A free course by BDO Global, TCFD explained—Overview and examples in practice, introduces the TCFD recommendations.
Published: November 27, 2023
Updated: December 15, 2023
This article was adapted from a piece by BDO Australia, The eleven recommended disclosures of the TCFD framework. We’ve revised the article to provide a Canadian perspective.
As climate-related reporting gains prominence, businesses can leverage the 11 recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) as a robust framework for comprehensive and actionable disclosure.
The TCFD guidelines are closely connected with the International Sustainability Standards Board's (ISSB) sustainability disclosure standards, and both frameworks aim to improve sustainability and climate-related reporting by organizations. Between increasing stakeholder demands for transparency in sustainability reporting, a global commitment to reducing emissions, and greater regulatory interest in climate-related disclosures, adoption of the TCFD framework has been increasing in Canada and around the world since its inception in 2017.
In Canada, the Office of the Superintendent of Financial Institutions (OSFI) issued its first climate-related framework, Guideline B-15: Climate Risk Management. The guideline sets out OSFI’s expectations on climate-related risk management and disclosures for federally regulated financial institutions, such as banks and insurers. Some federally regulated financial institutions will need to provide climate-risk financial risk disclosures that align with the TCFD framework as early as 2024.
What is the TCFD framework?
The TCFD recommendations provide a framework for considering climate-related risks and opportunities. This can also be a useful management tool if a business is able to build resilience by identifying, measuring, and managing the potential impact of climate change on their business, as well as identifying opportunities.
The TCFD framework has 11 recommendations structured into four core pillars:
Governance
Metrics and targets
Risk management
Strategy
This structure is intended to help guide users in their analysis and disclosures. The four pillars do not operate in isolation, and the interdependence between them is evident throughout the provided guidance, as are the common themes and challenges that can occur.
What are the TCFD’s recommended disclosures?
The TCFD framework supports a consistent reporting format so that end-users can contrast and compare like-for-like information. The recommendations help organizations articulate leadership involvement in climate-related risks and opportunities, the resilience of strategic directions against the impacts of climate-related risks, climate-related risk identification, assessment and management, and the metrics used to manage climate-related issues and the ongoing progress against targets.
Notably, organizations do not have to report on all 11 recommendations, though consideration should be given to all recommended disclosures to ensure relevance and transparency.
The TCFD has provided general guidance to support organizations from all industries to assess and report on the recommended disclosures, as well as industry-specific guidance, where necessary, for the financial sector—including banks, asset owners and managers, and insurance companies—and non-financial groups—including energy, transport, materials and building, and agriculture.
The TCFD’s four pillars and 11 recommended disclosures are outlined in its document, Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures. Here is what they indicate:
| Governance | Strategy | Risk management | Metrics and targets |
|---|---|---|---|
| Disclose the organization's governance around climate-related risks and opportunities. | Disclose the actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning where such information is material. | Disclose how the organization identifies, assesses, and manages climate-related risks. | Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. |
| Recommendations | |||
| a) Describe the board's oversight of climate-related risks and opportunities. | a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. | a) Describe the organization's processes for identifying and assessing climate-related risks. | a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process. |
| b) Describe management's role in assessing and managing climate-related risks and opportunities. | b) Describe the impact of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning. | b) Describe the organization's processes for managing climate-related risks. | b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. |
| c) Describe the resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. | c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization's overall risk management. | c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. | |
Source: Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures, Task Force on Climate-Related Financial Disclosures, October 2021.
Connectivity with the ISSB sustainability standards
IFRS S2—Climate-related disclosures largely draw on the recommendations of the TCFD.
As noted in the ISSB's comparison paper, some wording in the Exposure Draft for IFRS S2 remains the same as the TCFD guidance. Although IFRS S2 differs from the TCFD guidance in very few instances, where these differences do occur generally relate to the greater level of detail required by IFRS S2.
Learn more about the International Sustainability Standards Board in our article, What are the ISSB’s new sustainability standards?
Understanding more about the TCFD recommendations
How BDO can help
Whether you're looking to enhance your climate disclosures, identify and manage climate-related risks, or seize opportunities for sustainable growth, we have the knowledge and experience to support your journey. Our national ESG and sustainability team can help ensure your organization aligns with global standards and effectively communicates its commitment to ESG.
Some of the areas where we can support your organization include:
- Determining the scope and applicability of the TCFD recommendations
- Conducting gap analyses between your current climate-related processes, controls, and disclosures against the TCFD expectations and requirements
- Calculating Scope 1, 2, and 3 emissions
- Drafting and preparing TCFD reports