Task Force on Climate-Related Financial Disclosures (TCFD)

Framework Overview & Evolution

The Task Force on Climate-Related Financial Disclosures (TCFD) was established in December 2015 by the Financial Stability Board (G20) to develop recommendations for organizations on climate-related financial risk disclosure. Chaired by Michael Bloomberg, the TCFD was officially disbanded in October 2023 after achieving its mission—yet the framework remains influential, having shaped climate disclosure practice globally.

Note: Following TCFD's 2023 disbanding, monitoring of TCFD recommendations transitioned to the IFRS Foundation.

Governance Structure

Founding Organizations:

• Financial Stability Board (FSB) - G20 coordination body
• Partner implementation organizations: CDP, CDSB, GRI, SASB

Transition (October 2023):

• IFRS Foundation assumes responsibility for TCFD recommendations monitoring
• International Sustainability Standards Board (ISSB) integrates TCFD concepts into ISSB S2 (Climate-related Disclosures)

Four Core Pillars

Pillar 1: Governance

Board & Management Oversight of Climate-Related Risks

Required disclosures:

• Board composition: Climate expertise representation in board composition and key committees
• Board accountability: Climate strategy review frequency, linking to compensation
• Management structure: Designated climate officer or committee with board reporting line
• Committee charters: Risk management committee climate risk mandate explicitly stated
• Executive compensation: Climate targets linked to C-suite incentives (ESG/sustainability KPIs)

Implementation elements:

• Annual board training on climate science, physical risks, transition risks
• Explicit governance policy for material climate-related topics
• Delegation framework showing board approval for climate initiatives >€X capital allocation

Pillar 2: Strategy

Climate-Related Business Impact & Opportunities

Risk scenario analysis (mandatory for all companies):

• 1.5°C scenario: Limiting global warming to 1.5°C (Paris Agreement aligned)
• 2°C scenario: Late action scenario reaching 2°C by 2100
• 4°C+ scenario: Business-as-usual continuation without mitigation

Physical risks (chronic & acute):

• Sea level rise impacting real estate portfolios, supply chain hubs
• Precipitation/drought affecting agricultural revenue, water-intensive operations
• Heat stress on labor productivity (outdoor operations, data center cooling)
• Extreme weather disrupting supply chains (2023: $380B+ estimated damage)

Transition risks:

• Regulatory: Carbon pricing, fossil fuel phase-out mandates, stranded assets
• Market: Clean technology disruption, investor divestment, consumer preference shifts
• Reputational: Brand damage from high-carbon operations, greenwashing litigation

Opportunities:

• Clean technology market expansion (renewable energy, EVs, grid modernization)
• Cost reduction through energy efficiency and resource optimization
• New revenue streams (circular economy, carbon capture, sustainability services)

Pillar 3: Risk Management

Integration of Climate Risks into Enterprise Risk Management

Risk identification:

• Use TCFD framework to categorize and document material climate-related risks
• Perform climate stress testing (financial model sensitivity to climate scenarios)
• Conduct value-at-risk analysis for portfolio climate exposure

Risk monitoring:

• KPI dashboards tracking Scope 1, 2, 3 emissions
• Physical asset climate vulnerability assessments (annual or event-driven)
• Supply chain climate risk ratings (supplier scorecards)

Risk mitigation strategies:

• Capital allocation to decarbonization (renewable energy capex, EV fleet conversion)
• Insurance programs for climate-related perils (parametric insurance for extreme weather)
• Supply chain diversification reducing concentration risk

Pillar 4: Metrics & Targets

Quantifiable Climate Performance Indicators

Mandatory disclosure metrics:

Scope 1 & 2 Emissions

• Absolute GHG emissions (tonnes CO₂e per year)
• Emissions intensity (per unit revenue, per unit production, per FTE)
• Year-over-year change and multi-year trend

Scope 3 Emissions (if material):

• Category-specific disclosure (e.g., supply chain, product use, investments)
• Emissions per $ of purchases (supply chain intensity)
• Portfolio emissions for financial institutions

Climate-Related Targets

• Interim targets (2025-2030) demonstrating incremental progress
• Long-term targets (2040-2050) aligned with net-zero science
• Science-based target status (SBTi aligned or equivalent)

Climate Risk Metrics

• Portfolio exposure to high-carbon sectors (% revenue, % of assets)
• Physical asset exposure to climate hazards (% real estate in flood zones, etc.)
• Financial metrics at risk: EBITDAssumptions affected by climate scenario realization

Table: TCFD Recommended Metrics by Sector

Regulatory Adoption & Alignment

Mandatory TCFD Alignment (2024-2025 Implementation)

