Our guide to helping your business action the Task Force on Climate-related Disclosures

Business is not only defined by evolving consumer behaviours, technology, or economic factors—it’s also being shaped drastically by our changing environmental climate. From supply chain disruptions to legal and regulatory mandates to increased accountability, it’s clear businesses across various industries need to understand and prepare for climate-related risks.  

The international Financial Stability Board (FSB) created the Task Force on Climate-related Disclosures (TCFD) in 2015 to help businesses identify the type of information they should disclose to investors, lenders, and other stakeholders about climate-related risks that may affect the business’s value. By acting now, you can help secure your value chain, boost credibility with your stakeholders, and increase your potential for future access to funding and investment.  

According to the TCFD 2022 Status Report, support for the framework now spans 99 countries, and nearly all sectors of the economy, with a combined market capitalization of over $26 trillion The report shows that 80% of companies disclose in line with at least one of the TCFD’s 11 recommended disclosures. 

The challenge of embracing TCFD 

The advantages of reporting are significant, but so are the challenges involved in meeting the FSB’s recommendations (these include difficulties rooted in the TCFD’s own framework for the type of disclosures made). 

Some of the challenges include: 

• The limited or non-existent experience of first-time reporters when it comes to analyzing and reporting accurately on the climate-change scenario affecting your business. This not only generates risk—it drives the need for new or realigned resource and expertise, either within the business or externally. 
• Gaining access to the relevant data may be particularly difficult for smaller businesses that haven’t historically had the research capabilities to crunch the relevant ESG-related information.  
• The issue of governance. Does your board have the processes and internal controls in place to keep abreast of climate-related matters? Does it take climate issues into account when setting strategy? And how does it measure progress? The same questions apply to your management. 

Our actionable guide below illustrates how your business can address these challenges.

Where should you start on TCFD?

Understand the timeframe and complexity 

Regulation around climate reporting, which typically includes the company’s management plan for climate-related risks and encompasses emissions reporting, is coming to Canada, the UK, EU, the US, and many other parts of the world. Developing and deploying an effective risk management framework for sustainability matters is a significant undertaking. Similarly, creating a greenhouse gas (GHG) management program will require involvement and perspectives from across the organization.  

Businesses shouldn’t underestimate the time, effort, and complexity involved in embedding climate issues at the heart of the business. This is especially relevant for first-time reporters. You should understand who’s going to be responsible for driving the project forward and ensure they have the knowledge and resources they need. 

Build a workable roadmap 

The next step in building a successful reporting process is developing the right roadmap to get your business to where it needs to be within the required timeframe. Too often, companies set and declare ambitious targets while providing no insight into how they are going to achieve them. 

Look at the requirements and what you’d need to have in place if you were to report today. What would you have to include, and how does that compare to best practice, to your peers, and to others in your industry? Consider what you want your report to say, work back from that, and prioritize any gaps that emerge during the process. 

Create an effective and efficient internal reporting framework 

Reliable climate-related metrics start with a solid foundation. Documenting the rationale for your key decisions through each step of the process will go a long way towards supporting your future reporting and assurance requirements, making the required processes easier in the longer term for everyone involved. 

Define KPIs and track performance 

Businesses should establish key performance indicators (KPIs) which address the climate-related risks and opportunities it faces and track performance on an ongoing basis. If your business currently lacks the necessary resources to gather and process this data, plans will need to be put in place to help ensure this can be done effectively. 

The world is moving aggressively to reduce GHG emissions—targeting net-zero by 2050—so it’s important to understand your current baseline emissions and identify the most effective and efficient ways to abate those emissions. In the short term, you can offset residual emissions and make sure those emission-reduction strategies are operational. 

Understand the financial reporting implications and disclosure challenges 

It’s nearly impossible to under-emphasize the complexities involved in the interplay between TCFD disclosures and other elements within corporate reporting. The discussions and disclosures businesses might include in the TCFD section will have financial reporting implications. For example, your business might be expecting to exit certain industries or see changes in consumer behaviour. You’ll need to consider what this might mean for your forecasting or how you present your business review. You’ll also need to look at how these factors play into the principal risks you’ve identified, how they apply to your governance disclosures, and how it all connects with your financial information. Asking these questions is important for any business at the start of its reporting journey. 

Gain visibility over your value chain and Scope 3 emissions 

Leading companies are increasingly requiring net-zero commitments throughout their value chains, working closely with suppliers and customers as they leverage their ability to meet their Scope 3 emissions targets. This is setting a precedent that will soon be expected of all businesses. The forthcoming IFRS Sustainability Disclosure Standards are expected to require reporting entities to disclose their Scope 3 emissions, when material. 

Put the appropriate governance structures in place 

Companies should implement the governance structures and procedures required to ensure compliance at both board and management levels. While this is becoming easier as leaders embrace their climate responsibilities, it’s an important focus area for those companies that have not yet instigated change. 

From our global research, we know that integrating ESG thinking at all levels of your business is considered an important factor for boosting the credibility of sustainability reporting, highlighted by 35% of mid-market business leaders. 

Act now on TCFD

The time to embrace the demands of TCFD is now. We can help you get there. If you’d like the support of our trusted advisors to shape your approach to TCFD reporting, please contact us today. 

Source: Grant Thornton International Ltd.