Unlocking Value with TCFD Reports: A Comprehensive Guide

Table of Contents

• Introduction
• Understanding the TCFD
• TCFD in the UK: The Legal Perspective
• TCFD Regulation Demystified
• Is TCFD Reporting Mandatory in the UK?
• What Is TCFD Reporting?
• TCFD Reporting: Beyond Compliance
• TCFD Reporting Requirements Unveiled
• The Four Core Elements of TCFD
• Decoding the Task Force on Climate-related Financial Disclosures Statement
• Key Principles: Governance, Strategy, Risk Management, Metrics, and Targets
• Principles for Effective Disclosure: The TCFD Way

Introduction

In a world where climate change has gone from a distant concern to an urgent global crisis, it's imperative that we explore tools and strategies to address the risks and opportunities it presents. One such critical tool is TCFD, which stands for "Task Force on Climate-related Financial Disclosures."

TCFD reports have gained prominence for their role in helping organizations navigate the intricate landscape of climate-related risk management disclose both risks and opportunities.

In this comprehensive guide, we will delve deep into TCFD reports, understand their significance, and explore the legal framework surrounding them. We will also address the crucial question: Is TCFD reporting mandatory in the UK?

Understanding the TCFD

What Is the TCFD? TCFD, or the Task Force on Climate-related Financial Disclosures, was established in 2015 by the Financial Stability Board (FSB). It comprises 31 members representing preparers and users of the climate related financial disclosure and disclosures across the G20. At its helm is Michael R. Bloomberg, the founder of Bloomberg L.P. The primary objective of the TCFD is to help organizations provide better information that supports informed capital allocation.

The 4 Core Elements of TCFD The TCFD recommendations are structured around four thematic areas that represent core elements of how companies operate: governance, strategy, climate risk disclosures and management, and metrics and targets. These four elements are interrelated and supported by 11 recommended disclosures, providing a comprehensive framework that helps organizations navigate climate-related risks and opportunities effectively.

TCFD in the UK: The Legal Perspective

TCFD Law in the UK In the UK, the Financial Conduct Authority (FCA) listing rules require premium-listed and standard-listed companies to make disclosures under the TCFD framework. As of 2022, also Issuers with standard-listed equity and GDRs representing equity also have reporting obligations.

These rules mandate that such companies include a statement in their annual report stating whether they have made disclosures consistent with the TCFD framework. This requirement operates on a 'comply or explain' basis, where companies must either comply with TCFD reporting or provide a valid explanation for non-compliance.

TCFD Regulation Demystified

Is TCFD Reporting Mandatory in the UK? Yes, TCFD reporting is indeed mandatory for specific categories of companies in the UK. As of 2021, premium-listed issuers (excluding investment entities and shell companies) must report under TCFD. As of 2022, Issuers with standard-listed equity and GDRs representing equity also have reporting obligations.

What Do Companies Have to Report? Companies subject to TCFD reporting requirements must include a statement in their annual report covering the following:

1. Whether the company has made disclosures consistent with the TCFD's recommendations in the annual financial report.
2. If some or all of the disclosures are included in a document other than the annual financial report, an explanation of why and a reference to where the disclosure can be found.
3. If disclosures have not been made, an explanation of why and a description of the steps being taken or planned to achieve consistent disclosures in the future.

Additionally, specific types of companies in the UK must provide further details related to their governance, climate risk, management, climate scenarios, and performance against climate-related targets.

TCFD Reporting: Beyond Compliance

TCFD Reporting Requirements: More Than Just Compliance While the legal aspect is essential, it's equally important to recognize that TCFD reporting goes beyond mere compliance. TCFD reports enable companies to understand, evaluate, and communicate their climate-related risks and opportunities effectively. These reports not only adhere to regulations but also serve as a roadmap for building resilience in the face of climate change.

Decoding the Task Force on Climate-related Financial Disclosures Statement The TCFD statement encapsulates a company's approach to climate-related financial disclosures. It reflects the organization's commitment to transparency and its readiness to address the challenges and harness the opportunities presented by climate change.

TCFD Foundations: Governance, Strategy, Risk Management, Metrics, and Targets

Principles of climate related financial disclosures:

Governance: The Foundation of TCFD Reporting Effective TCFD reporting begins with an organization's governance itself. Companies are encouraged to disclose their governance around climate-related risks and opportunities. This includes descriptions of the board's oversight of these risks and management's role in assessing and managing them.

Strategy: Planning for Climate Resilience Companies must disclose the actual and potential impacts of climate-related risks and opportunities on their businesses, strategy, and financial planning. This includes describing the the companies climate related risks and opportunities over the short, medium, and long term and considering different climate-related scenarios in their strategy.

