TCFD - making climate change impact reporting more transparent

Setting the scene

The Paris Agreement, signed by 195 countries in December 2015, not only signaled a step change in the way governments are addressing climate change but also the need for businesses to review the emerging risks rising from the lower carbon transition.

The Task Force on Climate-related Financial Disclosures (TCFD) was launched in the same month by Mark Carney, Chair of the Financial Stability Board (FSB) and Governor of the Bank of England, with the support of the G20. Chaired by philanthropist, business leader and former Mayor of New York City Michael Bloomberg, and made up of 32 industry members including PwC, its remit was to develop a set of voluntary, consistent and comparable recommendations for companies to use in disclosing information to investors, lenders and insurance underwriters about the impacts of climate change on their financial performance.

In June 2017 TCFD released its recommendations on how companies should detail climate-related impacts in their financial reports. This represents a key moment in global efforts to address climate change. The recommendations will help companies to better measure and evaluate climate risks and opportunities, but also support investors to make better informed investment decisions which incorporate climate change considerations

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“As business leaders, we have an important role to play in ensuring transparency around climate-related risks and opportunities, and I encourage a united effort to improve disclosure across sectors and regions.”

Bob Moritz, Global Chairman, PwC

What we did

PwC partner Jon Williams was a member of the Task Force and co-chair of the workstream focused on developing recommendations for financial services. PwC, therefore, played an active role in the development of the TCFD’s recommendations and, as soon as the report was published, we joined over 100 business leaders and companies in committing our support to its recommendations.

The recommendations themselves cover how boards and management govern climate change and integrate this issue into their strategy, business, financial plans and risk management. They also urge companies to disclose various metrics and targets relating to climate change - ranging from carbon emissions to executive remuneration, as well as the financial impacts on asset values, revenue, profits, capital and debt.

“The main obstacle standing in the way of a smooth and timely market-led adjustment has been the absence of quality information on climate-related financial risks and opportunities. The TCFD recommendations are a solution for the market, by the market.”

Mark Carney, Chair of the Financial Stability Board and Governor of the Bank of England

Making a difference

Collectively, the TCFD’s recommendations highlight that climate risk reporting is no longer simply a corporate social responsibility issue, but a business imperative that should be included in organisations’ financial statements.

In the longer term, the TCFD recommendations will enable providers of finance to better evaluate their financial risks and exposure to climate change, and allocate capital which builds more stable and climate-resilient economies and societies. Indeed, a number of prominent investors such as Aviva and Blackrock have all issued statements making climate a top engagement priority and promising action if companies do not disclose in line with the TCFD recommendations.

At PwC we believe the recommendations will make a real difference to companies’ reporting and management of climate-related risks and opportunities. Partner Jon Williams comments: “While the recommendations in the Task Force report are voluntary, it’s likely that the pressure on industry sectors to start implementing them and disclosing against them will quickly ramp up. A key driver will be the power of the market and, more precisely, that of investors, who are set to win or lose based on the investment decisions they make, the ratings agencies, stock exchanges and the consulting and auditing firms who can support clients in embedding the recommendations.”

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