What is the Task Force on Climate-Related Financial Disclosures?

ESG

Task Force on Climate-Related Financial Disclosures (TCFD) is a framework used by financial institutions and companies accessing public markets.

Confused about the TCFD? We’ll, you’re not alone. 

In this blog, we explain what it is, when it is used, why it is helpful, and how it helps small and medium sized businesses like yours position themselves for risk migration and opportunity gain. 

Special thanks to Michael Milewski for his knowledge sharing and overall support.

What is the TCFD?

The Task Force on Climate-Related Financial Disclosures (TCFD) is a framework. It is being used by companies around the world. Specifically, we’re seeing it being used in Sustainability Reports and CSR Reports in Canada and the USA. It asks, “how could climate change impact our firm?” 

Who reads TCFD reports?

Typically investors are the main audience of these corporate disclosures. They zero in on these metrics and outcomes to access risk and financial impact relating to climate change on a specific company. 

What does the TCFD contain?

The TCFD looks at risks, both physical and transitional, surrounding a firm. For example, it might exlain policies coming out the market. It also looks at physical risks, both acute and chronic. It then looks at opportunities. For example, how is the business using resources and how could it be more efficient. Perhaps also due to climate change and social change, new markets are emerging that the firm could enter. The company’s resilience is under a microscope. The TCFD encourages strategic planning and risk mitigation by looking at these factors. Afterall, they can impact your company’s books in a real and tangible way.

Who needs to report using the TCFD?

Commonly the Task Force on Climate-Related Financial Disclosures (TCFD) is a framework used by financial institutions and companies accessing public markets for equity and debt. They are being pushed to disclose using this framework. 

Why would companies who are not mandated to produce a sustainability report want to start using the TCFD? 

Get to know the TCFD as a small or medium business for two reasons:

  1. You may be asked. Your business may be asked to comply and disclose your Greenhouse Gas (GHG) emissions. Why? You may be a source of Scope 3 emissions for your financial institution, those lending you money, or a customer you supply to. As pat of their value chain, you’ll need to track and measure your own emissions as part of their report. Not doing so could get you removed as a partner. What is scope 1, 2 and 3? Scope 1 is direct emissions. Scope 2 is indirect or bought. You can think energy purchased. Scope 3 is other emissions related to your business. 
  2. Risk mitigation. Risk management physical and transitional risks can represent a real problem if you’re not careful. If your firm is not paying attention, a new regulation may creep up or one of your offices may be in a region impacted by wildfires or extreme drought. Getting staff or materials could get really difficult and that would impact your bottom line. For example, in late 2021, Vancouver was practically cut off from the rest of Canada due to rainfall from an atmospheric river. It caused crippling supply chain disruptions. Another example is when the price of lettuce spiked in late 2022 due to supply shocks caused by droughts in California. If drought patterns remain persistent into the future restaurants, catering companies, and event spaces would need to plan around supply issues or seek other supply options that are not at risk. 

Where should your business start? 

Start tracking your company’s emissions today. Even if you’re not planning to disclose this year or next. Start tracking using the GHG Protocol. They have a worksheet on their website you can access for free. Track scope 1, 2, and 3. Don’t try to hide emissions under scope 3. For example, if your company owns delivery vehicles, selling them and outsourcing transportation is not necessarily making your company greener. You should still count those emissions properly. 

Using the TCFD framework today can be simple. It could prepare your business for the impacts of climate change. It’s goal: to help you, not to trick you. 

Review the framework and it’s four main sections; governance, strategy, risk management, and metrics and targets. 

The TCFD is a winning framework in the sustainability world. Bayer, Loblaws, and RBC all mention it in their sustainability reports. It’s inclusive, comprehensive, its gaining worldwide traction, and mandatory regulations are citing it. Get familiar with it today.

More detail is available on their website.

Thanks for reading!

~Team ThisRock