The Smart Way to Manage Cross-Jurisdictional Climate Reporting

With so many environmental, social, and governance (ESG) and climate risk reporting frameworks, many companies — particularly those with an international presence — are concerned about the complexities of managing multiple jurisdictional climate reporting requirements. But while the climate reporting space is undoubtedly fragmented, many organizations don’t know that most major reporting standards and frameworks share a common foundation.

For example, the International Sustainability Standards Board (ISSB) recently released its inaugural climate and sustainability disclosure standards, which are intended to become the global baseline for climate and sustainability reporting. The ISSB’s new rules fully incorporate the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 reporting recommendations, which have become the gold standard for climate reporting globally.

This alignment means that even companies with the most complex cross-jurisdictional risk profiles will benefit from starting in one place. Most organizations can therefore begin their climate disclosure efforts by reporting in line with the TCFD.

This article explores why the TCFD should form the foundation of your climate disclosures and how to disclose your climate risk across jurisdictions.

The TCFD is designed by investors

The TCFD was designed by and for investors that identified climate change as a major business and investment risk. The original Task Force included representatives from large banks, insurance companies, asset managers, pension funds, credit rating agencies, and more. 

The framework they developed is designed to help stakeholders — particularly investors, lenders, and insurance underwriters — understand how and to what extent companies are exposed to climate risks and which organizations are most resilient to them. It’s also intended to help stakeholders gather information on which companies may benefit from climate opportunities and which are taking action on their climate targets and risk management strategies.

The insights this framework surfaces allow investors and other stakeholders to adequately price a company’s climate risk. The TCFD’s clear, replicable framework also makes it easy to compare different companies’ climate disclosures.

Many companies produce disclosures that align with the TCFD at the request of their investors. However, even those not facing investor pressure but considering going public, or applying for funding or loans, should look to disclose climate risk in line with the TCFD’s recommendations. TCFD-aligned disclosures are a key asset for your organization, especially as more investors are unwilling to take a chance on companies that are inadequately prepared for the climate transition.

The TCFD aligns with other climate disclosure regulations

Many upcoming and existing disclosure regulations are based on the TCFD.

ISSB

The ISSB released its inaugural climate and sustainability disclosure standards in June 2023. These are intended to become the global climate reporting baseline and were designed to create a ‘common language’ for disclosing the impacts of climate-related financial risks and opportunities on companies around the world. The ISSB standards fully incorporate the TCFD’s 11 recommendations. Companies that currently use the TCFD to inform their climate reporting will therefore be well placed to comply with the ISSB standards.

Many countries are expected to align their own mandatory climate disclosure regulations with the ISSB’s standards. In July 2023, the International Organization of Securities Commissions endorsed the standards and is calling on its 130 member jurisdictions, which represent 95% of the world’s securities markets, to consider how they can incorporate the ISSB’s standards into their respective regulatory frameworks.

SEC

The US Securities and Exchange Commission’s (SEC) proposed climate disclosure rule is also largely based on the TCFD’s recommendations. Once finalized and approved, it will require companies to disclose their climate risks and opportunities, governance procedures, greenhouse gas emissions, and more. The final rule is expected to drop in October 2023. Companies reporting in line with the TCFD will be in a better position to manage the SEC’s reporting requirements.

CSRD

The European Union’s new Corporate Sustainability Reporting Directive (CSRD) broadly aligns with the TCFD’s four central pillars. These include governance, strategy, risk management, and metrics and targets. Both the TCFD and CSRD aim to standardize climate and sustainability-related disclosures and to improve transparency in capital markets. The approximately 50,000 companies that will be required to report in line with the CSRD can prepare by leveraging their TCFD-aligned disclosures.

The TCFD aligns with major voluntary disclosure frameworks

The TCFD also aligns with other existing voluntary reporting frameworks.

CDP 

More than 18,000 companies disclosed their climate and environmental information to CDP, formerly known as the Carbon Disclosure Project, last year. In addition to that, thousands of investors take part in annual engagement efforts to make their investees’ reports through CDP. 

A recent mapping exercise revealed that the CDP questionnaire almost fully aligns with the TCFD’s 11 disclosure recommendations. This suggests that organizations reporting in line with the TCFD will be well-prepared to answer CDP’s questions.

SASB

The standards out of the Sustainability Accounting Standards Board (SASB) ask for financially material sustainability data across all ESG categories. 

The TCFD drew on the existing SASB framework when creating its recommendations, and both frameworks cover climate-related issues. However, the SASB standards are specific to individual industries and tend to cover wider ground than the TCFD. They also feed into the ISSB’s standards.

GRI

Like SASB, the Global Reporting Initiative (GRI) is broader in scope than the TCFD, which was inspired by the GRI. The two overlap on the climate front, but the TCFD also introduces certain recommended disclosures that are not covered by the GRI. This is largely because the GRI is not intended for investors. 

For example, the GRI standards don’t align with the TCFD recommendations on resilience to different climate scenarios or on integrating climate risk management into broader risk management processes.

PRI

The Principles for Responsible Investment (PRI), also designed by investors, added TCFD-aligned indicators to its reporting framework in 2018 — although there are still differences between the two frameworks. For example, PRI climate indicators require more descriptive responses than those of the TCFD.

The TCFD is widely used around the world

The TCFD is designed to be industry-agnostic and to serve as a useful tool for investors, lenders, and insurance underwriters across the globe. In this, it has seen considerable success. As of 2023, more than 4,000 companies support the TCFD’s recommendations, and a number of industries are now seeing average levels of disclosure at above 40%.

The popularity of the TCFD isn’t just useful for investors — it’s also a potential wealth of information for companies looking to start or improve their climate risk reporting. Companies can use publicly available TCFD-aligned reports from peers, industry leaders, and climate leaders in other sectors to identify their material climate risks, find best practice climate risk management strategies, and see what has and hasn’t worked for the organizations that have gone before them.

When in doubt, go for the gold standard

Multi-jurisdictional climate disclosure may initially seem complex, but focusing on a central framework can simplify the process. Given that the TCFD is widely considered the gold standard for climate risk reporting, most organizations will benefit from a TCFD-first approach, which will help them adapt to jurisdictional or industry-specific reporting requirements. The TCFD provided the basis for the ISSB’s new standards, which are expected to become the foundation of many other regulations around the world. The TCFD has also informed other current and incoming climate reporting regulations, including those in the US, Canada, and UK.

Ultimately, the goal for any firm should not simply be to disclose in line with the TCFD recommendations. It should be to improve the quality of their disclosures and the rigor of their climate risk planning. This can be done with the help of sophisticated software.