In this second article in the series, we look at TCFD-aligned reporting and the TCFD recommendations: who they apply to, why they are needed and what is required by them.

What is TCFD?

In December 2015, the Financial Stability Board (FSB) created an industry-led Task Force on Climate-related Financial Disclosures (TCFD) to develop a set of recommendations to support companies in disclosing relevant information to enhance transparency throughout the financial and non-financial markets.  Its remit was to develop climate-related disclosures that “could promote more informed investment, credit [or lending], and insurance underwriting decisions” and, in turn, “would enable stakeholders to understand better the concentrations of carbon-related assets in the financial sector and the financial system’s exposures to climate-related risks.”1

In June 2017, the TCFD published its “Implementing the Recommendations of the Task Force on Climate-related Disclosures”.  It updated the 2017 Annex and republished the recommendations in October 2021.

Who has to make TCFD-aligned disclosures?

Many organisations voluntarily make TCFD-aligned disclosures in their annual reports or in separate sustainability reports.  The TCFD Status Report 2022 found that respondents to their survey gave the following reasons for TCFD implementation (they could choose more than one option): climate-related issues are material for the company (85%), investors request this information (77%), corporate citizenship/reputational benefits (59%), senior management priority (53%), peers are implementing the recommendations (40%) and TCFD is required by law or regulation (26%). 

Over 120 regulators and governments are TCFD supporters, including Belgium, Canada, Chile, Denmark, France, Ireland, Japan, New Zealand, Sweden, and the United Kingdom. A growing number of countries have adopted the TCFD-aligned disclosure regimes into legislation and require mainly large or listed companies or asset managers/owners to make climate-related financial disclosures.  For example, the UK requires (i) certain large companies to make TCFD-aligned disclosures as set out in the Companies Act, (ii) UK listed companies to make disclosures in line with TCFD on a ‘comply or explain’ basis and (iii) asset managers and certain asset owners see our article on UK TCFD-aligned disclosures for more information here

The TCFD Status Report 2022 sets out the state of play as of its date indicating where jurisdictions have implemented or proposed legislation implementing the TCFD recommendations.  The TCFD recommendations have been so successful in their uptake because of the large global support they have received as well as having been designed to be incorporated into existing financial reporting frameworks.

What are the TCFD recommendations?

Four elements and related guidance

The TCFD recommendations are structured around four core elements of climate-related financial disclosures:

  • Governance: governance in relation to climate-related risks and opportunities
  • Strategy: actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning
  • Risk Management: processes used by the organisation to identify, assess and manage climate-related risks
  • Metrics and Targets: metrics and targets used to assess and manage relevant climate-related risks and opportunities  

The TCFD particularly recommends disclosure of the resilience of an organisation’s strategy, taking into account climate-related scenarios, including a 2°C or lower scenario.  It believes that such analysis is nascent but will develop over time and is important for improving the disclosure of decision-useful, climate-related financial information.

Together with identifying the four core elements, the TCFD provides further guidance on disclosure for each of the four elements applicable to all sectors and supplemental guidance for certain groups within the financial sector (banks, insurance companies, asset owners, asset managers, carbon footprinting and exposure metrics) and non-financial groups (energy, transportation, materials and buildings and agriculture, food and forest products).

Climate-related risks and opportunities and their financial impact

The TCFD Final Report divides climate-related risks into two major categories:

  • Transition risks: policy risk, legal risk, technology risk, market risk and reputation risk
  • Physical risks: acute risk and chronic risk

It also highlights climate-related opportunities: resource efficiency, energy source, products and services, markets and resilience.  Appendix 1 of the 2021 Annex provides examples climate-related risks/opportunities and the potential financial impacts.  When surveying investors, lenders and insurance underwriters, the Task Force found that users found the actual impact of climate-related issues on an organisation was the most useful data and specifically identified financial impacts on capital expenditure and capital allocation as most useful.

Differences between the 2017 Annex and 2021 Annex

When the TCFD published its replacement Annex in 2021, it highlighted a number of specific changes it had made, below we highlight a few of these changes to show how thinking has evolved following use of the TCFD recommendations:

  • When disclosing the metrics used by an organisation to assess climate-related risks and opportunities, add disclosure of the extent to which activities are aligned with a well below 2°C scenario.
  • Explicitly disclose actual financial impacts on organisations as well as key information from an organisation’s transition plan.
  • In relation to disclosing Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and the related risks: organisations should disclose Scope 1 and Scope 2 GHG emissions regardless of a materiality assessment and are encouraged to disclose Scope 3 GHG emissions.  As well as adding sector-specific disclosure in relation to measure of GHG  emissions.
  • In relation to targets used by an organisation to manage climate-related risks and opportunities and performance against targets, include disclosure of targets consistent with cross-industry, climate-related metric categories and interim targets, where available.

Where should organisations make their disclosures?

The TCFD recommends that disclosures should be included in annual financial filings and subject to existing governance, such as review by the chief financial officer and audit committee.  Some organisations may choose to disclose elsewhere, for example if they are not required to produce annual financial filings.  However, it is recommended that such reporting follow the same internal governance processes as for financial reporting.

Next steps

Companies may be required to report in alignment with TCFD or may voluntarily report in alignment, particularly if the organisation voluntarily reports in alignment with the UN Principles for Responsible Investment or other global reporting standards.  In the coming years, we expect to see a continuing trend of the TCFD recommendations being incorporated as part of more national reporting requirements worldwide, including the US in the coming months as part of the Securities Exchange Commission’s proposed disclosure rules.  TCFD reporting is only applicable to the largest and/or listed companies and asset managers and owners in most jurisdictions – we would expect to see the scope widened to include smaller companies over the coming years to enable better reporting for larger and/or listed organisations. 

In addition, we would expect to see organisations gaining experience in considering climate-related risks and making disclosures which should result in better financial reporting.  Currently very few companies report on all 11 recommendations but we would expect to see the quality and extent of reporting to improve over the next couple of years.

And of course, we can expect to see the Taskforce on Nature-related Financial Disclosures framework (TNFD) to be finalised in the middle of 2023 which it is hoped will drive further changes in financial disclosures to reflect risks and opportunities arising from biodiversity loss and restoration.

Our Sustainable Finance & Investment practice brings together a multidisciplinary global team to support our clients in this mission-critical area. 

This note is intended to be a general guide and covers questions of law and practice.  It does not constitute legal advice.



Authored by Emily Julier, Rita Hunter, and Julia Cripps.

Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.

Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, 15 June 2017.


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