According to the Task Force on Climate-related Financial Disclosures (TCFD) 2023 Status Report, companies are increasingly providing public disclosure on their climate-related risks and opportunities compared to previous years. However, significant room for improvement remains, as most companies are not yet reporting on all TCFD recommendations.
The TCFD, established in 2015, aimed to create consistent disclosure standards for companies, allowing investors and stakeholders to assess climate-related financial risk. Its recommendations were published in 2017 and have since served as the industry standard for climate-related disclosure. Recently, responsibility for monitoring climate-related reporting progress was transferred to the IFRS Foundation’s International Sustainability Standards Board (ISSB) following the ISSB’s publication of global standards for sustainability and climate reporting.
The TCFD conducted a study using artificial intelligence technology, analyzing publicly available reports from over 1,350 large companies across various sectors and regions over three years. The study found a substantial increase in the number of companies aligning their disclosures with TCFD recommendations. In 2022, 90% of companies provided disclosures in line with at least one of the TCFD’s 11 recommendations, compared to 80% in 2021 and only 64% in 2020. Additionally, 58% of companies reported on at least five recommendations in 2022, up from 40% the previous year and only 18% in 2020. The average number of disclosures per company increased from 3.2 in 2020 to 5.3 in 2022, a 66% increase.
Among the 11 recommendations, the category that saw the most significant growth in reporting was “Climate-related risks and opportunities,” reported by 62% of companies in 2022, up from 36% in 2020. Reporting on board oversight increased to 64% from 39% in 2020, and climate-related targets were reported by 66% of companies in 2022, compared to 42% in 2020. The category with the lowest reporting was companies’ strategies under different climate-related scenarios, with only 11% of companies providing disclosure in 2022. The report noted that 90% of companies found this recommendation somewhat or very difficult to implement.
The report also examined disclosure across various dimensions, including sector, region, and company size. Energy and materials & buildings industries had the highest number of average disclosures per company at 6.3 and 5.8, respectively, while technology and media companies had the lowest at an average of 3.7. Companies in Europe had the highest number of average disclosures at 7.2, while Middle East and Africa-based companies had the lowest at 3.8. Large-cap companies (market cap greater than $12.3 billion) had significantly higher reporting rates, with an average of 6.7 disclosures per company, compared to 3.9 for companies with market caps under $3.2 billion.
The report also reviewed the publicly available reports of the top 50 asset managers and asset owners based on assets under management. It found that 70% of asset managers and 30% of asset owners reported in line with at least five of the TCFD recommendations. Both groups identified insufficient information from investee companies as the top challenge to climate-related reporting.
The report acknowledged the progress made but stressed the need for more transparency regarding the actual and potential impact of climate change on companies. Only 4% of companies reported in alignment with all 11 TCFD disclosure recommendations in 2022. Furthermore, TCFD-aligned climate-related disclosures were four times more likely to be disclosed in sustainability and annual reports than in financial filings.
The TCFD’s annual updates have now concluded, with the ISSB taking over the responsibility for monitoring climate-related reporting.
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