Enter the TCFD report: a reporting framework of recommendations for companies to consider, with the aim of improving and increasing reporting of climate-related financial information.
There are a few different approaches to reporting against the TCFD, depending on the maturity of the disclosure and the needs of the business:
The most common approach is 2 – the dedicated section in the annual report. In 2017, TCFD recommended the annual report as the home for these disclosures. The annual report is an investor-focused document, so this has the advantage of making the reporting easily accessible to its target audience. However, the disadvantage of housing TCFD within the annual report is the amount of disclosure. TCFD sections can get quite long, so in an attempt to save space and reduce page count, companies can skimp on the detail. Rich information around process and discussion of how they came up with plans and conclusions is often first to be cut from the final report.
It can be helpful to have a separate TCFD report if you are also producing a sustainability report separate from your annual report – this reduces repetition in those documents and keeps information in one place. If someone wants to understand a company's response to climate change, they can go directly to the sustainability report. This is particularly important given the growing focus and discourse on climate change and the impact of business. The only downside of housing TCFD elsewhere is that it is harder to locate. This makes signposting on the investor website and in the annual report vital.
Although TCFD only became mandatory this year, there are already some disclosures in TCFD that are being well reported:
However, there are other areas of the TCFD that require a more focused effort from reporters. The following disclosures are currently being under-reported or omitted from TCFD reports:
One promising feature of some TCFD reports is the use of infographics to tell a story around climate-related disclosures. Reporters are choosing to use graphs, roadmaps and illustrations to present key information. For example, rather than simply listing their objectives, reporters are using an illustrated timeline to lift the information out of the dense disclosures, plotting out their proposed actions towards net zero and making the plan engaging and easy to understand.
TCFD can also be linked to other areas of the annual report such as strategy and risk. Linking to governance, risk management, remuneration and overall corporate strategy from TCFD gives the impression that climate change considerations are embedded in the business. This will become increasingly important as sustainability frameworks begin to merge.
If you would like support with improving your TCFD disclosures, including advice around making disclosure engaging, please get in touch with us! Or download a copy of our TCFD guide here.