The Task Force on Climate-related Financial Disclosures (TCFD) is a financial industry-led initiative set up in 2015, with a goal of developing a set of voluntary climate-related financial risk disclosures which can be adopted by companies. Specifically, the TCFD was charged with considering “the physical, liability and transition risks associated with climate change, and recommending what constitutes effective financial disclosures across industries”. The TCFD recommendations are designed to be clear, consistent, comparable, and efficient while providing a framework that is flexible for organisations with different strategies, sizes and geographic markets.

This guide is aimed at asset owners to support them in implementing the TCFD recommendations. The report provides an overview of the principles for effective TCFD reporting and a mapping to the Principles for Responsible Investment (PRI) reporting framework. The guide focuses on what action asset owners should take, rather than how to report on these issues. The guide sets out a range of actions that asset owners can implement to improve processes around the four pillars of the TCFD framework: governance, strategy, risk management and metrics/targets.

In addition to specific actions for asset owners, the report also provides real-life examples of peer asset owner practice. Further guidance is provided on implementing the TCFD recommendations and reducing exposure to climate risk, lists of questions to engage consultants or fund managers on TCFD, and an overview of scenario analysis.

The guide suggests the following potential actions for asset owners:

Governance:

• Review governance arrangements to ensure there is effective board level oversight
• Describe management’s role in assessing and managing climate related risks and opportunities

Strategy:

• Identify climate related risks and opportunities over the short, medium and long-term
• Describe the impact on investment strategy from climate related risks and opportunities
• Describe the resilience of investment strategy, taking into consideration different climate related scenarios, including a 2ºC or lower scenario

Risk management:

• Assess risks – describe the processes for identifying and assessing climate related risks
• Manage risks – describe the processes for managing climate-related risks
• Integrate risks – describe how climate-related risks are integrated into risk management processes

Metrics:

• Disclose the metrics used to assess climate-related risks and opportunities in line with the investment strategy and risk management process
• Measurement of greenhouse gas (GHG) emissions – disclose Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the related risks
• Set targets – describe the targets used to manage climate-related risks and opportunities and performance against targets

Engagement:

• Engage with companies and external fund managers, to encourage greater transparency and alignment with the TCFD recommendations

Disclose:

• Publicly disclose all of the above actions and outcomes in annual reports and the climate risk in PRI’s reporting framework.

The TCFD recommendations enable investors and companies to make informed decisions about their exposure to climate-related risks and opportunities in their businesses and future capital allocation plans.

1. Financial markets require high quality and timely data on climate-related risks and opportunities to operate efficiently through the low carbon transition.
   
2. The TCFD recommendations provide a coherent and comparable framework through which material climate-related risks and opportunities can be translated into financial metrics that investors can use to assess and manage an emerging mega trend.
3. The TCFD framework is useful for asset owners to assess potential risks or impairments to portfolios and identify new investment opportunities.
4. Asset owners should craft a clear and explicit investment strategy that comprehensively considers: all long-term trends affecting their portfolios, how the fund fulfils the asset owner’s fiduciary duty, and how it can operate as efficiently as possible for beneficiaries and other stakeholders.
5. Disclosure in line with the TCFD recommendations provides information for beneficiaries to understand how climate-related impacts are being managed and make better informed choices about their retirement savings.
6. There is no one, unique solution to the governance arrangements that will apply to all pension funds given the myriad of different fund structures, committees and regulations that exist across jurisdictions and fund types.
7. The framework is flexible for organisations with different strategies, sizes and geographic markets. This makes broad based adoption and consistency in disclosures more achievable.
   
8. The TCFD recommendations highlight the importance of integrating climate-related impacts into organisational strategy, focusing on the resilience of the organisation under different climate change scenarios.
9. The TCFD final recommendations identifies two main types of climate-related risks and opportunities relevant to investors - physical and transition risks.
10. TCFD provides a level playing field of disclosure requirements with disclosure and transparency helping to encourage trust in capital markets.