TCFD publishes its fifth status report on climate-related financial disclosures

By Liam Edwards

The Task Force on Climate-related Financial Disclosures (“TCFD”) published its fifth TCFD status report on 13 October 2022, available in full here. TCFD has also published a press release on this report.

Since TCFD released its final recommendations for organisations developing effective climate-related financial disclosure processes in 2017 (the “2017 Report”), it has also released an annual report on the alignment of companies’ reporting with its recommendations. This latest publication marks the fifth edition of this annual status report.

Increased adoption over time

TCFD notes that there has been significant momentum in the adoption of its recommendations in the five years following the 2017 Report. According to the report, 80% of companies now disclose in line with at least one of the recommendations and 40% disclose in line with at least five.

Further, since the 2021 edition of the status report, action from regulators and international standard setters has contributed to the integration of the TCFD’s recommendations. This includes proposals from the US Securities and Exchange Commission, the International Sustainability Standards Board, and the European Financial Reporting Advisory Group.

TCFD state that investor demand remains a driving force for companies to report climate-related information in line with the 2017 Report. However, TCFD remains of the view that more urgent progress is needed.

TCFD data gathering

In order to assess compliance with its 2017 Report recommendations, TCFD reviewed publicly available financial reports for over 1,400 companies, and also conducted two surveys in 2022, one to gain insight on asset managers’ and owners’ reporting practices and another to gather data on both companies’ efforts to implement its recommendations and users’ views on the usefulness of climate-related financial disclosures.

Key conclusions

TCFD drew the below conclusions following its review of the data and information that it gathered:

• Over 60% of asset managers and over 75% of asset owners considered by TCFD report climate-related information to their clients and beneficiaries, respectively. The reporting methods between these two groups varied, with asset managers reporting to clients either directly or via sustainability reports, and asset owners reporting through annual, sustainability, or climate-specific reports. Further, almost 50% of asset managers and 75% of asset owners reported climate-information that aligned with at least five of the 11 recommendations of the 2017 Report.
• It was noted that the percentage of companies disclosing the TCFD recommendations in financial filings or annual reports has increased year on year, with over 70% of companies implementing the 2017 Report recommendations in 2021 as compared to 45% in 2017, and with all regions assessed having significantly increased disclosure levels over the past three years.
• In addition to a greater number of companies reporting this information, the quality of information being reported has also increased, with 88% of those surveyed noting improvements in the information they have been provided with.
• This increase in both quantity and quality of climate-information disclosures has not been in vain, with 90% of investors surveyed by TCFD noting that this information is used by them to make investment decisions.

To date, over 3,900 organisations across 101 countries and jurisdictions have committed support to TCFD. TCFD has confirmed that it will continue to monitor progress on climate-information reporting in line with its 2017 Report. Following a request by the Financial Stability Board, a sixth status report can be expected in October 2023.

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