committees.

• Incorporate climate scenarios into strategic planning.

• Establish clear communication channels between management and the board.

• Schedule regular reviews focused on climate risks.

Clearly outline your board's role and how it reviews climate risks in your report ^[2].

Align with Other Standards

Integrating TCFD with other reporting frameworks can simplify your process and address diverse stakeholder expectations ^[6].

To combine frameworks effectively:

• Pinpoint material issues and objectives.

• Choose reporting combinations that make sense for your organization.

• Avoid overlapping or unnecessary disclosures ^[6].

Keep Reports Up-to-Date

Frequent updates ensure your TCFD reports reflect current conditions. A solid process might include:

• Quarterly reviews of climate metrics.

• Annual updates to scenarios.

• Gathering feedback from stakeholders.

• Adjusting for new regulations.

• Revising risk assessments as needed.

Stay consistent while incorporating fresh data to keep your reporting relevant ^[4].

TCFD Reporting Software

Choosing the right software is key to meeting TCFD requirements. Today's tools can track emissions, evaluate climate risks, and create reports that align with compliance standards.

Emerald Power

Emerald Power offers carbon accounting software tailored for mid-market businesses aiming to meet TCFD standards. Its automated tools include:

Emerald Power provides three service tiers:

• Starter ($269/month): Core carbon reporting features

• Pro: Adds access to a dedicated sustainability consultant

• Enterprise: A full-scale solution with custom APIs and smart sensor integration

In addition to software, a variety of resources can help improve your TCFD reporting efforts.

TCFD Resources

Using the right resources can streamline your TCFD reporting process:

• Official TCFD Knowledge Hub: Offers standardised templates and sector-specific guidelines

• GHG Protocol Tools: Helps calculate emissions using globally accepted methods

• Industry Benchmarks: Lets you compare your performance with others in your industry

Climate Analysis Tools

When picking climate analysis tools, focus on these key features:

1. Scenario Planning

Look for tools that allow you to model various climate scenarios and assess potential impacts on your business. Features should include both transition and physical risk analysis.

2. Risk Assessment

The right tools should help evaluate risks through:

• Mapping physical risks

• Modeling transition risks

• Assessing financial impacts

3. Data Integration

Opt for tools that integrate smoothly with your existing systems. This reduces manual data entry and minimizes errors. Automation of data collection across all emission scopes ensures accuracy ^[7]. These capabilities support a more seamless approach to embedding TCFD reporting into your operations.

Summary

Main Benefits

TCFD reporting isn't just about meeting requirements - it can deliver real advantages. For instance, 72% of the UK’s top companies reported a boost in brand value after adopting TCFD recommendations ^[8]. Here's a closer look at its impact:

These figures highlight how TCFD reporting can enhance access to capital and improve decision-making around climate risks.

Getting Started

Ready to begin your TCFD journey? Here are some practical steps to help you get started:

• Evaluate Your Current Position: Review your existing disclosures to identify areas where TCFD recommendations are missing.

• Engage Your Team: Get the board involved and assign responsibilities across departments to incorporate climate risks into your risk management processes.

• Pick the Right Tools: Choose software and resources that fit your organization’s needs, starting with basic tools like scenario analysis.

• Define Metrics and Targets: Set clear benchmarks to measure progress, focusing on data that directly affects your organisation’s growth ^[5].

Keep in mind, TCFD implementation is a gradual process. Start with the basics and refine your reporting as your team gains experience. With over 5,000 organizations now supporting TCFD recommendations ^[1], this framework is a key way to show stakeholders you’re serious about managing climate risks.