Will TCFD Final Recommendations Change the Landscape of Climate-related Financial Disclosure?

by Latham & Watkins LLP

On 29 June 2017, the Task Force on Climate-related Financial Disclosure (TCFD) published its final recommendations. The TCFD set out information that companies should disclose to enable investors, lenders, and insurance underwriters to better understand how companies oversee and manage climate-related financial risk. Ultimately, the aim is to strike a balance between the need to raise standards for existing climate disclosure standards and the desire to achieve widespread adoption.

The TCFD released its draft report in December 2016, and updated the recommendations in the final report based on industry and public feedback from a public consultation.

The key updates to the final report:

  • Materiality: the recommended disclosures on strategy, metrics, and targets are subject to materiality tests. Disclosures related to governance and risk management recommendations should be provided (regardless of materiality) as many investors want an insight into the governance and risk management context in which an organisation’s financial and operating results are achieved. Furthermore, the TCFD also established a threshold for organisations that should consider conducting a more robust scenario analysis to assess the resilience of their strategies (this covers those in the four non-financial groups[i] with more than US$1 billion in annual revenue).
  • Simplification: simplifying the metrics and targets for non-financial sectors to provide:
    –  Clarity and consistency
    –  Encouragement for further development of metrics in the financial sector (typically, this covers banks, insurers, asset owners, and asset managers)
    –  Clarity regarding the link to financial impact
    –  Additional guidance and standard scenarios to ease implementation
  • Climate-related Financial Risk: providing additional information on the link between financial impact and climate-related risk and opportunities.

These recommendations have shifted the landscape on disclosure in three crucial ways:

  • Shift in focus: towards a forward looking, financially focused view and away from the more traditional backward looking sustainability focused viewpoint.
  • Physical and transition risks: focus on climate change’s impact to the company through physical and transition risks rather than just through the company’s impact on climate change. An interesting aspect is the proposal that companies consider how their businesses will fare under the “2 degrees scenario” (a common reference point generally aligned with the objectives of the Paris Agreement) and other climate scenarios.
  • Mainstream reporting: the shift of climate-related disclosures into mainstream reporting and away from standalone sustainability reports, which would elevate such disclosures to require the same rigorous governance processes as financial reporting.

These recommendations will arguably create a more effective form of climate-related financial disclosure by:

  • Providing a consistent methodology
  • Increasing investor and lender confidence that climate-related risks are being appropriately assessed and managed
  • Creating a better appreciation of climate-related risks resulting in better risk management and more informed strategic planning
  • Proactively addressing investor demand for climate-related information in a framework that investors are increasingly prioritising, which could reduce the number of climate-related information requests received

The TCFD recommends that companies provide climate-related financial disclosures in their public, annual financial filings but does not prescribe where in the financial filings companies should disclose such information (although the shift towards mainstream reporting is apparent in the recommendation). If certain elements are incompatible with national disclosure requirements, the TCFD encourages companies to disclose those elements in other official company reports. When the TCFD does not deem information material and the information is not included in financial filings, companies that fall in the four non-financial groups with more than US$1 billion equivalent in annual revenue should consider disclosing strategy, metrics, and targets information in other reports.

Companies are encouraged to implement these recommendations as soon as possible, although the TCFD recognises that organisations may differ in their capabilities to effect this. The TCFD anticipates that the reporting of climate-related information will develop over time as companies, investors, and others contribute to the quality and consistency of the information they disclose.

For the rest of 2017 and throughout 2018, the TCFD will continue to focus on outreach, engagement, and implementation monitoring through a series of webinars, events, and outreach with third-party partners. The TCFD will also address areas of further work (such as developing or identifying example disclosures) and will work with industry associations, non-governmental organisations, and others to ensure that these recommendations change the landscape of climate-related financial disclosure in the long term.

[i] Notably, in addition to guidance for all sectors, the TCFD developed supplemental guidance for financial and non-financial organisations to assist them in implementing the recommended disclosures. The financial sector was organised into banks, insurance companies, asset managers, and asset owners; and the non-financial groups covered energy, transportation, materials and building, agriculture, food, and forest products.

This post was prepared with the assistance of Ei Nge Htut in the London office of Latham & Watkins.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Latham & Watkins LLP | Attorney Advertising

Written by:

Latham & Watkins LLP

Latham & Watkins LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.