Task Force on Climate Related Financial Disclosures (TCFD)

Warm Greetings Dear Folks!

Increasing changes in global atmosphere brings increasing effects on business and profitabality. Owing to all this I would like to throw a little light on one of the one of the  Finacial Sustainability Reporting Framework - TCFD.

What is TCFD? and How it impacts the Investors Decisions?

The Global Climate change impacts business with risks as well as opportunities, which needs to be identified and addressed through Strategic Risk Management and inclusive Decision Making. This process is backed by TCFD Framework & recommendations and adopted across the European Continent.

Climate Related Financial Disclosures are driven by Task Force to guide and support organizations based on their recommendations for Climate Change mitigation which we widely know as TCFD Framework.

Followed by more than 3000 organizations and backed by G20 & International Financial Reporting Standards Foundation, it was established by Financial Stability Board in December, 2015 as a repercussion of failure of complying to Paris Agreement . TCFD Framework helps organizations in disclosing what action plans can be taken to mitigate the effects of its activities on Global Climate.

The Framework provides transparency on the Climate Disclosures against the goals of Paris Agreement and hence impacting investor in taking more informed decisions about the carbon footprint and accounting linked to the assets.  

The US Security Exchange Commission is preparing to make it mandatory for public companies to report the climate related disclosures. In India BRSR have entered the mandatory phase of reporting for top 1000 listed companies by SEBI. UK plans to make Climate related disclosures mandatory by 2025 or earlier.

 TCFD Framework encompasses 4 dimensions of disclosures,

1. Governance - System & Processes of Organization around climate related Risks & opportunities

2. Strategy - Maps impacts(actual & potential) of climate related risks & opportunities to businesses & financial planning

3. Metrics & Targets - discloses metrics & targets used to evaluate and manage climate related risks & opportunities.

4. Risk Management - discloses how organization identifies, assesses and manages risks related to climate

Risks & Opportunities

The type of risks covered are transitional risks while transitioning to low carbon structure and physical risks like floods or drought. The opportunities covered are resource efficiency, increased market opportunities, process optimization etc.

Financial Impact & Investor decisions

The Financial impact categories considered under TCFD Framework are Balance Sheet and Income statement.

Income statement - The final statement of revenues & expenditures impacted by climate change eg. consumer drop due to high emission products or increase in demand of services due to contribution to Sustainable development

Balance Sheet - Organizations financial value derived upon Assets - Liabilities and Capital-Financing observing changes of climate crisis. eg. Infrastructure destroyed due to floods and Investment on R&D to improve product compliance.

The Financial Disclosures based on the effects of climate change and identified risk and opportunities plays an important role in deriving the Investor sentiment and Stakeholder commitments.

TCFD also encourages to conduct Scenario Analysis which will equip any business to understand and map potential risks and their implications under assumptive uncertain future conditions. 

TCFD and other Sustainability disclosure framework support and drive Investor Decisions and clearly states the expectations of consumers and investors in driving the Industrial giants for Sustaining the Climate.

In my next post I will come back with a similar interesting share for you all.

Share your views & comments on TCFD and its impacts on financial decision making.

Good Bye...Go Green!