Five years ago this month, the Taskforce on Climate-related Financial Disclosures (TCFD) was born. On the five-year anniversary of this pivotal moment, investors, companies and policymakers may be wondering: just how far have we come to drive environmental transparency and action since then?
In December 2015, responding to persistent environmental disasters that disrupted ecosystems and human health, causing unforeseen business losses and jeopardizing assets and infrastructure, the Financial Stability Board launched the TCFD. These leaders understood that climate change and financial risk were linked. They knew that the global economy could potentially face a tumultuous transition to a low-carbon future without reliable climate-related financial information.
Later in 2017, the TCFD introduced its official recommendations for corporate financial disclosures. The TCFD’s recommendations have already made a tremendous impact in catalyzing momentum for corporate sustainability action. CDP data points to a groundswell of such actions. Out of 727 companies headquartered in the U.S. and Canada that disclosed to CDP in 2020:
- 47 North American companies now have validated ambitious science-based targets (up 260% from 2018) and 457 have set absolute and/or intensity emissions reduction targets overall;
- 372 companies are disclosing Scope 1, Scope 2 and Scope 3 emissions;
- 655 companies are implementing Board-level oversight of environmental issues;
- 547 companies are using climate-related scenario analysis or plan to do so within the next two years; and
- 657 identify climate-related risks and opportunities that have influenced their organization’s strategy and/or financial planning – and 276 of those have developed a low-carbon transition plan as a result.
Investors are supportive of this streamlining of environmental-financial disclosure. The TCFD notes in its latest status report that investor support for its recommendations grew by 85% from 2018 to 2019.
In 2018, CDP redesigned its climate change questionnaire to align with the TCFD’s guidelines – specifically, we added 25 TCFD-aligned questions contained within the Governance, Risks & Opportunities, Strategy, Targets and Emissions modules. These TCFD-aligned questions include specific methodologies for high impact sectors such as financial services, energy, agriculture, transport and materials.
CDP’s alignment with the TCFD means that disclosing companies have ready-to-go material climate and natural capital disclosures that can be used for their annual reports. Many investors use CDP’s data to mitigate financial risk within their portfolios and to select which companies are best positioned in a climate-constrained future.
But, five years later, the TCFD’s work is not finished. In the past year, we at CDP have noticed that some companies – perhaps overwhelmed by the various options available to them for corporate environmental reporting – have decided to forgo disclosure and instead self-publish their own TCFD reports.
These companies ignore a simple fact: disclosing to CDP is the same as disclosing to the TCFD.
Investors cannot make apples-to-apples comparisons on sustainability information if companies do not report their data within a common framework. Standardized disclosure is required for effective decision making by investors, purchasers and the wider market because it provides them with objective, comparable data in the same format – unlike individual company sustainability reports, which are subjective and require the data user to carry out additional analysis.
Companies that choose to solely provide TCFD-related information via standalone reports end up doing themselves a disservice.
Disclosure through CDP also prevents greenwashing. The standardized framework CDP provides makes it clear to investors what critical climate actions companies are – and are not – implementing.
There are numerous other benefits to disclosure: it puts companies a step ahead of future mandatory disclosure regulation, similar to what the Canadian government announced this year to companies seeking COVID-19 relief. Most other countries, including the majority of the G20, already have implemented some form of mandatory corporate climate impact reporting.
Disclosure also helps companies boost competitive advantage and spot risks and opportunities. 73% of companies say that disclosure helps their organizations prepare for the future. One in three companies say that disclosing helps them save money. And companies that disclose through CDP ranked 19 percentiles better than the average firm in their ability to access capital, according to a 2019 study by ESG consultancy Millani.
Luckily, TCFD-aligned disclosure is mainstreaming. CDP has grown from 245 companies disclosing in 2002 to over 9,600+ companies representing over 50% of global market value disclosing in 2020. We have reached critical mass.
Now is the time for all companies to join this growing movement. With countless environmental disasters disrupting lives and industry across the globe, companies that are not disclosing simply have no excuse not to. They must start now and reap the many benefits of standardized, TCFD-aligned disclosure.