TCFD reporting

What is TCFD? Who needs to report?

The Financial Stability Board (FSB) had created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to develop a framework to help organisations disclose climate-related risks and opportunities more effectively through their existing reporting process. The TCFD recommendations, first launched in 2017, are designed to encourage consistent and comparable reporting, providing a framework that supports companies in developing insights on climate-related financial information through (existing) reporting activities.

TCFD and the Swiss regulatory landscape – some distinctions

While the Swiss Climate Ordinance explicitly states that corporate reporting on climate-related issues should be based on the TCFD recommendations, the latter differs from Swiss regulatory requirements in some distinct ways:

Swiss legislation:

• Establishes that large public companies must report publicly on non-financial matters based on the Swiss Non-Financial Reporting law, which requires a double materiality approach.
•  Includes reporting on environmental matters in general;
• Requires business to describe their reduction targets for direct and indirect greenhouse gas emissions and how they plan to implement them;
• Recommendations are generally legally binding and include various reliefs, the general comply-or-explain approach and the option to apply a different framework.

TCFD:

• Includes reporting related to climate matters only;
• Provides guidance on climate transition plans that focus on how companies respond to climate-related risks and how they aim to achieve their sustainability objectives/climate targets;
• Recommendations provide soft-law guidance and support the evolution of tools and methods in line with the growing experience of businesses in improving their reporting practices.

Globally, the number of governments, businesses, and civil society indicating their support for the TCFD recommendations has been rising on a yearly basis since 2017.

Based on the 2022 disclosure requirements in the area of climate-related financial risks, FINMA has conducted in the same year a gap analysis on the reporting activities of the largest banks and insurance companies and concluded among others that:

• Climate-related financial risks and impacts are often not comprehensively enough explained. 
• Disclosures on climate risks lack details such as financial impact.
• The lack of relationship between stated key data and targets results in insufficient alignment with the requirements.

Conclusively: The biggest gaps remain within the quantitative part of the reporting requirements with the number of metrics disclosed being extremely low.

As the requirements for effective climate governance and risk assessment are increasing, companies should seize the momentum and explore how TCFD can bring their business forward.

Here are 5 motivators for businesses to adopt the recommendations of the TCFD:

As regulations tighten for TCFD-based reporting in Switzerland and beyond, it is important that businesses act proactively. Embracing TCFD extends beyond compliance. It offers a strategic advantage by enhancing market position, bolstering risk mitigation capabilities, fostering transparency, and facilitating access to capital.

Implementing adaptation measures

Once businesses have a clear understanding of their climate risks in place, they should leverage the newly gained insights and start thinking about what adaptation measures can be implemented to reduce these risks.

Burdens towards adaptation action

As the world continues to experience the devastating impacts of climate change, the need for accelerated steps towards climate adaptation and increased resilience is critical.

Adaptation strategies are complex, especially when the so-called global-local divide is being taken into account. While an organisation needs to develop a global strategy, governance, and action plan to ensure coherence and consistency, successful adaptation measures are inherently local and have to be adjusted to local conditions.