Understanding the TCFD: what it is and why it matters
Understanding the TCFD: what it is and why it matters
The Task Force on Climate-related Financial Disclosures (TCFD) is widely recognised as a leading global framework for reporting climate-related risks and opportunities in a consistent and comprehensive way. As such, the TCFD is a valuable tool for assessing and communicating climate-related impacts to investors, lenders, insurers, and other stakeholders.
What is the TCFD?
The TCFD was established in 2015 by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for companies. The goal was to provide a clear framework that helps companies report on how climate change could impact their operations, strategies, and financial performance.
The TCFD framework focuses on four key areas:
- Governance: how the company’s climate-related risks and opportunities are governed.
- Strategy: how climate-related risks and opportunities affect business strategy and financial planning.
- Risk management: how the identified risks are identified, assessed, and managed.
- Metrics & targets: what metrics and targets the company uses to assess and manage climate-related risks and performance.
Under these four pillars, the TCFD outlines 11 recommended disclosures. These provide detailed guidance on what companies should report on to offer investors and stakeholders consistent, comparable, and decision-useful information.
Integration into the IFRS S2
In July 2023, the FSB announced that the work of the TCFD had been completed as the disclosures were fully integrated into the ISSB Standards. The IFRS Foundation has released a comparison outlining how IFRS S2 aligns with the TCFD recommendations. The disclosure requirements in IFRS S2 are consistent with TCFD’s four core pillars and its eleven recommended disclosures. However, IFRS S2 introduces some additional requirements, such as the need for companies to report industry-specific metrics, outline their intended use of carbon credits to meet net emission targets, and provide more detailed disclosures on their financed emissions.
Of course, companies can continue to use the TCFD framework, for some it might even be required, and it is a great place to start reporting on climate-related risks and opportunities.
Why should companies use the TCFD framework?
TCFD is a strategic tool to identify, understand, and address climate-related challenges and opportunities. By doing so, businesses can future-proof their operations, stay ahead of evolving regulations, and uncover new growth opportunities in sustainable markets. Clear and consistent climate disclosures can also significantly improve a company’s reputation and credibility among consumers, investors, and regulators (for more insights into the value of sustainability reporting, see our blog post on the topic).
The adoption of the TCFD framework continues to grow, reflecting its increasingly important role in the global business landscape. In 2022, the last full year before TCFD was integrated into the ISSB Standards, 58% of companies disclosed in line with at least five of the eleven recommended disclosures. In addition, over 80% of the largest asset managers and 50% of the largest asset owners now report in line with at least one of the 11 TCFD recommended disclosures.
The link between TCFD and CSRD/ESRS
The TCFD framework has laid the groundwork for climate-related reporting, and its influence is clearly visible in the European Sustainability Reporting Standards (ESRS) under the CSRD. TCFD’s four pillars (governance, strategy, risk management, and metrics and targets) are integrated into the ESRS E1. This alignment means that companies already familiar with TCFD are well-positioned to meet a significant portion of their ESRS obligations. However, ESRS goes beyond TCFD by introducing stricter and more comprehensive requirements, such as double materiality, detailed governance and remuneration links, and mandatory integration of the EU Taxonomy.
As the TCFD is now integrated into the ISSB Standards, the IFRS Foundation together with EFRAG published a comparison between the two standards in 2024.
How can we help you?
At 2impact, we help organisations take a structured approach to implementing the TCFD recommendations. We begin by raising awareness and building internal support for climate-related transparency. Next, we analyse governance structures to clarify roles and responsibilities around climate risks. We identify relevant physical and transition risks and assess their strategic impact using scenario analysis. These insights are then integrated into existing risk management processes, along with appropriate mitigation and adoption strategies. We also define measurable climate KPIs and set clear reduction targets to track progress. Finally, we support the development of a clear, structured TCFD report aligned with existing ESG and annual reporting practices.
Interested in finding out more? Feel free to reach out to esther@2impact.nl.
