Climate change and finance: The transition from TCFD to ISSB standards

Climate change and finance: The transition from TCFD to ISSB standards

After six years of pioneering work in climate-related financial disclosure, the Task Force on Climate-related Financial Disclosures (TCFD) has released its final status report. ESG-focused FinTech company Position Green recently explained what firms can learn from the new report. 

The final report marks the end of an era as the TCFD will dissolve, with the International Sustainability Standards Board (ISSB) set to take over in 2024. The TCFD’s mission, under the guidance of the Financial Stability Board (FSB), has been to equip companies with the framework to report on the financial risks posed by climate change, a task that will now transition to the ISSB.

The TCFD has achieved significant progress in promoting consistent climate-related financial disclosures across the globe. Their efforts are reflected in the 19 jurisdictions that account for about 60% of the global GDP in 2022 and have implemented or proposed TCFD-aligned disclosure requirements. The TCFD’s framework has garnered widespread support, with over 4,800 organisations endorsing their 11 recommendations. These organisations span a diverse range, from corporate entities and civil society to governmental authorities. Moreover, 97 of the 100 largest companies worldwide have expressed support for the TCFD recommendations or have begun reporting in alignment with them.

The TCFD’s recommendations have been influential, with several major climate-related disclosure regimes integrating these guidelines into their reporting requirements. This includes actions by various governments, regulatory bodies, and standard-setters, such as the US Securities and Exchange Commission (SEC), the UK Parliament, the European Commission, and now the ISSB itself. A focus on interoperability of ISSB standards with regional and jurisdictional frameworks is crucial to ensure consistent reporting across different regions.

Despite the progress, the 2023 TCFD Status Report highlights that there is still room for improvement. While an 18% increase from 2020 has seen 58% of companies disclose in line with at least five of the TCFD’s recommendations when reporting on 2022 data, a mere 4% are aligned with all 11. The lack of comprehensive disclosure, especially regarding the impact of climate change on business strategies and financial planning, is apparent. Position Green’s 2023 ESG100 analysis reinforces this, showing that while a majority assess their climate risks, few disclose the financial impacts, and even less have a solid climate transition plan in place.

Another finding from the Task Force report is the limited disclosure of climate-related information in financial filings compared to sustainability and annual reports. The urgent need for companies to integrate climate-related issues into their financial statements is underscored by the Intergovernmental Panel on Climate Change (IPCC), which has reported more significant climate-related risks and damages than previously anticipated.

Asset managers and owners are disclosing in line with the TCFD’s recommendations to a certain extent. Nevertheless, obtaining high-quality data from investee companies remains a challenge. The importance of accurate and reliable data for financial statements and disclosures that inform investors and stakeholders is undeniable.

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