Get ready for climate-related risk disclosures

Understanding climate-related risk

Because the European Commission has integrated the TCFD recommendations in the guidelines on non-financial reporting, and climate-related action creates many opportunities, we aim to work towards further development of the understanding of climate-related risks, using the TCFD as a guidance. Therefore, we have conducted qualitative research consisting of interviews with industry-wide users and preparers of non-financial reports, who are identifying and integrating climate-related risks within their organisations. The findings of this research can help you understand the TCFD emergence, its added value and the next steps for implementation.

TCFD emergence

The Financial Stability Board (FSB) introduced the TCFD as a response to the demand for greater transparency, the lack of consensus around reporting principles and standards, and the lack of climate-related financial impact disclosures. By stressing the need for organisations to disclose information of the possible financial implications of systemic climate-related risks, the TCFD introduced a new focus within the non-financial reporting landscape.

Escalating significance and visibility

The speed of the development and dispersion of the TCFD’s recommendations attests to its escalating significance and visibility. The case analysis has demonstrated how the TCFD facilitated productive collaborations with key non-financial reporting landscape actors while enabling them to remain within their own values. These collaborations led to widely interpretable recommendations, which increases the applicability for organszations but might also decrease the comparability of the reports.

Added value

As its emergence was created by financial stakeholders from the industry, the recommendations are well balanced. They focus on enhancing organisations’ climate-related risk processes and the understanding and disclosure quality of climate-related financial impact. However, organisations experience complexities regarding data measurement, analysing and interpreting data. Further, the tension between their long-term valuation for sustainability investments as opposed to investors’ short-term result focus, creates difficulties in determining how much climate-related risks and opportunities should be invested in.

Barriers

Organisations find it essential that the recommendations enable the ability to steer climate-related risks by, for instance, lowering the transition risks. However, they often face barriers to enable such steering. Subsequently, measurement of the financial impact is considered difficult. Mostly non-financial oriented organisations are questioning the relevance of disclosures, as they find it challenging to correctly disclose the financial impact in a clear, understandable manner. They question the TCFD’s necessity and consider it time-consuming and costly to invest in another non-financial reporting framework.

Learn by implementing: gap analysis

Deloitte understands the current emergence of the TCFD in a non-financial reporting landscape as a very relevant yet difficult procedure for organisations to develop. Therefore, we offer to help reporting organisations in using the recommendations and connect users of the disclosures to understand what information they should ask for. Organisations are already measuring, analysing and interpreting climate-related risks. However, because they find many challenges on their way, we provide a gap analysis. By identifying the current difficulties and the gaps between the TCFD recommendations and current reporting, we help in establishing a roadmap towards reporting using the TCFD.

Please contact us for more information on the TCFD, its added value, and guidance for efficient integration.