The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a consultation paper with recommendations for effective disclosure of climate-related financial risks.
The consultation document notes that one of the essential functions of financial markets is to price risk to support informed, efficient capital-allocation decisions and maintains that:
One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change. […] Many organizations incorrectly perceive the implications of climate change to be long term and, therefore, not necessarily relevant to decisions made today.
The TCFD has developed four widely adoptable recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions:
- Governance: Disclosure of the organisation’s governance around climate-related risks and opportunities
- Strategy: Disclosure of the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
- Risk management: Disclosure of how the organisation identifies, assesses, and manages climate-related risks
- Metrics and targets: Disclosure of the metrics and targets used to assess and manage relevant climate-related risks and opportunities
The TCFD recommends that preparers of climate-related financial disclosures provide such disclosures in their mainstream reports. The TCFD also recommends the disclosure of potential impacts of climate-related risks and opportunities under different potential scenarios, including a 2° Celsius scenario.
The draft recommendations are available on TCFD website and are open for public consultation over the next 60 days.
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