River swamp on kho rong island cambodia

How progress in TCFD disclosures can advance climate reporting

Alignment to TCFD principles is more critical than ever as new climate disclosures standards emerge.

In brief

  • Performance against TCFD recommendations is a useful indicator of readiness for future climate disclosure requirements, especially for the ISSB climate standard.
  • Most financial institutions disclose financed emissions and conduct scenario analysis but details of their transition plans and climate resilience is lacking.
  • A rise in external verification ahead of pending assurance requirements suggests regulators are driving enhancements in both disclosure coverage and quality.

The sustainability reporting agenda continues to evolve rapidly. Over the last 12 months, a series of new global and national disclosure standards have been drafted, endorsed or finalized by legislators, regulators and industry bodies. These now extend beyond climate to include nature, social and governance matters. Though varying in their scope and objectives, many new frameworks adopt structures consistent with the Taskforce for Climate-related Financial Disclosures (TCFD) framework.

The TCFD framework, initially published in 2015, was a trailblazer in sustainability disclosures. It was voluntarily adopted by companies across the globe, and its recommendations have since been incorporated into mandatory reporting requirements in several jurisdictions. This includes the UK, where they now form part of the Financial Conduct Authority (FCA) Listing Rules, the FCA ESG Sourcebook and the Companies Act.

Despite such widespread adoption, there are still significant gaps and shortcomings in financial institutions’ TCFD-aligned reporting. These gaps not only tell us a lot about the finance sector’s adoption of TCFD but can also give a useful indicator of firms’ readiness for future reporting frameworks, most notably the newly published IFRS S2 Climate-related Disclosures standard from the International Sustainability Standards Board (ISSB).

IFRS S2 fully incorporates TCFD’s 11 recommendations, adding more detail in certain areas and expanding the disclosure requirements to new areas. This means that a company fully complying with IFRS S2 would also be aligned with the disclosures recommended by TCFD.

To provide an updated view of the industry’s progress in aligning with TCFD and preparing for IFRS S2, EY teams have developed a Climate-Related Disclosures Performance Analyzer, which assesses disclosures from 50 institutions – spread across a representative sample of banks, insurers, asset managers and private equity (PE) houses – for the 2022/23 financial year (reports published after 30 September 2022).

Using this tool, we reviewed the quality and coverage of disclosures against TCFD’s four pillars of Governance, Strategy, Risk Management and Metrics & Targets, assessing performance against criteria based on the TCFD’s recommendations and IFRS S2 requirements.

Compared to last EY survey in 2022, we saw an overall improvement in financial institutions’ climate-related disclosures. Ratings for quality and coverage have improved, with a clear correlation between both dimensions across the sample – although many of the challenges identified in 2022 persist.


Chapter 1

Trend analysis : comparing findings to 2022 results

Governance and risk remain areas of strength, insurers and asset managers are catching up to banks.

TCFD pillars

Average coverage and quality scores for Governance and Risk Management remain stronger than for Strategy or Metrics & Targets. While financial institutions have largely assigned responsibility for managing climate-related risks in their organization and started to embed climate within their risk management frameworks, articulating the effects of these risks on their strategy and business model, and quantifying the financial impact remains challenging.


On average, Banking and Capital Markets (BCM) remains the highest scoring of the sectors reviewed, largely on account of having mobilized earlier than others. However, insurers and asset managers have begun to narrow the gap. The largest asset managers and owners now face similar stakeholder and regulatory pressures, particularly in the UK, where they have now been brought into scope of the mandatory climate-related reporting guidelines included in the FCA ESG Sourcebook. PE houses score significantly lower on average, which is in keeping with their generally more limited levels of public disclosures.


Chapter 2

Calculating financed emissions

More FIs are disclosing greater detail on their financed emissions, starting with high emitting sectors.

Although the coverage and quality of their disclosures vary, over 70% of the institutions in our sample disclose at least some quantitative information related to their financed emissions (emissions associated with lending and investment activities).

