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    TCFD Updates Guidance for Financial Disclosures on Climate Risk

    October 14, 2021

    The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The report finds that TCFD-aligned disclosures of climate-related financial information have accelerated over the past year but significant progress is still needed. TCFD also published two additional documents to support decision-useful disclosures: one of these is guidance on metrics, targets, and transition plans to support preparers in disclosing decision-useful information and linking those disclosures with the estimates of financial impacts while the other document contains updates to the implementation guidance (Annex) on the TCFD recommendations initially published in 2017. FSB expects TCFD to continue its work to promote and monitor progress in firms’ take-up of its recommendations and publish a further status report in September 2022 to review disclosures by companies in their public reporting for 2021.

    TCFD developed a guidance to support preparers in disclosing decision-useful metrics, targets, and transition plan information and linking those disclosures with estimates of financial impact. Such information will enable users to appropriately assess their investment and lending risks. The guidance outlines some key considerations for preparers and provides information on selecting and disclosing metrics, including the TCFD view on a set of metrics that all organizations should disclose. Next, the guidance addresses selecting and disclosing climate-related targets as well as details on the role of scenario analysis in determining targets. It describes how organizations might include aspects of their transition plans in their climate-related financial disclosures. Finally, it discusses the way in which climate-related metrics, targets, and information from transition plans provide useful underlying information with which to estimate the actual or potential impact of climate-related issues on an organization’s financial performance and position. The guidance is intended to cover a wide range of organizations. As with the recommendations in general, TCFD expects this guidance to be useful to organizations of all sizes and located in various countries worldwide. TCFD recognizes that some areas addressed in this guidance are still maturing. While some organizations already disclose the information in this guidance, others may need additional time to source appropriate data as well as update their internal processes and reporting capabilities before publicly disclosing some elements. Nevertheless, TCFD encourages reporting based on the updated 2021 Annex to be implemented as soon as possible.

    Since TCFD issued its recommendations on climate-related financial disclosures in 2017, TCFD has issued other materials on specific topics intended to support implementation. TCFD has updated the Annex on the implementation guidance on TCFD recommendations incorporate content from, and references to, these additional publications to reflect the evolution of disclosure practices and better support organizations’ implementation efforts. TCFD has not modified its four overarching recommendations on Governance, Strategy, Risk Management, and Metrics and Targets or the 11 associated recommended disclosures; however, it has updated the guidance for all sectors and now asks organizations to disclose their greenhouse emissions independent of a materiality assessment. TCFD also made the following additional changes: 

    • Updated Section A.3. Application of Recommendations to encourage all organizations to disclose Scope 1 and Scope 2 greenhouse gas emissions independent of an assessment of materiality. The disclosure of Scope 3 greenhouse gas emissions is subject to materiality; however, TCFD encourages organizations to disclose such emissions.
    • Removed tables on alignment of the recommendations with other frameworks, as they were originally included primarily to demonstrate the TCFD's use of existing disclosure frameworks in developing its recommendations. Since 2017, many climate-related disclosure regimes have aligned with the TCFD recommendations and generally indicate within their frameworks where such alignment exists.
    • Removed the illustrative examples of metrics for the four non-financial groups, as work by other frameworks and standard-setters provides more detailed guidance on sector-specific metrics and are updated on a regular basis.

     

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    Keywords: International, Banking, Insurance, Securities, TCFD, Climate Change Risk, ESG, TCFD Recommendations, Disclosures, Reporting, Transition Risk, Net Zero Economy, Paris Agreement, FSB

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