The Task Force on Climate-related Financial Disclosures (TCFD) was set up by the Financial Stability Board in 2015. Its aim is to develop voluntary, consistent climate-related financial disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. With climate change becoming more and more of an issue, markets will be able to channel investment into sustainable solutions. This is good news for investors because it means they can provide funding in areas where there are clear benefits from doing so – such as reducing risk or increasing returns on assets!
The TCFD’s recommendations are based on four thematic areas: governance, strategy, risk management, and metrics and targets. The recommendations provide a framework for disclosers to use in order to provide robust and decision-making information on climate-related risks and opportunities.
The TCFD’s goal is to help improve the quality and consistency of climate-related information available to financial markets, so that market participants can better incorporate climate-related risks and opportunities into their decision-making. In turn, this will help to mobilise private sector finance to support the transition to a low-carbon economy.
The TCFD’s recommendations are voluntary and not legally binding. However, there is a growing expectation that companies will disclose climate-related information in line with the TCFD recommendations. Many investors and other financial market participants are already using the recommendations to engage with companies on their climate-related disclosures.
So far, over 1,000 organisations have committed to disclosing information in line with the TCFD recommendations, including major banks, insurance companies, investors, and companies from a range of other sectors.
The Benefits of the TCFD
The more companies disclose their climate-based risks and opportunities, the better equipped markets will be to evaluate those factors. In turn, this leads into pricing strategies that take advantage of these changing conditions while also managing company’s own vulnerabilities along with partners’ too. Investors now have access information necessary when making decisions about where they invest money or what investments are made based on risk appetite requirements.