Corporate reporting

Why TCFD matters

The Task Force on Climate-Related Financial Disclosures (TCFD) is a long title and, as befitting such a mouthful, has proved to be a complex undertaking for most corporates. The key, though, is to demystify the subject.

Unlike some other aspects of sustainability reporting, the TCFD framework is a ‘climate-related financial disclosure’ – so it isn’t really about a company’s impact on the environment; it is about the environment’s impact on the company.

‘These disclosures are targeted at mainstream investors, governments, and regulators, and are intended to help them assess whether climate risk is appropriately priced into the valuation of a company,’ says Mariam Mohiuddin, senior consultant at Superunion, who was behind financial services giant Legal & General picking up the Most effective alignment with TCFD trophy at the inaugural Strategic Comms Awards, and so knows something about the topic.

The TCFD recommendations have become increasingly important as they are being adopted into the upcoming International Sustainability Standards Board standards – as well as being the basis of the current UK legislation on climate-related financial disclosure.

Where there is lack of data or information, a clear explanation and acknowledgement of the journey or a roadmap to full disclosure should be communicated

Importantly, TCFD reporting is mandatory in the UK for any company with more than 500 employees and an annual turnover in excess of £500 million – giving a clear indication of why it matters and covering a fair chunk of corporate Britain.

‘There is new-founded pressure on private companies who have previously had limited regulations to comply with and are disclosing for the first time,’ notes Mohiuddin.

The basic principle of ‘comply-or-explain’ is key. ‘Where there is lack of data or information, a clear explanation and acknowledgement of the journey or a roadmap to full disclosure should be communicated to prevent non-compliance,’ warns Mohiuddin.

So how should corporates address this? ‘TCFD reporting should be bespoke to the individual company and no company will be reporting the same,’ says Mohiuddin. ‘Materiality should be considered in the depth and level of information communicated in the annual report. We do advise our clients to provide a link to more technical information in a separate, but easily accessible supplemental report.’

For Rebecca McKie, corporate communications lead at Anglian Water, who achieved the feat of winning two Strategic Comms Awards, TCFD was a useful tool for its report. ‘We were early adopters of TCFD – we’ve been reporting in line with its recommendations since 2017 – so for us it feels like familiar territory. We’ve found it helpful as a way of structuring our reporting.’

Mohiuddin stresses the importance of a crisp TCFD message. ‘A good TCFD statement is clear and succinct– disclosure should be free from technical jargon and quantification of financial impact is the ultimate goal,’ she says.

And it can connect with other ESG elements of an annual report. ‘We are now also seeing an increase in corporates communicating net zero targets – for these to be meaningful, transparency is key,’ concludes Mohiuddin. ‘A long-term target should only be disclosed where short-term actions and goals have been communicated clearly.’