18 Jan 2024

Navigating Task Force on Climate-Related Financial Disclosures (TCFD)

By Asia Hamdorff

Climate change presents a global challenge that demands urgent action across all sectors of society. In response to the escalating climate crisis, the UK has implemented regulations mandating businesses to identify, assess and manage their climate-related risks and report on this publicly.

As part of Seismic’s regulation requirement series, discover what Task Force on Climate-related Financial Disclosures (TCFD) means, how this aligns with Climate Related Financial Disclosure (CFD) regulation, and how businesses need to prepare.

The Evolution of Climate Risk Reporting

The recognition of climate change as a substantial financial risk has led regulators to push for greater transparency and disclosure in corporate reporting. This began in 2017 when the Financial Stability Board (FSB) published the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD is a globally used voluntary framework, assisting companies in publicly disclosing their climate-related risks and opportunities.

The key aims of the TCFD are to:

  • Encourage climate risk and opportunity measurement and disclosure across the private sector 
  • Standardise reporting practices for easy comparison and understanding
  • Allow investors to evaluate the potential risks and opportunities that a company may face as a result of the transition to a low carbon economy

The TCFD has 11 recommendations which sit under 4 core pillars:

Governance Strategy Risk Management Metrics and Targets
The organisation’s governance around climate-related risks and opportunities The actual and potential impacts of climate-related risks and opportunities on the organisation’s business, strategy and financial planning The process used by the organisation to identify, assess, and manage climate-related risks The metrics and targets used to assess and manage relevant climate-related risks and opportunities


UK Climate Risk Regulations

 In 2021, the UK unveiled its plans to become the first country in the world to mandate climate disclosures aligned with the TCFD recommendations across the UK economy by 2025.

The first phase of mandatory TCFD aligned reporting began with the Financial Conduct Authority’s (FCA) policy which was announced in 2021. This policy mandates the following companies to publicly disclose against the TCFD recommendations:

  • UK listed companies
  • UK Asset managers with >£5bn AUM
  • UK Life insurers (including pure insurers)with >£5bn AUM
  • FCA-regulated pension providers
  • Non-insurer FCA-regulated pension providers, including platform firms and Self-invested Personal Pension (SIPP) operators

In 2022, the UK Government introduced the mandatory Climate-related Financial Disclosure (CFD) regulation. This is a Companies Act legislation that mandates the following companies to publicly disclose on their climate-related risks and opportunities:

  •  All UK companies with >500 employees that have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies
  • UK registered companies with securities admitted to AIM with more than 500 employees
  • UK registered companies not included in the categories above, which have > 500 employees and >£500m turnover
  • Large LLPs, not traded or banking LLPs, with >500 employees and >£500m turnover
  • Traded or banking LLPs with >500 employees.

The requirements of the CFD are similar to the TCFD recommendations, however they have been adapted slightly to formulate 8 specific requirements as opposed to the 11 outlined by the TCFD. Companies which fall within the threshold of the CFD will be required to disclose for financial years starting on or after 6th April 2022.

The impact and benefits of climate risk regulations

These regulations are designed not only to enhance transparency but also to encourage businesses to integrate climate risk considerations into their strategies and financial planning. By obligating companies to disclose their climate-related risks and opportunities, investors and stakeholders are able to gain better insights into the potential financial impacts of climate change.

Reporting requirements also foster a culture of accountability and drive businesses to take on sustainable practices. Companies are increasingly realising that managing climate risks effectively can lead to long-term resilience, cost savings, and the identification of new business opportunities in a rapidly evolving market.

Challenges and future outlook

While the push for climate risk reporting marks a significant step forward, there are still challenges to overcome, including difficulties in accurately assessing and reporting climate risks due to the complexity of data collection and analysis.

Looking ahead, the UK’s commitment to expanding climate risk reporting requirements signals a broader trend toward integrating sustainability into mainstream financial reporting. 

The UK’s climate risk reporting regulations represent a pivotal shift in corporate governance, urging businesses to confront the challenges posed by climate change head-on. By mandating comprehensive disclosure of climate-related risks and opportunities, these regulations not only drive transparency but also pave the way for a more sustainable and resilient economy.

As these regulations continue to evolve, companies must embrace this paradigm shift, leveraging it as an opportunity to innovate, adapt, and contribute positively to mitigating the impacts of climate change.

How Seismic can support you

Our climate risk reporting experts have helped organisations demystify the regulatory requirements that are applicable to them, identify key gaps and assessment required. Along with our communications team, we help you to draft climate-risk disclosures that are accurate and in line with up to date regulations. Get in touch with our team.