This is a significant improvement on last year (up from 48%), particularly among insurers (19% to 80%) and asset managers (29% to 80%), demonstrating that financial sector firms are collectively giving more attention to – and taking greater responsibility for – the activities they finance through their lending and investment businesses. Improving availability and quality of data, and the increasing maturity of methodologies underpinning such assessments, are also helping to enhance disclosures.

Firms disclosing their financed emissions have, unsurprisingly, started with the real economy sectors prioritized by the Partnership for Carbon Accounting Financials (PCAF), the prevailing calculation methodology in the financial sector. This means firms have started by disclosing emissions associated with the highest emitting industries: Energy, Power and Utilities, and Auto Manufacturing. 38% of our sample disclosed financed emissions for Power and Utilities, 30% for Energy, and 24% for Auto Manufacturers. Note that not all disclosures were broken down by sector so these figures may be understated. Other sectors commonly reported upon include industrials such as Steel and Manufacturing.

To date, we note significantly fewer companies disclose emissions arising from capital markets financing (facilitated emissions), or those associated with insurance activities. This is unsurprising; the PCAF standard on insurance-associated emissions was only finalized in late 2022 and the final standard for facilitated emissions is expected in late 2023. We therefore expect to see a sharper focus on these areas in future reporting cycles as companies implement PCAF guidance and can benefit from a greater breadth of disclosures available.


Chapter 3

Credible transition planning

The UK is leading in transition planning but few plans meet criteria for credibility or completeness.

Though not mandatory, TCFD strongly encourages firms to disclose transition plans and issued dedicated guidance on this in 2021. Likewise, while the IFRS S2 does not explicitly require companies to develop a transition plan, it does require disclosure where one is in place. Our sample shows that 18% of financial institutions disclosed a transition plan in 2023 compared to 13% last year.


However, many firms are still in the early stages of developing transition plans and the quality of the associated disclosures is variable. Reporting tends to be most comprehensive for areas such as greenhouse gas (GHG) and financed emissions metrics, sustainable product offerings, and the use of sector policies (e.g., on thermal coal exclusion) to guide financing decisions – all of which are included in TCFD guidance as recommended inputs.


In contrast, there are more gaps when it comes to disclosing a holistic view of these elements, and their strategic implications. For example, only 14% of companies provide an assessment of the impact of climate-related risks and opportunities on their business model and performance. Fewer still (8%) explain how their transition plan is embedded in firm-wide growth strategies. We expect growing focus under ISSB on the availability of decision-useful information to encourage more firms to include and monitor metrics in their transition plans with a high impact on stakeholder decisions.


On average, the disclosures of UK-based firms score higher than those from other markets. This could reflect the work of the Transition Plan Taskforce (TPT) in the UK, which aims to set the global ‘gold standard’ as a transition planning framework, building upon the initial guidance issued by the Glasgow Financial Alliance for Net Zero (GFANZ) in late 2022. Looking ahead, we expect companies and regulators worldwide to increase their focus on comprehensive, credible transition planning in response. The Financial Conduct Authority (FCA) is expected to assess the final TPT guidance in the coming months for compatibility with UK regulatory reporting requirements.


Chapter 4

Scenario analysis as a tool for assessing resilience

Despite widespread uptake of scenario analysis by FIs, the link to climate resilience is missing.

An overwhelming majority of financial institutions in our sample (90%) disclose that they have carried out some form of climate-related scenario analysis. Most include high-level qualitative discussions on the assumptions made in the analysis. However, there are significant differences in quality, scope, and extent of the analysis disclosed.

While most companies conduct scenario analysis, only 50% disclose quantitative outputs and results. This requires strong conviction in the underlying input data, methodologies and assumptions, and many financial institutions are understandably exercising caution ahead of disclosing sensitivities relating to financial position.

