The ABCs of TCFD

February 4th, 2021

As over the past 10 days Larry Fink’s annual letter to CEOs has made many CEOs all over the world rethink their strategy around climate change (Blackrock’s Chairman and CEO last week argued for all corporations to eliminate their greenhouse gas emissions by 2050, click here for Televisa’s latest announcement as an example), this week I want to discuss what is the Task Force on Climate-Related Financial Disclosures (TCFD) and why it matters.

What is the TCFD then?

In 2015, the G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board (FSB) to convene public- and private-sector participants to review how the financial sector can integrate climate-related issues into its investment processes. As part of this review, the FSB identified the need for better information and to help identify the needed information it established an industry-led task force — the TCFD. The FSB asked the TCFD to develop voluntary climate-related financial disclosures that would be useful to investors and others in understanding material risks.

TCFD today is a 31-member organization that aims to develop standards for voluntary financial disclosures focused on climate change across all industries. Members represent both preparers (organizations) and users (investors) of these disclosures. It is chaired by Michael R. Bloomberg.

TCFD recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets. These thematic areas are intended to interlink and inform each other. Organizations that decide to align with or support TCFD become part of a list of over 1700 organizations who are already actively supporting the initiative.

How well known is TCFD?

According to the 2020 Status Report:

• Nearly 60% of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both.
• Almost 700 organizations have become TCFD supporters since the Task Force issued its 2019 status report, an increase of over 85%.
• Energy companies and materials and buildings companies lead on disclosure.

How do I become a TCFD supporter?

You can sign up here, providing simple information such as the name of the organization, sector, region, country, website, market cap, and AUM. There is no cost for this. When you submit your form, you will be contacted to further discuss your support, and to receive information on TCFD reporting within your ESG disclosure.

Becoming a supporter means you believe TCFD’s framework helps. If you are part of a company, this translates into working towards implementing the recommendations. If you are an investor, this means you will push companies to implement the recommendations. All organizations can have an impact.

What does TCFD’s framework mean in terms of reporting?

According to the TCFD 2017 Recommendation Report, “The Task Force structured its recommendations around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.

One of the Task Force’s key recommended disclosures focuses on the resilience of an organization’s strategy, taking into consideration different climate-related scenarios, including a 2° Celsius or lower scenario. An organization’s disclosure of how its strategies might change to address potential climate-related risks and opportunities is a key step to better understanding the potential implications of climate change on the organization.”

For more detail on the required disclosures, we recommend reading the whole document which has pretty comprehensive guidance.

Who are the TCFD supporters in Mexico?

There are 16 organizations which currently support TCFD in Mexico. 14 of them became supporters in 2020, 1 in 2021. Only 6 of them are public companies (see them below). Clearly Mexico still has a lot of room to grow its support towards the Task Force (and this is after the local Green Finance Council or CCFV publicly asked companies to adopt its recommendations last year).

We would expect to see more TCFD supporters in Mexico in the coming years. Hopefully this increased support will really translate into thoughtful consideration of how climate change may shape up businesses in the future as, to quote Larry Fink, “we are on the edge of a fundamental reshaping of finance.”

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

Partner, Miranda ESG