More companies are disclosing financial information related to climate change this year, but the disclosures are falling short of recommendations from regulators.
The Task Force on Climate-related Financial Disclosures released its
The report found the average number of recommended disclosures addressed per company has steadily increased each year for the past five years — from 1.4 in 2017 fiscal year reporting to 4.2 in 2021 fiscal year reporting. Despite these improvements, their efforts are not enough: While 80% of companies disclosed in line with at least one of the TCFD-recommended disclosures for fiscal year 2021, only 43% disclosed in line with at least five. Those levels of disclosure fall short of the TCFD's 11 recommended disclosures.
However, there was positive news in the improving disclosures. On average across the 11 recommended disclosures, the percentage of companies disclosing TCFD-aligned information increased by 26 percentage points between 2017 and 2021. On top of that, over 60% of the companies reviewed disclosed their climate-related risks or opportunities in 2021 fiscal year reports, up from 27% in 2017 fiscal year reports.
There has also been steady growth in climate-related financial disclosures on an industry and regional basis over the past three years. Of the eight industries reviewed by the TCFD, four had average disclosure levels across the 11 recommended disclosures of more than 40% — energy companies at 43%, materials and buildings companies at 42%, banks at 41%, and insurance companies at 41%. The biggest increase between 2019 and 2021 reporting was for banks at 20 percentage points. The increase for materials and buildings and insurance companies was 16 percentage points and 10 percentage points for energy companies.
On a regional basis, European companies reviewed disclosed at 60% on average across the 11 recommended disclosures for 2021 reporting, growing 23 percentage points since 2019. In North America, the average level of disclosure for companies reviewed was 29% for fiscal year 2021 reporting, growing 12 percentage points since 2019. Notably, over 60% of North American companies disclosed climate-related risks or opportunities and 45% disclosed their impacts.
Over half of companies in the Asia Pacific region disclosed climate-related metrics, although the region averaged 36% reporting across all 11 recommended disclosures — an increase of 11 percentage points since 2017. The average level of disclosure by companies in Latin America and the Middle East and Africa increased nine percentage points each since 2019, bringing the average levels of disclosure to 28% and 25%, respectively.
Continuing growth in investor demand for companies to report TCFD-aligned information and use of the TCFD recommendations by governments, regulators, and standard-setters in developing climate-related disclosure requirements are likely helping to drive the increase in TCFD-aligned reporting.
As of today, over 3,900 organizations have now pledged their support for the TCFD, growing from over 2,600 supporters when the Task Force released its 2021 status report. TCFD supporters span 101 countries and jurisdictions, covering nearly all sectors of the economy, with a combined market capitalization of $26 trillion.
The TCFD has also garnered support from the world's largest public companies. Of the 100 largest public companies, 92 either support the TCFD, report in line with the TCFD recommendations, or both — up from 83 last year.
"The 2022 TCFD Report underscores the increasing adoption of climate-related financial disclosures since the Task Force's 2017 recommendations - as well as the urgent need for greater progress on this front and in the global fight against climate change," said TCFD chair Michael Bloomberg, founder of Bloomberg LP and former mayor of New York City, in a statement. "Climate risks are also financial risks, and more measurement and disclosure are crucial to building a more sustainable and resilient economy and a safer future."
Over the next several months, the TCFD intends to continue to monitor companies' progress in disclosing climate-related financial information aligned with the TCFD recommendations and will prepare another status report, as requested by the FSB, in October 2023.
"These findings demonstrate that the TCFD framework has become essential in guiding companies as they analyze how climate risks and opportunities impact their financial position," said former Securities and Exchange Commission Chair Mary Schapiro, head of the TCFD secretariat and vice chair for global public policy at Bloomberg LP, in a statement. "While we are proud of the progress we've seen since 2017 in company disclosures, and in adoption of TCFD by governments, standard-setters and regulators, these findings make it clear there is more work to be done to improve transparency as companies and investors assess their risks through the lens of climate change."
Since the publication of the TCFD's 2021 status report, regulators and international standard-setters have taken steps to use the TCFD recommendations in developing climate-related reporting requirements and standards, the report pointed out, including proposals released earlier this year by the SEC, as well as the International Sustainability Standards Board and the European Financial Reporting Advisory Group.
"This year's report further demonstrates that the TCFD recommendations are providing the common basis for firms' climate-related disclosures around the world," said the FSB's chair, Klaas Knot, in a statement. "They provide a strong foundation for the planned new ISSB global baseline standard. I'm therefore pleased to see the robust increase in climate-related disclosures using the TCFD framework, which will encourage greater clarity and consistency across firms."
