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TCFD-Aligned Disclosures and the Retail Sector

January 9, 2023

Businesses should embrace climate risk planning to avoid financial losses and maximize opportunities. An essential part of this process is bringing transparency to the material climate issues they face through clear, comprehensive, climate-related disclosures.

The retail sector faces many climate risks and opportunities. Investors in retail companies want to understand how these are being managed and factored into managers’ decision making in order to accurately price their risks and make more efficient capital allocation decisions.

While coverage of climate-related issues is improving across sectors, most disclosures still fall short of being decision-useful for investors. This needs to change, especially for sectors like retail with long and complex supply chains that may be particularly vulnerable to climate shocks.

Retail businesses can enhance their public reporting on climate issues by following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). In this blog, we discuss how retail businesses can leverage the TCFD to showcase their climate strategies and shine a light on their climate risks and opportunities.

About the TCFD

The TCFD is the world’s premier climate reporting framework, with over 4,000 supporting entities across 101 jurisdictions. It consists of 11 disclosure recommendations organized across four pillars: Governance, Strategy, Risk Management and Metrics & Targets. 

Retail companies that produce TCFD-aligned disclosures are able to:

  • Meet investor and — in some jurisdictions — regulatory disclosure requirements
  • Report climate information, targets, and metrics in a structured, decision-useful format
  • Follow a clear roadmap to produce more accurate and complete climate data year over year
  • Establish a foundation for taking concrete, positive climate action and reporting successes

Investors can use retail companies’ TCFD-aligned disclosures to:

  • Assess how climate shocks could disrupt companies’ supply chains and harm their finances
  • Understand how companies manage climate risks and leverage climate opportunities, and how resilient they are to climate change
  • Evaluate companies’ low-carbon transition plans
  • Benchmark companies’ climate performance against industry leaders and peers

 How TCFD-aligned are retail companies’ disclosures today?

Manifest Climate produced a first-of-its-kind analysis of over 3,000 companies’ climate disclosures in 2022.  Across all companies, 66% of disclosures were found to align with at least one TCFD recommendation in 2021. However, among retail companies the share was 40%. This suggests that the retail sector is lagging when it comes to public climate reporting.

Furthermore, many retail companies were found to disclose little or no information critical to helping stakeholders understand their climate risks. For example, just 8% of companies were found to disclose information aligned with the Governance A (Board Oversight) recommendation between 2018 and 2021, and only 2% reported information related to Risk Management C (Integration into Overall Risk Management).

A larger share of retail companies disclosed TCFD-aligned information on Metrics & Targets. Just shy of one-third of companies analyzed were found to report in line with Metrics & Targets A (Climate-related Metrics).

Overall, Manifest Climate’s analysis shows that the retail sector has ground to make up for when it comes to TCFD-aligned reporting. These findings were validated by the TCFD’s own recent Status Report, which assessed the alignment of over 1,400 public companies’ disclosures with the 11 recommendations. Of the 137 public companies assessed in the consumer goods sector — which includes retailing, apparel, and textile businesses — the average level of TCFD-aligned disclosure came to 33% in fiscal year 2021, the third-lowest among the eight sectors analyzed. 

How retailers can start their TCFD journeys

Few retail companies have pledged to align with the TCFD recommendations compared with other sectors. Currently, only around 300 retail companies worldwide have signed up as TCFD supporters, and not all of these are reporting TCFD-aligned information at present. This means that for the majority of retail companies, investors and other stakeholders have little to no insight into their climate risks and opportunities.

Retail companies should make producing TCFD-aligned disclosures a business imperative. Investors are demanding that their portfolio companies publish this information, and those organizations that respond effectively could become more attractive investment prospects as a result. 

Furthermore, many jurisdictions are introducing TCFD-aligned disclosure requirements, or have implemented them already. Those retailers that get to grips with the TCFD now should be ahead of the curve when these rules enter into effect.

How can Manifest Climate help

Retailers should develop a thorough understanding of the TCFD and its recommendations. The next step is to learn how to produce robust, decision-useful climate disclosures. Our leading software solution embeds intelligence to guide companies through Climate Risk Planning and helps companies to understand, manage, and communicate their climate-related risks and opportunities. Request a demo to learn more.