TCFD Recommendations

The TCFD is an industry-led body that was established to develop recommendations for organizations on how to report climate-related risks and opportunities in clear, comparable, and high-quality ways.

Established by the Financial Stability Board (FSB) in 2015, the group is made up of 31 experts from the banking, asset management, insurance, and non-financial sectors. Michael Bloomberg, founder of Bloomberg LP, serves as the chairman. 

In 2017, the TCFD released its recommendations for reporting climate-related financial information and a guide for organizations on how to implement them. In 2021, the group updated the implementation guidance to address evolving disclosure practices, new climate data methodologies, and user needs. 

As of January 2023, over 4,000 organizations in 101 jurisdictions support the TCFD. The TCFD recommendations have also been endorsed by the G20 and have been, or are in the process of being, adapted for mandatory reporting requirements in jurisdictions like the US, UK, Canada, and the European Union.

Furthermore, the TCFD recommendations underpin the climate disclosure standards that are under development by the International Sustainability Standards Board (ISSB), which is working to produce a global baseline for climate reporting.

What are the TCFD recommendations?

The task force has produced 11 recommended disclosures that are grouped around four pillars: governance, strategy, risk management, and metrics and targets. Together, the TCFD disclosures are intended to bring transparency to capital markets. The TCFD’s recommendations will aim to standardize the ways that organizations assess and manage their climate-related financial risks and opportunities. These disclosures are meant to help investors correctly price the climate risks that different assets face, as well as support the efficient allocation of capital.

Significantly, the TCFD calls on organizations to publish its recommended disclosures in their mainstream annual financial filings. This is because the task force believes climate-related risks and opportunities are financially material for most entities.

TCFD recommendation themes: governance. strategy, risk management, & metrics & targets.

TCFD Disclosures: The four pillars

The four pillars of the TCFD recommendations help investors and other stakeholders understand organizations’ climate-related risks and opportunities. Let’s look at them in detail:


Disclose organizations’ governance of climate-related risks and opportunities

The two recommended TCFD disclosures under this pillar are: 

  1. Describe the board’s oversight of climate-related risks and opportunities
  2. Describe management’s role in assessing and managing climate-related risks and opportunities

More specifically, organizations should consider how and how often board members are informed of climate-related issues. Companies should also discuss if and how their boards consider these issues when reviewing their action plans, strategies, risk management processes, annual budgets, and other long-term plans. 


Disclose the actual and potential impacts of material climate-related risks and opportunities on organizations’ businesses, strategies, and financial planning

 There are three TCFD recommendations under this pillar: 

  1. Describe the climate-related risks and opportunities organizations have identified over the short, medium, and long term
  2. Describe the impact of climate-related risks and opportunities on  organizations' businesses, strategies, and financial planning 
  3. Describe the resilience of organizations’ strategies considering different climate-related scenarios, including a 2°C or lower scenario 

Under the strategy pillar, organizations are asked to define their short-, medium-, and long-term time horizons. These definitions will look different depending on how companies’ assets and infrastructure are affected by climate change. 

As organizations identify the potential climate-related impacts on their strategies, businesses, and financial planning, they should also explore how these impacts will affect their:

  • Products and services
  • Supply chains and/or value chains
  • Adaptation and mitigation activities
  • Research and development investments
  • Operations (including types of operations and location of facilities)
  • Acquisitions or divestments
  • Access to capital

Risk Management

Disclose how organizations identify, assess, and manage climate-related risks

There are three TCFD recommended disclosures under this category. 

  1. Describe organizations’ processes for identifying and assessing climate-related risks
  2. Describe organizations’ processes for managing climate-related risks
  3. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into organizations’ overall risk management practices 

Metrics and Targets

Disclose the metrics and targets used to assess and manage relevant and material climate-related risks and opportunities 

The TCFD recommendations under this category include: 

  1. Disclose the metrics used by organizations to assess climate-related risks and opportunities in line with their strategies and risk management processes 
  2. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, as well as their related risks
  3. Describe the targets to manage climate-related risks and opportunities, as well as their performance against these targets

Please note the TCFD updated its guidance in 2021 and altered some of its recommendations. 

Specifically, the strategy guidance now more directly asks supporters to disclose the actual financial impacts of climate-related risks and opportunities and to publish key information on their climate transition plans. The metrics and targets guidance was also updated to explicitly call for Scope 1 and 2 GHG emissions disclosures and to encourage the reporting of Scope 3 emissions. 

The 2021 update further urged organizations to disclose targets that are consistent with cross-industry, climate-related metric categories and to include interim targets if they’re already disclosing medium- or long-term targets.

The TCFD has also published sector-specific implementation guidance for the financial sector and four non-financial groups: energy, transportation, materials and buildings, and agriculture, food, and forest products.

An online Knowledge Hub was also set up to help companies understand and operationalize the task force’s recommendations.

How does the TCFD define climate risks and opportunities?

A key objective of the TCFD recommendations is to clarify how the impacts of climate change translate into financial risk and opportunity.

To this end, the task force produced a consistent taxonomy of climate risks and opportunities, which allows for mutual understanding between reporting companies and investors. It also allows investors to compare and contrast organizations’ climate risks and opportunities.

Climate risks are organized across two categories: transition and physical. 

Transition risks are related to efforts to move to a lower-carbon economy. The TCFD separates them into four subcategories: policy and legal, technology, market, and reputation risks. These transition risks could inflict financial losses on organizations, particularly on those that are unprepared to manage them. 

Physical risks are caused by the changing climate itself. These can be acute risks, meaning extreme weather events — like severe storms, cyclones, and floods — or chronic risks related to long-term climatic shifts, like rising sea levels and changing rainfall patterns. 

