The Task Force on Climate-related Financial Disclosures‘ status report provides an overview of current reporting practices, based on a review of 1,434 large companies across five regions and across eight industries. It includes progress against milestones set out in the TCFD’s initial 2017 recommendations.

The report finds that there has been significant momentum in the uptake of reporting against the recommendations, with a steady year-on-year increase in the number of companies disclosing, and the amount of information disclosed, in line with the TCFD recommendations. However, the report notes that “more urgent progress” is needed in improving transparency on actual and potential impact of climate change on companies.

The report highlights an ongoing lack of connectivity in climate-related and financial disclosures, citing the IPCC’s concerns highlighted in its report of April this year that, whilst finance is a critical enabling factor in the transition to low carbon “aligning financial flows with low GHG emissions pathways remains slow” and that climate-related financial risks “remain greatly underestimated by financial institutions and markets – limiting the capital reallocation needed for the low-carbon transition”.

The IPCC report recommends that enhancing transparency and the quality of climate-related financial risks and opportunities may help with the reallocation of capital market resources to the low carbon transition. In that respect, the status report highlights that the IPCC report referred to the recommendations as a helpful set of guidance.

The status report’s key findings include the following:

• In 2021, 80% of sample companies disclosed in line with at least one of the 11 recommended disclosures. However, only 4% disclosed in line with all 11 recommended disclosures.
• Based on survey responses, 90% of investors and other users include climate-related financial disclosures in their financial decision-making, 66% of whom further indicated that such disclosures factored into pricing of financial assets.
• Based on survey responses, more than 60% of asset managers and more than 75% of asset owners indicated that they report climate-related information to their clients and beneficiaries respectively.

Next steps:

Ensure your company makes “decision-useful” climate-related disclosures: ensure relevant internal (and external) teams with reporting responsibility are familiar with the aims of climate-related financial reporting as explained in this TCFD status report and in other related guidance (see, for example, the FRC’s and FCA’s thematic reviews, and the FRC Lab report on net-zero reporting) and ensure that internal data collection and drafting processes are updated as required to enable greater compliance with climate-related reporting requirements and expectations.

Further information:

Click here for a copy of the TCFD 2022 Status Report.
Click here for a copy of the TCFD 2017 Recommendations.
Click here for a copy of the IPCC 2022 report.

This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.