UK (First jurisdiction to mandate TCFD):

• All listed companies >£5 billion cap must disclose TCFD-aligned climate information (2025)
• Competent Authorities applying consistent regulatory rigor

EU (Via CSRD)**:

• ESRS E1 (Climate) substantially mirrors TCFD governance, strategy, risk, metrics
• CSRD double materiality expands TCFD's financial materiality focus to include impact materiality

US (SEC Climate Disclosure Rule)**:

• Proposed rule incorporates 90% of TCFD recommendations
• Scope 3 emissions disclosure required for material value chain emissions
• Climate scenario analysis optional but strongly encouraged

Canada:

• National Instrument 51-102 amendments align with TCFD (effective 2025)
• Public companies must disclose climate risk impacts on financial condition

International (85+ jurisdictions):

• ~70 countries now require or recommend TCFD-aligned climate disclosures
• Institutional investors increasingly demand TCFD reports for investment decisions

Integration with ISSB S2 Standard

TCFD → ISSB S2 Transition

ISSB S2 (Climate-related Disclosures) released in June 2023 substantially incorporates TCFD pillars:

Governance (ISSB S2-A)

• Board composition & climate expertise (largely unchanged from TCFD)

Strategy (ISSB S2-B)

• Climate scenario analysis (TCFD 1.5°C/2°C/4°C+ aligned)
• Value chain impacts (ISSB expands beyond TCFD's original scope)

Risk Management (ISSB S2-C)

• Climate risk integration into enterprise risk management (consistent with TCFD)

Metrics & Targets (ISSB S2-D)

• Scope 1, 2, 3 emissions (harmonized with TCFD language)
• Climate-related targets and progress (aligned with SBTi net-zero framework)

Key Differences TCFD → ISSB S2

• Forward-looking: ISSB S2 emphasizes prospective climate scenario planning (vs. historical reporting)
• Double materiality: ISSB S2 includes impact materiality (climate impact on society) vs. TCFD's financial materiality focus
• Digital reporting: ISSB S2 mandates XBRL tagging for machine readability (TCFD voluntary)

Implementation Guidance & Best Practices

Governance Implementation

• Establish climate committee: Dedicated board/management-level committee with climate expertise
• Integrate into compensation: Link executive bonuses to climate metrics (2-5% weighting common)
• Regular training: Quarterly board education on evolving climate science, transition risks

Strategy Development

• Climate scenario modeling: Engage Big 4 consulting firms or specialized climate risk platforms
• Stakeholder engagement: Investor forums, analyst calls highlighting climate strategy alignment
• Integration with business strategy: Ensure climate strategy informs M&A, capex allocation, new market entry

Risk Management Integration

• Climate risk dashboard: Real-time KPI monitoring (emissions, physical asset exposure, climate litigation)
• Supply chain assessment: Annual climate risk scoring of key suppliers
• Insurance optimization: Parametric insurance for climate hazards, cyber insurance for climate data

Metrics & Targets Establishment

• Baseline year selection: 2019-2023 (consistency with regulatory trends)
• Target-setting governance: Link to SBTi net-zero framework or equivalent science
• Assurance: Annual third-party verification (ISO 14064-3 or ISAE 3000)

Adoption & Maturity Assessment

Corporate TCFD Adoption Trends

• 72% of large companies now publish TCFD-aligned disclosures (2024 vs. 26% in 2019)
• Geographic leaders: UK (95%), EU (89%), North America (78%)
• Sector leaders: Financial services (92%), Energy (87%), Automotive (84%)

Disclosure Quality Progression

• Stage 1 (2019-2020): Basic governance and qualitative risk disclosure
• Stage 2 (2021-2022): Quantitative metrics and scenario analysis introduction
• Stage 3 (2023-2024): Science-based targets, financed emissions, transition planning
• Stage 4 (2025+): Integration with value creation models, forward-looking climate value-at-risk

Related Frameworks & Integration Points

TCFD + SBTi

~80% of SBTi-committed companies now incorporate targets into TCFD strategy disclosures

TCFD + Science-Based Targets (SBTi)

TCFD scenario analysis aligns with SBTi 1.5°C net-zero framework

TCFD + GRI Standards

GRI climate disclosures (GRI 305, 302) map to TCFD metrics & targets

TCFD + SASB Standards

SASB material climate metrics complement TCFD framework for sector-specific risks

Document Status

Last Updated: August 2023 (Final TCFD 2023 Status Report) | Authority: Financial Stability Board (monitoring transferred to IFRS Foundation) | Public Access: All TCFD recommendations and guidance available at fsb-tcfd.org; ISSB S2 standard at ifrs.org