According to Schapiro, the proposed framework represents a single solution to three separate problems. First, businesses need a coherent reporting framework that is efficient and cost-effective. Second, asset owners, investors and financial intermediaries need concise, reliable information that allows meaningful comparisons between companies and enables better decision-making about capital allocation and the assumption of risk by lenders and underwriters. Finally, Schapiro says, regulators and policy-makers need a better view of “the risks that are building in the financial system stemming from climate-related impacts – and, frankly, the opportunities too, which is one of the novel things about the framework we’ve developed.”
The intention is that the financial disclosures the TCFD calls for should form part of companies’ mainstream financial filings, as this is where discussion of other material risks takes place. “Over time,” says Graeme Pitkethly, Vice-Chair of the TCFD and CFO of Unilever, “their adoption should promote better dialogue about material risks between companies and their stakeholders that leads to more accurate pricing of the business’ securities. Ultimately, we’re trying to allow fair valuation and pricing that is appropriate to the level of risk and opportunity.”
The Task Force held more than 120 individual meetings with interested parties and reviewed and catalogued the near-400 existing initiatives on climate-related impacts. It aimed to incorporate this huge body of previous work but, in doing so, to produce a set of recommendations with a different and very distinct focus. “Lots of frameworks focus on how companies impact the environment; we focused on how climate change and the environment impact companies from a financial standpoint,” Schapiro explains. “That’s an important differentiator.”
The need to offer a clear path through the thicket of climate-related initiatives was also critical; faced with so many competing demands, it is easy for companies to “throw up their hands and say ‘This is just too complicated’,” says Schapiro. “These recommendations provide them with a coherent, informative framework for disclosure.” Instead, companies that use the TCFD’s recommended reporting framework can be confident that it synthesizes the existing work into a single source of guidance and best practice on climate-related financial reporting.