On 31st January 2022, the Climate Disclosure Standards Board (CDSB) was consolidated into the IFRS Foundation to support the work of the newly established International Sustainability Standards Board (ISSB). While this site and its resources remain relevant for preparers looking to improve sustainability disclosure until such time as the ISSB issues its IFRS Sustainability Disclosure Standards on such topics, no further work or guidance will be produced or published by CDSB. For further information please visit the IFRS website.

Blog
by Gemma Clements

Overcoming the 4 most common issues when implementing TCFD recommendations

Gemma Clements offers insight and advice on overcoming potential roadblocks for disclosing climate-related financial risk and opportunities

After the first year of reporting against the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, we are seeing a number of organisations providing reports about the state of disclosure practices. In its first status report the TCFD notes that encouraging progress has been made with climate-related disclosure, but more work needs to be done. 

In our recent First Steps review of company reports, Climate Disclosure Standards Board (CDSB) found that only 30 of the top 80 companies in the EU even mention the TCFD. An update to this report "Falling Short?" was released on 19 May 2020 and found that only 54% of the 50 companies reviewed this time around considered both transition and physical risks as outlined in the TCFD recommendations, and just 6% defined the short, medium and long-term time horizons over which the identified risks would impact the organisation. With time ticking and the need to address climate-related issues becoming ever more apparent, we need faster implementation with higher quality disclosure.

At CDSB we provide a number of support programmes for report preparers, including the TCFD Knowledge Hub and Beyond Disclosure programme which both launched in 2018. It is through these programmes that we have been able to obtain insight into what companies are doing and what barriers they still face. 

Here I outline the most common issues that companies face when implementing TCFD recommendations and how to overcome potential roadblocks: 

Climate change is still considered a CSR issue

The TCFD have been fundamental in highlighting the financial implications climate change may bring through the lens of risks and opportunities to companies. However, the responsibility for assessing these issues often still lies with the sustainability department under the guise of corporate social responsibility (CSR).To ensure climate-related issues are integrated within the company’s strategic and financial planning process, it is essential to move climate change beyond CSR. Propelling climate change to the top of the corporate board’s agenda will require collaboration across different departments to utilise the skills and knowledge that already exists. Companies are tackling this problem in different ways, with varying degrees of success. These range from one-to-one conversations to the development of internal working groups. Each approach has its merits, but to be successful these discussions need to have senior management buy-in that goes beyond a statement of support. 

Integrating into mainstream reporting

There remains a number of challenges in moving the relevant information from the sustainability report into the mainstream annual report. With limited room in already comprehensive  reports, those in charge of preparing the report are often reluctant to add more information. Obtaining support from senior management, including the CFO is incredibly important in overcoming this barrier. Those leading the discussions need to have the right business case to demonstrate the value and need for the company to consider climate-related issues within its decision-making and reporting processes. One such piece of information should be a gap analysis, providing an evidence-based and practical starting point for TCFD implementation.

Understanding the next steps

Companies vary in where they are in the journey towards disclosing climate-related information. For example, if a company discloses to CDP then they are already collecting much of the information that is necessary for TCFD disclosure. Other companies publish Sustainability Reports that focus on the impact the company has on the environment but have yet to consider the direct risk of climate change on their operations and strategy. A detailed gap analysis allows report preparers to determine where they are in the journey and where they want to be, in addition to identifying where more work needs to be done. Equipped with this information, companies will be able to assess the timeline for implementation and the prioritisation of tasks.

Limited experience with scenario analysis

In our review of company reports and in conversation with companies through the Beyond Disclosure programme, we noted that very few companies have completed a scenario analysis against a 2˚C or lower scenario, and even fewer have disclosed the results (only 3 in our sample of 80). From our conversations with companies, the same questions frequently emerge: what is a 2˚C or lower scenario, and how do I apply this to my company? There are many tools and supporting guidance to help companies with their scenario analysis, many of which can be found on the TCFD Knowledge Hub. The dedicated page on scenario analysis provides the starting blocks and key resources to complete a decision-useful analysis against a 2˚C or lower scenario.

CDSB provides support and guidance to help companies on their journey including our checklist which outlines the top 10 things companies need to do. Find out more about the Beyond Disclosure programme  or email . 

Written by Gemma Clements, Project Manager at CDSB.