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TCFD Releases Phase 2 Report and Recommendations

December 14, 2016

Today, FSB’s Task Force on Climate Financial Disclosure (TFCD) released its Phase II report with recommendations for climate-related voluntary disclosures within mainstream financial reporting.

The TFCD states clearly that climate change is “one of the most significant, and perhaps most misunderstood, risks that organizations face today” and that “the long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making”. It pushes organizations to understand that climate change risks and opportunities are relevant considerations for decisions made today.

The recommendations made in this report are intended to support investors and other stakeholders in understanding how reporting organizations address climate–related risks and opportunities. Organizations must now take these recommendations to heart and work towards understanding climate-related risks and adequately disclosing material information. The TFCD expects that the quality of disclosures should improve today and in the future and investor engagement with boards and senior management on climate-related issues will help to spur these advancements.

The recommendations are structured around four core areas of organizational operations: governancestrategyrisk management, and metrics and targets.  The report provides recommended disclosures linked to each of the four core areas along with guidance on their development and implementation. The report goes further by providing supplemental guidance specifically for financial and selected non-financial sectors.

Another key recommendation of the Phase II report is disclosure around different potential future scenarios including a 2-degree scenario as per the Paris Agreement, which has been ratified by 117 countries, including Canada, to date. TFCD argues that scenario analysis is key in understanding potential future business, strategic and financial consequences of climate change on organizations. While it recognizes that such analysis would be mostly qualitative, it does encourage and would expect for organizations to consider quantitative analysis in the long term as well.

On a related note, Mantle was commissioned by Chartered Professional Accountants (CPA) Canada to review Canadian public company climate-related disclosures. The study finds that, although Canadian public companies are making broad disclosure of climate-related information, the nature and extent of this information varies. The report summary is published on the CPA Canada website. The full report will be published in the new year.