We also note shortcomings in the disclosure of what the analysis implies for firm-wide resilience. Only a third (35%) of our sample specifically translate scenario analysis into an assessment of the resilience of their strategy and business model to climate-related risks over time - the primary purpose of scenario analysis prescribed by IFRS S2 and TCFD.

Understanding the actual and potential risks and opportunities that firms may face is the ultimate purpose of these disclosure frameworks, so improvement on resilience reporting is crucial. Sharper focus on this from not just the ISSB but also the ECB, in the form of requirements on financial sector adaptation and risk management, looks set to drive improvements in disclosures.


Chapter 5

The role of assurance

Steep upward trend in companies seeking third-party verification over climate-related disclosures.

Our analysis shows that a growing number of financial institutions are obtaining assurance over a wider range of climate-related disclosures. More than 75% of sampled companies obtained at least a limited level of assurance over one or more sustainability-relevant metric, with approximately half doing so for more than one KPI. Within this group, a minority of firms have sought reasonable assurance.

This represents a notable year-on-year increase in the prevalence of assurance from last year (<50%). This is likely linked to the planned introduction of mandatory assurance requirements over certain sustainability disclosures in several jurisdictions including the EU (via CSRD) and the US (via the SEC’s proposed Climate Rule).

In addition, growing stakeholder reliance on climate-related disclosures for decision making is creating greater expectations for verified information. There are currently no assurance requirements under ISSB, but it is expected that individual regulators will introduce assurance requirements as part of their adoption process. This is a promising trend which indicates a positive direction of travel toward more reliable disclosure from financial institutions.


Financial institutions are dedicating substantial resources to comply with TCFD recommendations, and the integration of ISSB standards will expand disclosure requirements. EY analysis reveals improved climate-related disclosures in key areas across sectors and regions, with Insurance and Wealth & Asset Managers narrowing the gap with Banking and Capital Markets. Despite progress, Private Equity lags. Areas needing enhancement include reporting on climate-related risks and business model implications. Proactive measures to address these gaps will enhance TCFD alignment, prepare firms for ISSB adoption, and align them with regulatory and investor expectations.

This article is co-authored by Richard Walsh, Partner, ESG Assurance Lead, Climate Change and Sustainability Services, Ernst & Young LLP; Emily Frenay, Director, Reporting and Disclosures Lead, Climate Change and Sustainability Services, Ernst & Young LLP; Carl Vanderwerff, Reporting and Disclosure Lead, Climate Change and Sustainability Services, Ernst & Young LLP; Matt Hopkins, TCFD Lead, Climate Change and Sustainability Services, Ernst & Young LLP; Stephanie Lipman, ISSB Lead, Climate Change and Sustainability Services, Ernst & Young LLP and Alice Jetin Duceux, Reporting and Disclosure Solution, Climate Change and Sustainability Services, Ernst & Young LLP.


The global landscape of climate disclosures is evolving fast. As new standards emerge, the importance of complying with existing TCFD recommendations and requirements is only intensifying. In particular, TCFD alignment can be a useful indicator of readiness for the new ISSB climates standard (IFRS S2).

Against this backdrop, EY teams updated their Climate-Related Disclosures Performance Analyzer to assess 2022/23 reports. The results show definite improvements in the quality and coverage of reporting across the finance sector, whilst reinforcing areas where shortcomings persist.

Get the latest on sustainability in FS

Be the first to learn about our latest articles, events and webinars related to sustainability for financial services.

Related articles

How FIs are faring with the finalized TNFD recommendations

Read the findings of our global FS survey exploring how financial institution's nature-related disclosures align with the TNFD final recommendations.

30 Nov 2023 Gill Lofts + 1

How to accelerate transition finance for net zero

Learn why FIs need to operate iteratively to effect transition finance at pace and scale in a complex ecosystem.

20 Nov 2023 Gill Lofts

Why should financial institutions be on a mission to reduce emissions?

Accelerating decarbonization is urgent. Learn why private sector institutions must play a key role in addressing the current shortfalls in climate finance.

08 Nov 2023 Gill Lofts + 3