Risk Management: Navigating Climate-Related Risks The TCFD framework encourages companies to disclose how they identify, assess, and manage climate-related risks. This includes descriptions of the organization's processes for identifying and assessing such risks, as well as such information as their integration into the overall risk management process.

Metrics and Targets: Quantifying Progress Companies must disclose the metrics and targets they use to assess and manage relevant climate-related risks and opportunities. This includes metrics and targets used to assess their climate-related risks and performance against targets. It also encompasses the disclosure of greenhouse gas emissions and related risks.

Principles for Effective Disclosure: The TCFD Way

For TCFD reports to truly unlock their value, they must adhere to seven key principles for effective disclosure:

1. Relevance: Disclosure should represent relevant information.
2. Specificity: Disclosure should be specific and complete.
3. Clarity: Disclosure should be clear, balanced, and understandable.
4. Consistency: Disclosure should be consistent over time.
5. Comparability: Disclosure should be comparable among companies within a sector, industry, or portfolio.
6. Reliability: Disclosure should be reliable, verifiable, and objective.
7. Timeliness: Disclosure should be provided on a timely basis.

Who has to report? When?

For who is TCFD Required?

According to Listing Ruling LR 9.8.6(8) Premium listed issuers (excluding investment entities and shell companies) have to report starting 1 January 2021.

According to Listing Rules LR 14.3.27 R and LR 18.4.3 R Issuers with standard listed equity Issuers with standard listings of GDRs representing equity (excluding investment entities and shell companies) have to report starting 1 January 2022.

Companies subject to TCFD reporting requirements must include the following statements in their annual report:

1. A declaration indicating whether the issuer has made disclosures that align with the TCFD's recommendations within the annual financial report.
2. An explanation and reference regarding instances where certain or all of the disclosures are found in a document other than the annual financial report, clarifying the reasons for this arrangement.
3. A detailed account of why, if applicable, the company has not made any disclosures, along with an outline of the steps currently underway or planned for the future to ensure consistent disclosures. This should also encompass an indication of relevant time frames.

Further segmentation of reporting:

• UK Public Interest Entities (‘PIEs’) with >500 employees
• AIM companies with >500 employees
• Other companies with >500 employees AND >£500 million turnover

Mandatory TCFD Reporting Requirements for the companies listed above:

Companies meeting the following criteria are obligated to report on the following aspects of climate risks as part of their Task Force on Climate-related Financial Disclosures (TCFD) compliance:

I. Governance Arrangements
A description of the governance arrangements within the company concerning the assessment and management of climate-related risks and opportunities.

II. Identification, Assessment, and Management
A description of how the company identifies, assesses, and manages climate-related risks and opportunities.

III. Integration into Risk Management
A description of how processes for identifying, assessing, and managing climate-related risks are integrated into the overall risk management process within the company.

IV. Principal Climate-Related Risks and Opportunities

• Identification of the principal climate-related risks and opportunities arising in connection with the company's operations.
• Specification of the time periods by reference to which those risks and opportunities are assessed.

V. Impacts on Business Model and Strategy

A description of the actual and potential impacts of the principal climate-related risks and opportunities on the business model and strategy of the company.

VI. Resilience Analysis

An analysis of the resilience of the business model to climate related financial risks and strategy of the company, taking into consideration different climate-related scenarios.

VII. Targets for Risk and Opportunity Management

A description of the targets used by the company to manage climate-related risks and to realize climate-related opportunities, along with a report on the company's performance against those metrics and targets used.

VIII. Key Performance Indicators (KPIs)

Description of the key performance indicators (KPIs) used to assess progress against targets related to the management of climate-related risks and the realization of climate-related opportunities, including details on the calculations underlying these KPIs.

How do you start?

Getting started with TCFD reporting as a company involves several key steps. First, it's crucial to understand the TCFD framework and its core elements, which encompass governance, strategy, risk management, and metrics and targets.

Assess existing climate related data

Next, assess your organization's existing climate-related data and the processes in place for identifying, assessing, and managing climate-related risks and opportunities. Ensure that your reporting is backed by reliable data, as data-driven disclosures carry more weight.

Consider Governance around climate related risks in your organisation

Then, consider your company's governance arrangements concerning climate-related issues. Once you've collected this information, begin drafting your TCFD report.

Provide clear balanced and understandable disclosures

Be sure to provide relevant and specific disclosures that are clear, balanced, and understandable, following the key principles for effective disclosure. It's also important to ensure that your disclosure is consistent over time, making it easier for stakeholders to track changes.

Compare to other companies in your industry

Additionally, strive for comparability with other companies within your sector, industry, or portfolio.

