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The Task Force on Climate-Related Financial Disclosures (TCFD) has reported a notable surge in companies publicizing their climate-related risks and opportunities, as highlighted by the most recent 2023 status report. This may seem like a big win, but there is much more ground to cover. In 2022, a noteworthy 90% of businesses made disclosures in line with at least one of TCFD’s 11 recommendations, marking a significant rise from 80% in 2021 and 64% in 2020. The average count of disclosures per company reached 5.3 in 2022, representing a remarkable 66% increase from the 3.2 recorded in 2020.
The main priority of the TCFD, established in 2015 by the Financial Stability Board, is to create consistent disclosure standards enabling investors and stakeholders to assess companies’ financial risks related to climate-related matters. These recommendations support the formation of informed decisions by investors to correctly price and value assets, to ensure accurate allocation of capital. The TCFD’s recommendations are structured around 4 thematic areas representing the core of company operations: governance, strategy, risk management, and metrics and targets. The 11 recommended disclosures build out the framework with information that should help investors understand how reporting organizations think about and assess climate-related risks and opportunities. For the preparation of this progress report, the TCFD harnessed the power of artificial intelligence to analyze public reports from over 1,350 large corporations spanning various regions and sectors over a three – year period.
The analysis indicated the recommendation category with the highest jump in reporting was “Climate-related risks and opportunities” with 62% of firms reporting in 2022, marking a substantial rise from just 36% in 2020. However, the resilience of companies’ strategies under various climate-related scenarios had the lowest level of disclosure in all three years reviewed. Merely 11% of the reviewed companies reported in accordance with this recommended disclosure, presenting substantial potential for improvement. Companies in Europe led the initiative with an average of 7.2 disclosures, while the Middle East and Africa – based firms lagged at 3.8.
While the results of the survey are encouraging, the TCFD notes that more progress is needed to improve transparency on the actual and potential impact of climate change on companies. Only 4% of companies are in alignment with all 11 TCFD disclosure recommendations in 2022. Furthermore, this will be the final annual update released by the TCFD. With its work coming to a close with the release of the 2023 status report, TCFD will be transferring responsibility to the International Sustainability Standards Board (ISSB).
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