Recommended Disclosures
A) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.
B) Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.
C) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
Guidance for All Sectors
Organizations should provide the following information:
- a description of what they consider to be the relevant short-, medium-, and long-term time horizons, taking into consideration the useful life of the organization’s assets or infrastructure and the fact that climate-related issues often manifest themselves over the medium and longer terms,
- a description of the specific climate-related issues potentially arising in each time horizon (short, medium, and long term) that could have a material financial impact on the organization, and
- a description of the process(es) used to determine which risks and opportunities could have a material financial impact on the organization.
Organizations should consider providing a description of their risks and opportunities by sector and/or geography, as appropriate. In describing climate-related issues, organizations should refer to Tables A1.1 and A1.2 (pp. 75–76).
Building on recommended disclosure (a), organizations should discuss how identified climate-related issues have affected their businesses, strategy, and financial planning.
Organizations should consider including the impact on their businesses, strategy, and financial planning in the following areas:
- Products and services
- Supply chain and/or value chain
- Adaptation and mitigation activities
- Investment in research and development
- Operations (including types of operations and location of facilities)
- Acquisitions or divestments
- Access to capital
Organizations should describe how climate-related issues serve as an input to their financial planning process, the time period(s) used, and how these risks and opportunities are prioritized. Organizations’ disclosures should reflect a holistic picture
of the interdependencies among the factors that affect their ability to create value over time.
Organizations should describe the impact of climate-related issues on their financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities).¹ If climate-related scenarios were used to inform the organization’s strategy and financial planning, such scenarios should be described.
Organizations that have made GHG emissions reduction commitments, operate in jurisdictions that have made such commitments, or have agreed to meet investor expectations regarding GHG emissions reductions should describe their plans for transitioning to a low-carbon economy, which could include GHG emissions targets and specific activities intended to reduce GHG emissions in their operations and value chain or to otherwise support the transition.²
Organizations should describe how resilient their strategies are to climate-related risks and opportunities, taking into consideration a transition to a low-carbon economy consistent with a 2°C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks.³
Organizations should consider discussing:
- where they believe their strategies may be affected by climate-related risks and opportunities;
- how their strategies might change to address such potential risks and opportunities;
- the potential impact of climate-related issues on financial performance (e.g., revenues, costs) and financial position (e.g., assets, liabilities);4 and
- the climate-related scenarios and associated time horizon(s) considered.
Refer to Section D of the Final Report for information on applying scenarios to forward-looking analysis.
Supplemental Guidance
For Banks
Banks should describe significant concentrations of credit exposure to carbon-related assets.5 Additionally, banks should consider disclosing their climate-related risks (transition and physical) in their lending and other financial intermediary business activities.
No supplemental guidance
No supplemental guidance.
For Insurance Companies
No supplemental guidance.
Insurance companies should describe the potential impacts of climate-related risks and opportunities as well as provide supporting quantitative information where available, on their core businesses, products, and services, including:
- information at the business division, sector, or geography levels;
- how the potential impacts influence client or broker selection; and
- whether specific climate-related products or competencies are under development, such as insurance of green infrastructure, specialty climate-related risk advisory services, and climate-related client engagement.
Insurance companies that perform climate-related scenario analysis on their underwriting activities should provide the following information:
- description of the climate-related scenarios used, including the critical input parameters, assumptions and considerations, and analytical choices. In addition to a 2°C scenario, insurance companies with substantial exposure to weather-related perils should consider using a greater than 2°C scenario to account for physical effects of climate change and
- time frames used for the climate-related scenarios, including short-, medium-, and long-term milestones.
For Asset Owners
No supplemental guidance.
Asset owners should describe how climate-related risks and opportunities are factored into relevant investment strategies. This could be described from the perspective of the total fund or investment strategy or individual investment strategies for various asset classes.
Asset owners that perform scenario analysis should consider providing a discussion of how climate-related scenarios are used, such as to inform investments in specific assets.
For Asset Managers
No supplemental guidance.
Asset managers should describe how climate-related risks and opportunities are factored into relevant products or investment strategies.
Asset managers should also describe how each product or investment strategy might be affected by the transition to a low-carbon economy.
No supplemental guidance.
For Non-Financial Groups
No supplemental guidance.
Organizations should consider discussing how climate-related risks and opportunities are integrated into their (1) current decision-making and (2) strategy formulation, including planning assumptions and objectives around climate change mitigation, adaptation, or opportunities such as:
- Research and development (R&D) and adoption of new technology.
- Existing and committed future activities such as investments, restructuring, write-downs, or impairment of assets.
- Critical planning assumptions around legacy assets, for example, strategies to lower carbon-, energy-, and/or water-intensive operations.
- How GHG emissions, energy, and water and other physical risk exposures, if applicable, are considered in capital planning and allocation; this could include a discussion of major acquisitions and divestments, joint-ventures, and investments in technology, innovation, and new business areas in light of changing climate-related risks and opportunities.
- The organization’s flexibility in positioning/repositioning capital to address emerging climate-related risks and opportunities.
Organizations with more than one billion U.S. dollar equivalent (USDE) in annual revenue should consider conducting more robust scenario analysis to assess the resilience of their strategies against a range of climate-related scenarios, including a 2°C or lower scenario and, where relevant to the organization, scenarios consistent with increased physical climate-related risks.6 7
Organizations should consider discussing the implications of different policy assumptions, macro-economic trends, energy pathways, and technology assumptions used in publicly available climate-related scenarios to assess the resilience of their strategies.8
For the climate-related scenarios used, organizations should consider providing information on the following factors to allow investors and others to understand how conclusions were drawn from scenario analysis:
- Critical input parameters, assumptions, and analytical choices for the climate-related scenarios used, particularly as they relate to key areas such as policy assumptions, energy deployment pathways, technology pathways, and related timing assumptions.
- Potential qualitative or quantitative financial implications of the climate-related scenarios, if any.9
Further Information
- The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities
- Guidance on Scenario Analysis for Non-Financial Companies
- TCFD Strategy Workshop
- Scenario Analysis – extract from the TCFD Final Recommendations Technical Supplement
- Scenario analysis and climate-related issues – extract from the TCFD Final Recommendations Report
- Assessing financial impacts of climate-related risk and opportunity
- Glossary and Abbreviations
- Implementation path
- Further information for Energy Group
- Further information for Transportation Group
- Further information for Materials and Buildings Group
- Further information for Agriculture, Food, and Forest Products Group
Resources to get you started
- Climate Resilience: 2020 Handbook
- UNEP Finance Initiative: TCFD Pilot Programmes
- Advancing TCFD guidance on physical climate risks and opportunities
- Investor primer to transition risk analysis
- Assessing the Alignment of Portfolios with Climate Goals
- Carbon Asset Risk: Discussion Framework
- How to improve your TCFD strategy disclosure
- Online course: Introduction to scenario analysis
- Online course: An introduction to managing the financial risks from climate change
For more resources, search here.