Companies are increasingly publicising their climate-related risks and opportunities, as highlighted by the 2023 Status Report from the TCFD.
Even though there’s a notable surge in such disclosures compared to a few years back, a large number of companies are still not fully embracing all TCFD recommendations.
The TCFD’s latest status report marks its 6th and final annual update. The baton for overseeing progress on climate-related reporting has now been handed over to the IFRS Foundation’s International Sustainability Standards Board (ISSB) in light of the latter’s recent release of global standards for sustainability and climate reporting. Formed by the Financial Stability Board in 2015, TCFD’s primary goal was the creation of consistent disclosure standards that would help investors and stakeholders gauge companies’ financial risk stemming from climate-related issues. The ISSB’s climate-related disclosure standard largely integrates TCFD recommendations.
To craft this status report, the TCFD employed artificial intelligence to analyse public reports from over 1,350 large corporations spanning diverse regions and sectors across three years. The analysis revealed a considerable uptick in companies aligning with TCFD recommendations and the extent of adherence to these recommendations. In 2022, 90% of firms made disclosures in harmony with at least one of TCFD’s 11 suggestions, a significant increase from 80% in 2021 and 64% in 2020. Furthermore, the average number of disclosures by firms stood at 5.3 in 2022, a 66% rise from 3.2 in 2020.
The recommendation category that witnessed the most significant jump in reporting was “Climate-related risks and opportunities”, with 62% of firms reporting in 2022, a sharp climb from merely 36% in 2020. However, reporting on companies’ strategies under varying climate-related scenarios remained at a low, with only 11% of firms disclosing in 2022. Remarkably, 90% of companies found this particular recommendation either somewhat or very challenging to implement.
The study also dissected disclosures by sector, region, and company size. Companies in Europe led the way with an average of 7.2 disclosures, while Middle East and Africa-based firms lagged behind at 3.8. Large cap firms significantly outperformed their smaller peers in this domain.
Further, a review of the top 50 asset managers and asset owners, considering assets under management, showcased that 70% of asset managers and 30% of asset owners complied with a minimum of five TCFD recommendations. A lack of adequate information from investee companies was seen as the prime challenge to climate-related reporting.
The TCFD, though appreciative of the survey results, stated that there’s more ground to cover to truly understand the real and prospective impacts of climate change on businesses.
The TCFD said, “While the results of the survey [are] encouraging, more progress is needed to improve transparency on the actual and potential impact of climate change on companies.”
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