The latest IPCC report makes it clear that we are at a critical juncture for securing a livable future. According to IPCC Working Group Co-Chair Jim Skea: “It’s now or never if we want to limit global warming to 1.5°C (2.7°F). Without immediate and deep emissions reductions across all sectors, it will be impossible.” Fortunately, there is also increasing evidence of positive climate action, including a growing number of nationally regulated ESG disclosure requirements driving cleaner and more efficient energy and reduced deforestation. Most recently, Canada announced, and the UK enacted, new ESG legislation requiring climate disclosure from certain companies based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.

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What is the new ESG legislation in Canada and the UK?

TCFD ESG disclosure requirements in Canada

On April 8, Canada released a new budget that will require federally regulated financial institutions to publish climate-related risks and disclosures aligned with the TCFD framework, starting in 2024. This includes all the country’s banks, insurance companies, and federally incorporated or registered trust and loan companies, among others. Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), will also expect financial institutions to collect and assess information on climate risks and emissions from their clients, although no details are available yet.  The Canadian government also plans to move forward separately with ESG disclosure requirements, including climate-related risks, for federally regulated pension plans.

TCFD ESG regulatory requirements in the UK

Starting April 6, 2022, more than 1,300 of the largest UK-registered businesses are now required to disclose climate-related financial information in line with the TCFD recommendations. This includes many of the U.K.’s largest traded companies, banks, and insurers, as well as private businesses with more than 500 employees and £500 million in turnover.

What is the TCFD?

The TCFD is an industry-led task force focused on improving corporate transparency around climate risk in financial disclosures to help investors make better decisions. It was launched at the Paris COP21 in 2015 by the Financial Stability Board (FSB) to develop recommendations on the type of climate risk information that companies should disclose to their stakeholders. Currently chaired by Michael R. Bloomberg, founder of Bloomberg L.P., the task force consists of 31 members from across the G20 who represent both preparers and users of financial disclosures. By developing a framework for more effective climate-related disclosures, the TCFD aims to:

• Promote more informed investment, credit, and insurance underwriting decisions.
  
• Enable stakeholders to better understand the concentrations of carbon-related assets in the financial sector and the financial system’s exposure to climate-related risks.

In Michael Bloomberg’s words: “Increasing transparency makes markets more efficient and economies more stable and resilient.”

What are the TCFD recommendations? What are the TCFD four pillars?

In June 2017, the TCFD released its final recommendations for climate-related financial disclosures. They are applicable to organizations across sectors and jurisdictions and are structured around four thematic areas:

• Governance: The organization’s governance around climate-related risks and opportunities.
  
• Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy, and financial planning.
• Risk management: The processes used by the organization to identify, assess, and manage climate-related risks.
• Metrics and targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

Source: TCFD

Is the TCFD framework mandatory?

The TCFD recommendations are quickly becoming a major global standard for climate change disclosure. As support for the private sector has grown, governments around the globe are beginning to integrate the TCFD framework into climate disclosure policy. In addition to Canada and the UK, seven countries have adopted TCFD-aligned official reporting requirements, including Brazil, the European Union (EU), Hong Kong, Japan, New Zealand, Singapore, and Switzerland. Other significant developments include:

• (Global) The International Financial Reporting Standards Foundation (IFRS) recently proposed two global sustainability standards that incorporate and build on TCFD recommendations. Currently 166 jurisdictions around the world have adopted IFRS standards, including 15 of the G20.
  
• (U.S.) The US SEC has proposed an ESG disclosures rule that is modeled on the TCFD framework.
• (Global) As of January 2022, more than 3,000 organizations from 92 countries with a combined market capitalization of $27.2 million have pledged support for TCFD. This includes support from major international standards setters and regulators such as G7, G20, FSB, IFRS, and the International Organization of Securities Commissions (IOSCO).

What do the TCFD ESG disclosure requirements mean for my organization? What is TCFD reporting?

Each jurisdiction has its own disclosure requirements, but, in general, large companies will have to report sooner and with more detail than smaller companies. The infographic below outlines the TCFD reporting requirements for UK companies:

When will the new TCFD ESG disclosure requirements come into effect?

Like reporting requirements, each jurisdiction has its own timeline for implementing new TCFD sustainability disclosures. Here’s a quick breakdown for the ten countries that have announced TCFD-aligned reporting requirements:

• (Switzerland) July 2021 for large banks and insurers.
  
• (UK) April 6, 2022.
• (Japan) April 2022.
• (Brazil) July 2022 for banks.
• (US) As early as fourth quarter 2022.
• (Singapore) Climate reporting on a ‘comply or explain’ basis will be required for all issuers in 2022. From 2023, climate reporting will be mandatory for some sectors while ‘comply or explain’ will remain the approach for others. From 2024, more sectors will have mandatory climate reporting.
• (New Zealand) Starts in 2023 for 200 large financial institutions.
• (Canada) Starts in 2024 in a phased approach for federally regulated financial institutions.
• (EU) As early as 2024, if approved.
• (Hong Kong) No later than 2025 for financial institutions.

Where can I find the TCFD training and the TCFD reporting examples?

In 2018, the TCFD and the Climate Disclosure Standards Board (CDSB) launched the TCFD knowledge hub to help organizations implement the TCFD recommendations. This learning platform has everything you need to get started, including online courses, a downloadable training pack, TCFD reporting examples, case studies, and more. You can filter the resources by TCFD pillar, geography, or sector to quickly find the practical guidance you need to apply the TCFD framework in your own organization.

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