A Task Force on Climate Related Financial Disclosure (TCFD) Requirements Explainer - Last Updated: July 14, 2023

What is the Task Force on Climate Related Financial Disclosure (TCFD)?

The Task Force on Climate-related Financial Disclosures (TCFD) is a set of guidelines to help companies disclose climate-related financial risks and opportunities to investors, lenders, insurers, and other stakeholders. More than 2,000 companies around the world use TCFD guidance to report on their climate governance and strategy, including 83 of the world's largest corporations.

TCFD as a Regulatory Reporting Requirement

TCFD has become one of the leading sustainability reporting standards for large corporations around the world. In the United Kingdom, the Financial Conduct Authority (FCA) has made annual TCFD reporting mandatory for over 1,300 of the country's largest UK-registered companies and financial institutions. This includes most of the UK’s largest publicly-traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover.

In the United States, the Securities and Exchange Commission (SEC) is also basing its upcoming climate disclosure rules on TCFD. In its March 2022 proposal, the SEC says TCFD will make corporate climate risk reporting more "consistent, comparable, and reliable. The investor signatories of Climate Action 100+ emphasized that obtaining better disclosure of climate-related risks and companies’ strategies to address their exposure to those risks is consistent with the exercise of their fiduciary duties to their respective clients."

TCFD is also endorsed by the the Singapore Exchange (SGX), as well as by the National Association of Insurance Commissioners (NAIC), increasingly making it the favored climate reporting framework in the financial sector.

TCFD and the ISSB

The International Sustainability Reporting Standards were created in 2022 by the International Sustainability Standards Board (ISSB), a new working group formed by the International Financial Reporting Standards (IFRS) Foundation to create standardized international sustainability reporting aligned with financial reporting. The ISSB Sustainability Disclosure Standards are intended to serve as a global format for sustainability and climate reporting. In 2023, it was announced that, going forward, TCFD will fall under the purview of the new ISSB standards, specifically ISSB S2, starting in 2024. That means companies will no longer be required to prepare a separate TCFD report, but will instead create and disclosure climate risk reporting in accordance with the ISSB standards.

For more background information on the ISSB sustainability reporting standards, click here.

How TCFD and ISSB Climate Risk Reporting are Designed and Structured

TCFD and ISSB recommend that a company's board and executive leadership discuss, answer, and report annually on specific questions and disclosure areas related to a company or reporting entity's climate risks and strategy. TCFD and ISSB are divided into four sections:

1. Governance - The organization's governance and leadership around climate-related risks, strategy, and opportunities
2. Strategy - The actual and potential impacts of climate-related risks and opportunities on a company's business and financials, and the strategy to address, adapt, and/or reduce those risks
3. Risk Management - The process the company uses to identify, assess, and manage climate-related risks
4. Metrics and Targets - The metrics and targets used to assess a company's climate-related risks, opportunities, and performance

Unlike other sustainability reporting frameworks like CDP or GRI, TCFD does not recommend specific climate risk metrics or KPIs beyond tracking Scope 1, 2 and 3 greenhouse gas (GHG) emissions. How your organization chooses to measure the implementation and success of its climate risk strategy is up to you.

Required TCFD Questions

To meet TCFD's disclosure requirements, your organization is required to answer and report the following questions each year:

1. Describe the board’s oversight of climate-related risks and opportunities
2. Describe management’s role in assessing and managing climate-related risks and opportunities
3. Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term
4. Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
5. Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario
6. Describe the organization’s processes for identifying and assessing climate-related risks
7. Describe the organization’s processes for managing climate-related risks
8. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management
9. Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process
10. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks
11. Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets

Note: the ISSB standards, specifically ISSB S2: Climate-related Disclosures, contains additional disclosure requirements and guidance, and does not perfectly match TCFD's structure.

A Few Helpful Recommendations

Your Next Steps With TCFD and ISSB Climate Risk Reporting

For organizations in the earlier stages of their ESG and climate risk reporting journey, we have a few general recommendations, additional reading, and suggested next steps:

Materiality assessment - Before preparing your first TCFD or ISSB report, it’s often beneficial to conduct a “Materiality Assessment” to help clarify your what your company's climate risks, opportunities, and reporting objectives are. A materiality assessment is a project which determines and ranks the most material themes for your business based on market data, stakeholder interviews, and surveys. For example, a manufacturing company might focus on climate-related risks to its facilities and supply chain. A technology company could focus on ClimateTech innovation opportunities and risks. A bank should look at its portfolio and asset risk from fossil fuels and climate-related severe weather. Pick and rank the most relevant climate themes depending on your organization’s industry, business model, risk exposure, and innovation capacity.

Climate and ESG data systems and process - While this might go without saying, in order to report your organization's climate performance, you need to know what it is - with a high degree of accuracy. Your materiality process can help guide you toward the main climate risks and strategy themes to focus, but we recommend taking that further with dedicated carbon accounting software to measure your Scope 1, 2, and 3 GHG emissions required for TCFD and ISSB disclosure. Many organizations start their sustainability reporting with relatively simple spreadsheets, surveys, and documents, but things can get complex fast - particularly for larger companies - and it's important to have a climate reporting system like Brightest that provides full audit measures, activity logging, and secure user access permissions to help organizations stay ESG compliant. Ongoing report archiving, version control, and governance are also important to think about, since you'll be reporting every year.

Further reading - Our free guides to climate risk, sustainability measurement, and ESG reporting provide additional, detailed guidance and insights on how to measure and report your climate performance and risks.