Investor demand for companies to report in alignment with the Task Force on Climate-related Financial Disclosures (TCFD) framework is rapidly growing. TCFD adoption is largely driven by the need for more standardized and comparable information (including data) from companies to inform investor decision-making and strategic priorities, as well as pressure from governments, regulators and industry bodies to improve climate disclosure.
The Importance of TCFD for Investors
Strong climate action is good business. Investors that own, or lend to, companies have a vested interest in seeing them proactively address material climate-related issues that impact short- and long-term value. Through their portfolio companies, investors are increasingly exposed to physical and transitional (e.g., market, technology, legal and reputational) risks and opportunities. For example, new opportunities emerge for investors as companies seek investment and financing to build climate resiliency and offer low-carbon products and services. Portfolio companies that consider climate in strategic and financial planning will be able to mitigate risks, capitalize on opportunities, and protect shareholder returns.
Investors can have a highly influential role in shaping company behaviour. By engaging with companies, investors can understand how companies are managing climate issues, improve transparency, raise concerns, and shape outcomes. Investors rely on a range of data sources to inform their understanding of climate issues and corporate performance, and guide their engagement with companies. TCFD-aligned disclosure provides investors with insight into a portfolio company’s climate-related governance, strategy, risk management and metrics and targets. With this qualitative and quantitative data, investors can then redirect their investments in companies and projects to change behaviour, diversify, and transform companies and/or their investment portfolios. Ultimately, TCFD informs strategic priorities, allowing investors to direct resources efficiently to advance climate action, decarbonize and build resilience across their portfolios.
Major Investors Calling for TCFD
TCFD-aligned reporting is now mainstream as investor demand for climate-related financial disclosure grows. In the last few years, we have seen the world’s largest investors, governments and financial regulators make a public call for TCFD reporting. We have highlighted five significant investor-initatives advocating for TCFD-aligned reporting:
- Climate Action 100+ is the world’s largest group of investors by assets under management, and is collectively engaging with the largest corporate contributors to climate change globally. Climate Action 100+ includes more than 500 institutional investors who represent more than USD$50 trillion AUM. Investors are requesting that companies provide climate disclosures consistent with the TCFD’s recommendations.
- Ceres Investor Network on Climate Risk and Sustainability: The Ceres Investor Network includes 180 financial institutions across North America that represent more than USD$30 trillion. The Ceres Disclosure Working Group is a vehicle for asset owners and managers to share information about, and advocate for, high-quality climate disclosure. The working group promotes the uptake of the TCFD’s recommendations.
- Investor Leadership Network (ILN): Launched in 2018, ILN is an open and collaborative platform for leading global investors. Members include Allianz Group, CalPERS, and OPTrust, for example. The ILN is working to build best practices for the TCFD by releasing guidance and practical tools on TCFD implementation.
- BlackRock: Larry Fink, CEO of BlackRock, the world’s largest asset manager, used his annual Letter to CEOs to call for TCFD-aligned disclosures from companies. BlackRock continues to endorse TCFD reporting, advocating for a single global standard for climate disclosure.
- Eight of Canada’s largest pension plan investment managers, informally known as the Maple8, published a statement calling for TCFD-aligned disclosures from companies. The Maple8 organizations include pensions like Canada Pension Plan (CPP) Investments, Ontario Teachers’, and Public Sector Pension (PSP) Investments, among others.
Companies Need to Align with TCFD Now
Investor support and demand for TCFD is clear. Companies need to start to align with the TCFD now to build and uphold investor confidence and get ahead of future financial regulations. For example, you can read more about the United Kingdom’s new TCFD requirements in our recent blog here. Investors are already engaging with portfolio companies to assess their climate competency and readiness, and identify areas for improvement. Companies can expect to be benchmarked against peers and industry best practices. For example, Climate Action 100+ Net-zero Company Benchmark assesses whether a company’s overall climate risk reporting is consistent with the TCFD recommendations. With TCFD-aligned reporting, companies can maintain their credibility and safeguard their reputation with investors and the public. Moreover, applying the TCFD’s recommendations helps companies implement a structured process for integrating climate issues into strategic decision-making, builds transparency across the company, and develops internal staff expertise.
Want to Improve your TCFD Reporting?
What do the TCFD recommendations mean for business? How does your company compare to its peers? Do you understand how to navigate target-setting and scenario analysis? Wherever you are on your climate journey, we can help. If your company is interested in identifying gaps in your disclosure and seeking insights to take you to the next level, contact us today.