The proportion of companies disclosing climate-related financial information which align with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) has steadily increased over the past five years.
In 2017, the TCFD published 11 recommendations to help organisations more effectively disclose climate-related risks and opportunities through their existing reporting processes.
Five years on, the Task Force reviewed reports from over 1,400 companies across eight industries and five regions as part of its 2022 status report to better understand current climate-related financial disclosure practices and their evolution.
The average number of recommended disclosures addressed per company increased from 1.4 in the 2017 financial year to 4.2 in the 2021 financial year.
About 80 per cent of companies disclosed in line with at least one of the TCFD’s recommended disclosures for FY21. However, only 4 per cent disclosed in line with all 11 of the recommendations and only 43 per cent disclosed in line with at least five.
“These findings demonstrate that the TCFD framework has become essential in guiding companies as they analyse how climate risks and opportunities impact their financial position,” said head of the TCFD secretariat and vice chair for global public policy at Bloomberg, Mary Schapiro.
“While we are proud of the progress we’ve seen since 2017 in company disclosures, and in adoption of TCFD by governments, standard setters and regulators, these findings make it clear [that] there is more work to be done to improve transparency as companies and investors assess their risks through the lens of climate change.”
Disclosure of TCFD-aligned information increased by 26 percentage points, on average, across the 11 recommended disclosures FY17 and FY21. Over 60 per cent of companies disclosed their climate-related risks or opportunities in their FY21 reports, up from 27 per cent for FY17.
The average level of disclosure across the recommended disclosures for companies in the Asia Pacific was 36 per cent, an increase of 11 percentage points since FY19. This compared to 60 per cent for Europe (up 23 points) and 29 per cent for North America (up 12 points).
Average levels of disclosure above 40 per cent was seen in a number of industries including energy (43 per cent), materials and building (42 per cent), banks (41 per cent) and insurance (41 per cent).
More than 3,900 organisations with a combined market capitalisation of US$26 trillion have pledged their support for the TCFD, up from over 2,600 as of last year’s status report.
“This year’s report further demonstrates that the TCFD Recommendations are providing the common basis for firms’ climate-related disclosures around the world,” said Ms Schapiro.
“They provide a strong foundation for the planned new ISSB global baseline standard. I’m therefore pleased to see the robust increase in climate-related disclosures using the TCFD framework, which will encourage greater clarity and consistency across firms.
In its status report, the TCFD noted that many governments and regulators are taking steps to require or encourage disclosures based on its recommendations with over 120 regulators and governments globally now considered to be TCFD supporters.
The Task Force highlighted guidance for banks, insurers, and superannuation trustees published by APRA last year in which the prudential regulator said that it “considers it better practice for any disclosures to be produced in line with the framework established by the TCFD”.
ASIC previously encouraged directors and senior management of listed companies and their advisers to continue reporting voluntarily under the TCFD framework while awaiting the new standards from the International Sustainability Standards Board (ISSB).
“The 2022 TCFD Report underscores the increasing adoption of climate-related financial disclosures since the Task Force’s 2017 recommendations — as well as the urgent need for greater progress on this front and in the global fight against climate change,” said TCFD chair and Bloomberg founder, Michael Bloomberg.
“Climate risks are also financial risks, and more measurement and disclosure are crucial to building a more sustainable and resilient economy and a safer future.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.