Finally, remember that the information you provide should be reliable, verifiable, and objective, and it should be made available on a timely basis. Collaborate with relevant departments within your organization, engage with experts if necessary, and consider seeking guidance from organizations experienced in TCFD reporting to streamline the process and enhance the quality of your data-backed disclosures.

Getting access to TCFD aligned climate related financial information

In the context of TCFD reporting, the collection of energy data is a fundamental component of a company's efforts to disclose climate-related financial information effectively. TCFD reporting focuses on assessing and managing climate-related risks and opportunities, and energy data is a cornerstone for achieving this. Here's how collecting energy data specifically supports TCFD reporting thereby energy management solutions like OAK can provide:

1. Carbon Footprint Measurement: Accurate energy data collection enables companies to measure their carbon footprint with precision. This data forms the basis for quantifying greenhouse gas emissions, which are crucial components of TCFD's recommendations. By tracking energy consumption across various aspects of their operations, organizations can report on Scope 1 and Scope 2 emissions, providing investors and stakeholders with a comprehensive view of their environmental impact.
2. Risk Assessment: Energy data reveals dependencies on fossil fuels, making it possible to assess climate-related risks. Understanding these dependencies allows companies to evaluate their vulnerability to shifts in energy markets, policy changes, and the physical impacts of climate change. TCFD reporting encourages companies to be transparent about these risks and their associated financial implications, which can be derived from accurate energy data.
3. Resilience Planning: TCFD recommends that companies consider various climate scenarios, including a 2°C or lower scenario, in their reporting. Energy data assists in this process by enabling organizations to assess their resilience in the face of different climate-related challenges. By collecting data on energy consumption and efficiency measures, companies can demonstrate their preparedness and adaptive capacity, aligning with TCFD guidelines.
4. Emission Reduction Targets: Accurate energy data is essential for setting and tracking emission reduction targets. By establishing baseline emissions from historical energy consumption data, companies can commit to reducing their emissions over time. This proactive approach to emissions management, supported by energy data, aligns with TCFD's call for science-based targets and the consideration of climate scenarios.
5. Enhancing Disclosure Quality: Comprehensive energy data collection not only ensures compliance with TCFD reporting requirements but also enhances the transparency and reliability of a company's climate disclosures. TCFD-compliant reporting is built on robust data, which is crucial for stakeholders, including investors, to assess a company's performance in managing climate-related risks and opportunities.

In summary, collecting energy data is integral to TCFD reporting as it underpins the quantification of emissions, risk assessments, resilience planning, and target setting. By following TCFD recommendations and aligning their data collection practices, companies can provide investors and stakeholders with high-quality disclosures that reflect their commitment to managing climate-related financial risks and opportunities.

How does OAK help with TCFD?

OAK, as energy management software, plays a crucial role in simplifying and enhancing TCFD reporting for organizations. Here's how OAK supports TCFD reporting:

Automated Data Collection: OAK automates the collection of energy data, significantly reducing the manual effort required for gathering essential information for TCFD compliance. This automation ensures data accuracy and completeness, which is essential for accurate climate-related financial disclosures.

Real-Time Monitoring: OAK provides real-time monitoring of total energy use and consumption, helping organizations stay updated on their energy usage throughout the reporting period. This real-time visibility is invaluable for identifying opportunities to improve energy efficiency, a key aspect of assessing climate-related risks and opportunities.

Data Analysis: OAK conducts in-depth data analysis, identifying areas within your organization where energy is being wasted and offering optimization recommendations. This analysis allows organizations to pinpoint inefficiencies and take action on OAK's recommendations, aligning with TCFD's call for assessing and managing climate-related risks and opportunities.

Report Generation: TCFD reporting often involves complex data analysis and reporting. OAK simplifies this process by generating comprehensive reports that adhere to TCFD standards. This not only saves organizations time and effort but also ensures the accuracy and reliability of the reported climate-related financial information.

Documentation Storage: Managing the extensive data and documentation required for TCFD reporting can be a daunting task. OAK provides secure storage and easy retrieval of documents, making it simple for organizations to maintain their TCFD compliance records, as proper documentation is vital for transparency.

Task Assignment: OAK keeps organizations on track by notifying them of the necessary steps to complete TCFD reporting, ensuring that they meet reporting deadlines and maintain compliance.

Energy Savings: In addition to TCFD reporting, OAK's team of energy specialists identifies more energy-saving opportunities than the cost of the software. Additionally, the OAK Hardware cost is 100% Tax Deductible! This results in a net positive gain for organizations. OAK not only assists in compliance reporting but also offers various benefits:

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