TCFD: Increased climate reporting by companies
Companies are now much more frequently disclosing their standing with climate risks and opportunities than they were a few years ago, according to the 2023 Status Report from the Task Force on Climate-related Financial Disclosures (TCFD). However, there is still much room for improvement, as most companies do not yet meet all the TCFD recommendations.
This new report is the sixth and final annual update from the TCFD. The responsibility for monitoring progress in climate-related reporting now shifts to the International Sustainability Standards Board (ISSB) of the IFRS Foundation, following the ISSB's recent issuance of global standards for sustainability and climate reporting.
The TCFD was established in 2015 by the Financial Stability Board with the aim of developing consistent disclosure standards for companies to allow investors and other stakeholders to assess the financial risks businesses face concerning climate. The recommendations, published in June 2017, have effectively served as the industry standard for climate-related disclosures until now. The TCFD recommendations have been largely incorporated into the requirements of the ISSB's climate-related disclosure standard.
For the new status report, the TCFD conducted a study using artificial intelligence technology, examining the publicly available reports of more than 1,350 major companies from various regions and sectors over three years.
The study showed a significant increase in both the number of companies making disclosures in line with the TCFD recommendations and the number of recommendations being followed by the companies. According to the report, 90% of the companies made disclosures consistent with at least one of the TCFD's 11 recommendations in 2022, compared to 80% in 2021 and just 64% in 2020. And 58% of companies now report on at least five recommendations, up from 40% last year and only 18% in 2020. Average disclosures per company reached 5.3 in 2022, up 66% from 3.2 in 2020.
Although each of the 11 recommendations has seen increases in reporting over the past two years, the category that saw the most significant growth in reporting was "Climate-related risks and opportunities," disclosed by 62% of companies in 2022, a sharp increase from just 36% in 2020. This was followed by reporting on governance oversight, up to 64% from 39% in 2020, and climate-related targets, reported by 66% of companies in 2022, compared to just 42% in 2020.
The category with the lowest level of reporting in each of the three years according to the study was that of business strategies under different climate-related scenarios, with only 11% of companies making disclosures on this recommendation in 2022. According to the report, 90% of companies assessed this recommended disclosure as somewhat or very challenging to implement.
Click here for the TCFD report.
