TCFD… a quick recap

10 Oct

Are you considering implementing TCFD? Do you know if you’re in scope? And how to apply the recommendations at the right scale for your firm size and level of maturity?

We’re aware aligning with the TCFD can seem like a bit of a minefield so we thought we’d give a quick reminder of the requirements and scope.

A quick recap

As we’ve discussed before, the TCFD (Task Force on Climate-Related Financial Disclosures) is the leading framework for assessing and managing climate risks. So much so, it now forms the basis of the new International Sustainability Standards Board (ISSB) framework – the soon-to-be global standard for sustainability-related reporting; see our summary here.

Scope

In January 2022 the FCA brought in new rules mandating that UK investment managers with more than £50bn in assets under management (AUM) must produce an entity-level TCFD report by June 2023, while those with less than £50bn must report by June 2024.

Although managers with less than £5bn are technically exempt from mandatory reporting, lots are still being asked by investors how they’re aligning with the TCFD framework and managing their climate-related risks. Many are now opting to produce TCFD statements and reports to satisfy such requests or get ahead of them before they arrive.

Reporting

Mandatory reporting operates at the entity and product levels:

Entity: firms must produce an annual TCFD entity report and publish it in a prominent place on their website. This sets out how they take climate risks into account in managing their investments.
Product:
- If a product is not an authorised and/or listed fund, firms must provide an on-demand product report and/or additional data to certain eligible institutional investors (i.e., those who require the report or data for their own climate-related financial disclosure obligations).
- If a product is an authorised and/or listed fund, firms must publish their product report in a prominent place on their website and cross-reference it with the entity level report.

Meeting the recommendations

The TCFD asks firms to describe how they are fulfilling the framework’s 11 recommendations across 4 pillars: Governance, Strategy, Risk Management, and Metrics and Targets. The key here is describe. TCFD is heavily process-driven, with emphasis on explaining how you identify, assess, and manage climate risks. There are no minimum thresholds and no final scoring to worry about.

So where to begin?

The framework can seem daunting at first and there are some quantitative elements (like scenario analysis and GHG emission disclosure) that can be a bit trickier due to data sourcing and interpretation. But with its start-where-you-are approach, TCFD is accessible to firms of all types and at all stages.

How we can help

To help demystify the process and steer firms through the process, we’ve developed helpful tools and guidance. So if you’re thinking about TCFD and keen to understand how you might start assessing your climate risks and producing a TCFD report, get in touch for a practical discussion on the stages and requirements.