Despite “steady momentum” in the number of companies disclosing TCFD-aligned information, “more progress is needed” if corporates and investors are to adequately respond to escalating climate risks, according to a new report.
The status report, which used AI to review publicly available reports for more than 1,350 large companies, found that 57% of the world’s listed companies now report climate risk in alignment with five or more TCFD recommendations, up from 18% in 2020. In addition, 97 of the 100 largest companies in the world have now declared support for the TCFD or report in line with its recommendations in some way.
However, only 4% of companies fully comply with all 11 TCFD recommendations. These recommendations cover governance, strategy, risk management, metrics, and targets, and include aspects such as board oversight of climate-related issues, the impact of climate risks and opportunities, risk management processes, and climate-related disclosure metrics.
One notable trend is the prioritisation of reporting on climate-related metrics. Over 70% of surveyed companies disclose the metrics used to assess climate-related risks and opportunities, with greenhouse gas (GHG) emissions and climate-related targets also reported by 66% of companies. European companies were the most likely to report on these metrics.
Sector analysis indicated that companies in the consumer goods and technology and media sectors disclosed fewer topics in general. However, these industries were only recently included in the study, and other non-financial industries were examined due to their higher vulnerability to climate change. The report suggests this distinction may explain why companies in the former two industries exhibit lower levels of disclosure.
Reporting to the TCFD’s standards remains voluntary in most markets. In the UK, TCFD-aligned disclosures have been mandatory for larger firms since April 2022. The rest of the G7 have pledged to follow the UK’s lead, and other nations supporting a TCFD mandate for the future include New Zealand and Switzerland.
Why climate-related reporting is necessary
The importance of TCFD-aligned climate reporting is increasing as the impacts of climate change become more severe and investors become more focused on climate risk.
In recent years, there has been a growing number of extreme weather events, such as hurricanes, floods, and wildfires. In 2022, natural disasters resulted in global economic losses of $284 billion, of which less than half ($125 billion) was covered by insurance.
In response to these risks, investors are increasingly looking to invest in companies that are taking climate change seriously. TCFD-aligned climate reporting can help companies to demonstrate their commitment to climate action and attract investment from these investors.
TCFD-aligned climate reporting provides investors and stakeholders with the information they need to make informed decisions about climate-related risks and opportunities. It also helps companies to better understand and manage their own climate exposure.
The next stage for climate risk
The TCFD report is the last of its kind, as the International Sustainability Standards Board (ISSB) is set to take over its monitoring and responsibilities next year.
The ISSB issued its first two finalised frameworks earlier this year, with an expectation that the first corporate reports aligned with them will be published in 2025. The two new standards – IFRS S1 and S2 – are climate-focused, but the former also covers other related environmental risks and opportunities.
Recommendations from the TCFD were integrated into the ISSB standards, creating a high level of interoperability, this means companies adopting the ISSB Standards will automatically meet the TCFD recommendations without the need for additional compliance.
You can read the full report here.
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