Climate opportunities are related to climate adaptation and/or mitigation efforts that could improve organizations’ financial performance. Each organization’s ability to capitalize on climate opportunities will depend on its jurisdiction, market, sector, and strategy. 

However, as a starting point, the TCFD identified five opportunity categories for reporting companies. These are linked to resource efficiency, the use of low-emissions energy sources, the development of new products and services, access to new markets, and enhancing supply chain resilience. 

In its implementation guidance, the TCFD maps climate risks and opportunities to potential financial impacts to help organizations understand how they link together and so they can rank them by materiality. For example, it explains that acute physical risks could lead to reduced revenue from decreased production capacity and/or from adverse workforce impacts.  

Is TCFD reporting mandatory?

The TCFD disclosure recommendations aren’t mandatory. However, governments around the world are adopting legal requirements that are based on the TCFD’s recommendations. In April 2022, a new rule came into effect in the United Kingdom that requires the country’s largest firms to produce TCFD-aligned disclosures. Canada’s financial regulator also recently introduced a guideline that will require federally regulated financial firms to report their climate risks and opportunities in ways that closely align with the TCFD recommendations.

South of the Canadian border, the US Securities and Exchange Commission is also working on a climate risk disclosure rule for US public companies. The forthcoming regulation is expected to be finalized by April 2023 and to closely align with the TCFD’s recommendations. 

Non-governmental organizations are also aligning with the TCFD. CDP, a non-profit that runs a global environmental disclosure system for nearly 20,000 companies, has incorporated the TCFD’s recommendations in its annual questionnaires. Finally, the International Sustainability Standards Board (ISSB) is expected to release its climate-related disclosure standards, which cleave closely to the TCFD, in June 2023. While these standards will be voluntary, they’re expected to become the global baseline for climate reporting requirements in different jurisdictions around the world. The ISSB’s standards are expected to come into force in January 2024.

To sum up, the writing is on the wall: TCFD recommendations are quickly becoming the standard for corporate climate reporting, which governments around the world are slowly starting to mandate. 

What makes an effective TCFD report?

The task force recommends that organizations include climate-related financial information in their mainstream financial filings, where they have parity of esteem with other financial and accounting data. 

Furthermore, the TCFD says organizations should determine the materiality of climate-related issues to their businesses in the same way they do for other information included in their financial filings. An issue is material if it has an impact on the decision-making of those that use the filings to inform their investment choices.

The TCFD also recommends that asset owners and managers report to their beneficiaries and clients through existing communications and publicly via their websites.

To help organizations produce TCFD-aligned filings, the task force provides seven principles for effective disclosure. Following these principles should enable organizations to make clear linkages between climate-related issues and their governance, strategies, risk management processes, and metrics and targets.  

Specifically, the principles say disclosures should be: 

  • Relevant;
  • Specific and complete; 
  • Clear, balanced, and understandable; 
  • Consistent over time; 
  • Comparable within a sector, industry, or portfolio; 
  • Reliable, verifiable and objective; and 
  • Delivered on a timely basis.

The principles align with those followed by internationally accepted accounting frameworks and reflect the task force's desire for climate-related information to be held to the same standards as other financial information in organizations’ public disclosures.

Disclosures inconsistent with these seven principles may fail to provide stakeholders with the information they need to make appropriate risk assessments. They could also prompt climate-focused investors to take remedial actions — for example, by voting against company directors in shareholder votes.

How are companies implementing TCFD?

At the FSB’s request, the TCFD produces annual status reports on the alignment of companies’ reporting with its recommendations.

The 2022 report shows that in fiscal year 2021, 80% of large companies reported in line with at least one of the TCFD’s recommendations. The report also found 70% of TCFD-implementing companies disclosed climate-related information in their financial filings or annual reports in 2021, compared to just 45% in 2017. 

While these data points show support is growing for the TCFD, the status report’s other findings reveal that climate-related disclosures are often incomplete and inconsistent. For example, just 4% of the companies surveyed by the TCFD reported in line with all 11 recommended disclosures, and only around 40% disclosed in line with at least five.

Furthermore, the task force expressed concern that “not enough companies are disclosing decision-useful climate-related financial information." This may hinder efforts by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks.

Policymakers and regulatory authorities are working to change this. Many jurisdictions have already implemented, or are in the process of implementing, climate-related disclosure requirements that are aligned with the TCFD’s recommendations.

How do investors use information from TCFD disclosures?

Climate-focused financial institutions are using TCFD-aligned disclosures to shine a light on the climate risks faced by their portfolio companies and to more accurately price their investments. 

In its 2022 status report, the task force published a survey that shows 90% of investors and other users of TCFD information incorporate climate considerations into their financial decision-making. In addition, 66% of these respondents said they also use the information to price financial assets.

TCFD disclosures are also being used as the basis for investor-investee engagements on climate management. Financial institutions that have committed to align their portfolios with net-zero goals need to know their investees’ GHG emissions and decarbonization trajectories. They also need to take action when these don’t align with their own targets. For example, the Climate Action 100+, a group of over 700 climate-focused investors, uses TCFD-aligned information to assess companies’ net-zero alignment.

Surface gaps and opportunities in your TCFD disclosure

Utilizing AI and machine learning, Manifest Climate helps you map your disclosures against global frameworks and standards, including the TCFD’s recommendations. Our Climate Risk Planning solution uncovers gaps and opportunities in your disclosures and climate management, provides data-driven recommendations to improve your alignment with the TCFD, and enables benchmarking against peers and industry leaders. Request a demo today.