TCFD: A Year in Reflection

Photo by NOAA on Unsplash

In a year that has been dominated by the impacts and responses to COVID-19, another global risk has never been far from the headlines: climate change.

While it’s an issue that has received attention from climate emergency declarations across the community. Despite the sometimes slow pace of change in government regulation, it’s at the board table that significant change continues to happen.

The consistent international corporate driver of action on climate change is the Taskforce on Climate-Related Financial Disclosures (TCFD). The number of companies joining the TCFD continues to rise, with 1,596 registered supporters as of December 2020. In total, nearly 60% of the world’s 100 largest public companies support the TCFD and report in line with the its recommendations.

Looking back over 2020 there are five developments that suggest we’ll see an acceleration of action in the next few years here in Australia:

1. Summer of Australian bushfires

If it wasn’t for COVID-19, the Australian community and businesses would have spent more time focused on the bushfire response and what mitigation looks like. While it’s received some attention, a Senate Inquiry into the “Lessons to be learned in relation to the Australian bushfire season 2019-20” leaves no room for doubt that communities and businesses alike need to prepare better for bushfires, which are projected to become more frequent and severe with climate change.

2. Mandatory TCFD reporting

After suggestions that at some point TCFD would become mandatory for public companies, and some even calling it “volandatory”, the New Zealand Government announced in September of this year that reporting in line with the TCFD will become mandatory in 2023. This will affect around 200 entities in New Zealand. The UK has since followed suit with its own policy announcement to mandate climate disclosures by 2025.

3. Boris Johnson, UK Prime Minister, says no to new petrol and diesel cars after 2030

Photo by Colin D on Unsplash

The TCFD framework asks businesses to consider technological and market changes that could result from a move to a low carbon economy, some of which could happen rapidly. These are known as transition risks (and opportunities). The UK delivered a prime example this year in announcing that it will stop selling new diesel and petrol (gasoline) cars and vans from 2030. This is part of a 10-point plan aimed at generating 250,000 jobs and combatting climate change. While some organisations are only just starting to ponder how they’ll manage their fleet when electric vehicles become more common, at least in the UK, the countdown is now on.

4. US Federal Reserve finds its voice

While regulators in countries like the UK and New Zealand have been on the front foot on climate risk, the same can’t be said for the US. But that all looks set to change. After the recent US Federal election that the US Federal Reserve joined the chorus with various statements including that: “Acute hazards, such as storms, floods, or wildfires, may cause investors to update their perceptions of the value of real or financial assets suddenly”.

5. A more standardised approach to TCFD

A challenge for many companies wanting to align with the TCFD is that the methods can be wide and varied. For example, which climate change projections should be used for scenario analysis? The Climate Measurement Standards Initiative (CMSI) provides a consistent and comparable approach to financial disclosure and launched its guideline for responding to the TCFD in 2020. The CMSI guideline will support a wider disclosure of climate change scenarios by the banking, insurance and asset owner sectors in Australia.

While there have been some larger global changes of note, what does the year ahead look like for the application of the TCFD framework at a company scale? The TCFD Status Review 2020 provides some signposts of where to focus, especially for addressing implementation issues. These include that companies should:

  • highlight where to find information specific to recommended climate disclosures in annual reports and company wide risk statements;
  • adopt a stepwise approach to disclosure when there is concern about publicly sharing sensitive information related to scenario analyses; and
  • work with industry associations and similar organisations to develop standardized industry metrics. 
Photo by Tash Van Biene from Spindrift Stories

In 2021, the overarching drivers for corporate climate action will no doubt continue to be the growing understanding of climate related risks, clearer guidance on how to undertake disclosure and strengthening regulatory settings as shown in New Zealand and the United Kingdom.

Perhaps of even greater importance though will be how organisations demonstrate that they can build business value through the opportunities that the transition to a low carbon economy will bring. This will have even greater impact if it becomes intertwined with the post COVID-19 recovery.

To find out more how Edge can help your organisation address transition risks and adopt TCFD, get in touch with Maisie Auld and our Carbon and Climate Change Resilience team here: (maisie@edgeenvironment.com).


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