Today marks a springboard for climate change to the top of the corporate agenda. The industry-led Task Force on Climate-related Financial Disclosures (TCFD) has now released its voluntary recommendations. The recommendations will ensure climate information is integrated into mainstream financial reports providing transparency and a roadmap to delivering the commitments of the Paris Agreement.
CDP has been securing climate-related disclosures for over 15 years, with nearly 6000 companies representing $100 trillion. The TCFD's recommendations will accelerate companies and investors’ efforts in the push for a sustainable economy.
What do you need to know?
The TCFD’s recommendations aim to:
- Be accessible and ultimately adopted by all organizations
- Endorse inclusion of climate-related financial disclosures in mainstream financial reports
- Call on companies to disclose information to aid the decision process for investors and other parties
- Focus on risks and opportunities in the transition to a low-carbon economy
The TCFD has proposed four widely adoptable recommendations:
- Governance - calls for the disclosure of governance details on how its board
- oversees climate risks and opportunities, and how executives manage this on a day-to-day basis.
- Strategy – organizations are expected to explain what climate-related risks and opportunities they identify as potentially impacting the business, the extent to which they are likely to influence revenue, and their plans for continuing to thrive in that scenario, where such information is material.
- Risk management – how the organization identifies, assesses and manages material climate-related risks and how these are integrated into the organization’s overall risk management strategy.
- Metrics and Targets – addresses what material metrics and targets should be disclosed that the organization is using to assess their corporate progress in managing climate-related risks and opportunities.
CDP welcomes the amendments seen in the final set of recommendations, particularly the reference to Paris Agreement aligned 2°C or below scenarios, and the location of disclosures and materiality in financial filings - all of which were identified as areas of further work from the public consultation.
What to look out for next?
Political instability and uncertainty is a rising global issue. However, organizations are stepping up and enforcing their own commitments to tackle climate change and its inherent risks and opportunities. Significant numbers of influential businesses (close to 100) including Google, Ikea, Mars and Nike are committed to 100% renewable power through the RE100 initiative, 273 companies are also committed to setting science based targets, and leading investors including BlackRock and CalPERS are ratcheting up climate disclosure expectations by opposing boards, choosing to collaboratively vote for climate-related proposals.
Companies are also recognizing the business benefits of actioning climate risk and opportunities. Companies on CDP's 'Climate A List' outperformed the market by 6% over 4 years, which shows how company and investor momentum is irreversible. With the TCFD as a blueprint and our own platforms and frameworks in place, we can now map progress to a well-below 2°C world.
The tides are changing on climate governance and those that fail to act are ultimately risking their bottom line. The TCFD’s recommendations are a voluntary means to aid organizations through the transition to a low-carbon economy. As a next step, we would encourage the G20 to look at mandating regulatory disclosure.
Notes:
CDP is the only organization that has publicly committed to adopting and implementing the Task Force’s recommendations, integrating them into our Reimagining Disclosure initiative which is both sectoral-based and forward-looking. We will continue to ask the relevant climate questions on a global platform, analyze the responses across sectors and industries to provide enhanced insights to prepare for the low-carbon economy.