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Embracing a New Chapter: FSB's Closure of TCFD and the Path Forward

Recent developments have marked a significant shift in the landscape of climate-related financial disclosures. The Financial Stability Board (FSB) has decided to close down the Task Force on Climate-related Financial Disclosures (TCFD), signaling the completion of its mission. But what does this mean for the future of climate reporting and financial stability?

Established by the FSB in 2015, the TCFD was tasked with developing a set of recommendations for more effective climate-related disclosures that could promote more informed investment, credit, and insurance underwriting decisions. These recommendations aimed to support stakeholders in understanding material climate-related risks.

The TCFD's major recommendations centered around four thematic areas:

  1. Governance: Insight into the organization's governance around climate-related risks and opportunities.
  2. Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning.
  3. Risk Management: How the organization identifies, assesses, and manages climate-related risks.
  4. Metrics and Targets: The metrics and targets used to assess and manage relevant climate-related risks and opportunities.

The TCFD's recommendations were designed to be applicable to all organizations, including financial and non-financial, public and private sectors. This broad applicability aims to ensure that all relevant entities, regardless of size or sector, can contribute to and benefit from enhanced transparency and understanding of climate-related risks and opportunities.

Here are some key statistics on the impact of the Task Force on Climate-related Financial Disclosures (TCFD) since its inception in 2015:

  1. Increase in TCFD-aligned Disclosure (2019-2020): There was a significant increase in TCFD disclosure from 2019 to 2020. Among the world's largest 100 companies, 83 now support or report in line with the TCFD's recommendations. This period saw a nine percentage point growth in disclosure compared to the four percentage point growth from 2018-2019. For the first time, over 50% of the companies reviewed disclosed their climate-related risks and opportunities.
  2. Growth in TCFD Supporters (Since 2021): Since the previous year's report, the number of TCFD supporters grew by over a third. More than 1,000 new organizations now support the TCFD recommendations, bringing the total to over 2,600 globally, spanning 89 countries and jurisdictions and nearly all sectors of the economy. These supporters have a combined market capitalization of over $25.1 trillion, a 99% increase from the previous year.
  3. Disclosure Trends (2022): For fiscal year 2022, 58% of companies disclosed in line with at least five of the eleven recommended TCFD disclosures, up from 18% in 2020. However, only 4% of companies disclosed in line with all eleven recommendations.
  4. Improvement in Specific Areas (2020-2022): The reporting on climate-related risks or opportunities, board oversight, and climate-related targets saw significant increases between fiscal years 2020 and 2022. These increased by 26, 25, and 24 percentage points, respectively.
  5. Asset Managers and Owners Reporting: Over 80% of the largest asset managers and 50% of the largest asset owners reported in line with at least one of the 11 recommended disclosures. Nearly 70% of the top 50 asset managers and 36% of the top 50 asset owners disclosed in line with at least five of the recommended disclosures.

With the closure of the TCFD, the FSB will now take a more direct role in overseeing and guiding the implementation of these recommendations. This transition ensures that the valuable work initiated by the TCFD is not lost but rather integrated into the broader framework of the FSB's efforts to enhance global financial stability.

While the closure of the TCFD marks the end of a specific chapter, it also signals the beginning of a more integrated and comprehensive approach to climate-related financial disclosures under the stewardship of the FSB. For businesses and investors, this transition presents an opportunity to reinforce their commitment to sustainable practices and transparent reporting, with ChaiOne as your trusted partner in this journey.

About the Author:
ChaiOne's Meet Patel has more than 15 years of experience in energy sector and energy transition, helping clients to navigate the evolving landscape of climate-related financial disclosures and taking proactive steps towards a sustainable future. Contact us to leverage Meet's insights and make a positive environmental impact.