TCFD review flags scenario quantitative gaps

August 11, 2022

Several reporting gaps were revealed in a recent review by the UK’s FCA and FRC

The most common reporting gaps for climate-related disclosures are in quantitative elements of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, according to the UK’s Financial Conduct Authority (FCA).

Together with the UK’s Financial Reporting Council (FRC), the FCA’s review of TCFD-aligned disclosures identified that scenario analysis and metrics and targets were among the most common reporting gaps.

The TCFD’s climate-related disclosures require premium listed commercial companies to include a statement in their Annual Financial Report on whether they have made disclosures consistent with the TCFD recommendations or to explain why not.

The review found the levels of detail and consistency in companies’ disclosures were often correlated with sector, size and risk assessment relating to the extent the company had identified climate change as among principal risks.

Meanwhile, the number of companies making disclosures that were either partially or mostly consistent with the TCFD framework increased significantly compared with 2020.

Further observations from the review highlighted that over 90% of companies self-reported that they had made disclosures consistent with the TCFD’s Governance and Risk Management pillars.

However, this figure dropped to below 90% for the Strategy and Metrics and Targets pillars.

Read Minerva's previous coverage of the TCFD:

https://www.old.manifest.co.uk/uk-underscores-tcfd-commitment/

The FCA found some instances where companies indicated that they had made disclosures consistent with the recommended disclosures but noted that the disclosures themselves appeared to be very limited in content.

After accessing whether regulatory intervention has improved the completeness and consistency of sustainability reporting, the FCA concluded further improvement is needed in the quantity and quality of climate-related financial disclosures.

“To deliver the consistency and comparability of corporate reporting that the market needs, it will be important to build on, and complement, the TCFD’s recommendations by introducing a common international reporting standard,” the FCA explained.

The FCA is working closely with international partners at the International Organisation of Securities Commissions (IOSCO) to encourage progress towards a common global baseline sustainability-related reporting standard under the IFRS Foundation’s new ISSB.