The Task Force on Climate-related Financial Disclosures (TCFD) has said take up of its framework on reporting on climate risk and opportunities is “slower than necessary” and “in need of drastic acceleration” as it hints at a move away from weighted average carbon intensity metrics in its disclosure recommendations.
The TCFD recommendations, a set of voluntary climate-related financial disclosures, were launched in 2017 under the umbrella of the Financial Stability Board, then chaired by Mark Carney, Governor of the Bank of England.
The framework has seen widespread support from companies and governments alike.
Last month New Zealand became the first country to mandate TCFD disclosure for companies, including financial sector actors. And earlier this year, BlackRock’s Larry Fink, said investee companies would have to report in line with the TCFD or risk it voting against management.
But, on a press call to launch the TCFD 2020 status report, former SEC Chair Mary Schapiro, who now acts as special advisor to TCFD chairman Michael Bloomberg, said: “More must be done to meet the pace and urgency of the climate crisis.”
The TCFD lists 1,500 “supporters” including companies with a market capitalization of $12.6trn and financial institutions responsible for assets of $150trn.
But the 2020 Status report indicates there is no definitive way to know how many companies are actually disclosing in line with TCFD recommendations.
An AI analysis of 4,500 public companies, found 1,701 companies were disclosing one or more of the TCFD’s 11 recommendations covering governance, strategy, risk management and metric and targets.
This translates into 42% of companies with a market capitalization of $10bn having some measure of alignment with the TCFD.
The highest instance of TCFD disclosure was on risk and opportunities (41% of companies analysed), but the lowest instance of TCFD disclosure was on resilience of strategy (7% of companies analysed).
The analysis also found that disclosures are primarily made in sustainability reports.
Asset managers and asset owners were excluded from the AI review, but a separate analysis found TCFD-aligned reporting increased significantly amongst this group in 2019/20 driven by the PRI’s mandatory reporting requirements for specific climate-related indicators in 2020.
The 2020 Status report however said the Task Force believes TCFD reporting from this group “may not be sufficient and more progress is needed”.
It also said the lowest level of reporting for both asset managers and asset owners relates to the weighted average carbon intensity metric, which is the carbon footprinting metric recommended by the Task Force.
Schapiro said the Task Force would be holding a consultation with the financial sector on the most important metrics for forward-looking financial disclosure.
Expanding on this, Mara Childress Director, Global Public Policy, Bloomberg LP, said when the TCFD launched in 2017 it was “a different world, with different frameworks” but since then it had seen that weighted average carbon intensity was “not used as much”.
The comments come after the European Commission's landmark Sustainable Finance Action Plan sidelined the simpler revenue-based carbon intensity metric endorsed by the TCFD, in favour of a metric encompassing both market capitalisation of equity and debt. But, critics have said that the EC’s preferred metric, which is subject to share price movements, could provide a misleading picture of a company’s emissions in times of market volatility.
Childress said that it had “heard rumblings” that metrics it should look at included Climate Value at Risk and Implied Temperature Rise.
Financial Stability Board chair, Fed Vice-Chairman Randal K. Quarles welcomed the TCFD 2020 Status Report, saying: “The TCFD recommendations support greater consistency in climate-related risk disclosures by companies around the world, which will help to prevent market fragmentation.”
Extra reporting by Khalid Azizuddin