What does it mean if my investor is a signatory to TCFD?

September 23, 2020

The Task Force on Climate-Related Financial Disclosures (TCFD) is a set of recommendations for companies to, “promote more informed investment, credit, and insurance underwriting decisions”, with the aim of creating a better understanding of carbon-related assets and the financial risks associated with being invested in those assets. 

The TCFD’s recommendations are that corporations report on:

  1. Governmental: Disclose the organization’s governance around climate-related risks and opportunities. 
  2. Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy and financial planning where such information is material.
  3. Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks.
  4. Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

The benefits of taking TCFD’s recommendations into account when making investment decisions are: an increased confidence in an appropriate measurement of climate-related risks, a confidence in the disclosure requirements of material information in financial documentation, an increased awareness of climate-related risks and opportunities as they pertain to a corporation’s business, and a proactive assessment of investor demands relating to climate within a framework that is accessible to investors. 

Since outlining their recommendations in 2017, the TCFD has released two progress reports (2018+2019). The most recent report in 2019 reviewed the disclosures of over 1,000 companies and found that, while disclosures have increased since the TCFD was founded, the quality of disclosures has not met the standards outlined by the TCFD. Expect higher standards assessing your companies progress against the TCFD framework in the upcoming years. 

About TCFD’s Founding:

The TCFD was founded in December 2015 by the Financial Stability Board to improve the quality of non-financial disclosures for corporations. Their goal was to establish a set of voluntary disclosures that can give investors a better understanding of the climate-related risks companies are facing. 

Since its founding in 2015, the TCFD has held conferences and developed strategic partnerships to increase awareness and attract new supporters. The TCFD participated in the One Planet Summits in 2017 and 2018 in France and New York respectively. At these summits they announced 730 combined supporters. In 2019, the Government of Japan invited the TCFD to host a Summit focused specifically on the TCFD’s disclosure efforts and in September 2020 the New Zealand government announced mandatory climate disclosure tied to TCFD.

Who runs TCFD: 

The TCFD is chaired by Michael Bloomberg. There are 32 members of the TCFD, representing corporations and investors, across numerous industries, and located in many G20 countries. As of February 2020, 1,068 companies are supporters of the TCFD. Those companies have a combined market capitalization of $12 trillion and include financial companies who manage over $138 trillion in assets.   

You can learn more about TCFD here.