FSB TCFD Guidance on Climate-Related Financial Disclosures: Regulatory and Market Responses

Linda M. Lowson is Chief Executive Officer of the Global ESG Financial Regulatory Academy and Editor-in-Chief of an ABA special publication on Climate Change and Sustainability Financial Reporting.This post is based on a recent publication by Ms. Lowson.

This post summarizes and comments upon a representative sampling of responses (through September 15, 2017) from financial regulators, issuers, institutional investors, credit rating agencies, and voluntary sustainability reporting frameworks, to the draft Guidance issued on December 14, 2017, and to the final Guidance published on June 29, 2017, by the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures (TCFD). This Guidance consists of a Recommendations Report, an Annex (Implementation Guide), and a Technical Supplement (on Scenario Analysis) (collectively, the “TCFD Guidance” or the “Guidance”). These responses to the Guidance collectively represent a strong indication of what to expect regarding market uptake and implementation of this Guidance, and portend potential future financial regulatory developments.


The December 2015 Paris Agreement, which entered into force on November 4, 2016, has now been ratified by 160 of the 197 signatories (as of September 15, 2017). These 160 countries now must develop and implement policies, strategies, and action plans for timely, successful achievement of their Nationally Determined Contributions (NDCs). This ratification means that most of the world must achieve net zero emissions by 2050, and it is clear that many businesses are not pursuing a strategy consistent with this goal. Climate-related disclosure, and in particular, mandatory climate-related financial reporting, is now an essential facilitator in this business strategy “pivot” imperative.

According to the 2016 “Carrots & Sticks” Report produced jointly by KPMG, Global Reporting Initiative (GRI), United Nations Environment Programme (UNEP), and the Centre for Corporate Governance in South Africa, which assesses developments in sustainability reporting regulation and policy across 71 countries and regions, approximately 100 new mandatory sustainability (also referred to as “ESG”—environmental social, governance) reporting instruments were introduced from 2013 through 2016 by governments from 64 countries, representing over 80% of the world’s top economies by GDP in 2016. This Report identified a total of 383 instruments overall, consisting of 248 mandatory instruments (65%) and 135 voluntary instruments (35%).

This trend toward mandatory sustainability financial reporting is set to continue, driven not only by implementation of the Paris Agreement NDCs, but also by the entry of FSB macroprudential oversight of climate-related risks in 2015 (and inclusion in the FSB systemic risk agenda), and issuance of the TCFD Guidance, per the FSB’s remit from G20 Financial Ministers and Central Bank Governors (G20).

The main purpose of the G20 and FSB focus on climate-related disclosure practices is to induce and catalyze entities to provide better information on climate-related risks and strategies at the firm level, so that (i) financial regulators and macroprudential supervisors can better assess potential system-wide exposures; and (ii) entities, regulators, and governments can identify and mitigate potential vulnerabilities.

Specifically, managing exposure to (a) assets which could rapidly become devalued or obsolete (stranded) with tightening of carbon emissions limits to 2050; (b) natural resources and other physical assets, which are destroyed or diminished by climate-related events; and (c) legal and policy adjustments, technology advancements, and associated market shifts, requires systematic, comprehensive, and cogent monitoring, assessment, and disclosure of these risks and uncertainties, with the quality controls and process integrity inherent in financial regulatory reporting, in order to avert a global financial crisis-style correction.

Proper financial reporting of climate-related risks by both financial and non-financial sectors is now here to stay, as a crucial input in development and implementation of financial regulatory, governmental, and macroprudential policymaking, and in national NDC attainment.

Responses from Financial Regulators

The following financial regulatory responses to the TCFD Guidance are organized by country (region in the case of the EU). The overwhelming response has been positive and supportive, with additional recommendations submitted by certain regulators. This signifies that much of the financial regulatory community favors international regulatory alignment in this area.

It is noted that certain key financial regulators and accounting/audit standard-setters have not yet responded to the Guidance, namely, the International Organization of Securities Commissions (IOSCO), the U.S. Securities and Exchange Commission (SEC), the International Accounting Standards Board (IASB), and the International Auditing and Assurance Standards Board (IAASB) (all of whom are FSB Members). As well, most banking and pension fund regulators have not yet responded to the Guidance.

European Union (EU)

The European Commission (“EC”) is explicitly supportive of the TCFD Guidance. Following is relevant background information as well as its response.

The European Parliament and European Council issued Directive 2014/95/EU, Directive on disclosure of non-financial and diversity information by certain large companies (“Non-financial Reporting Directive”, or “NFD”), effective December 6, 2014, which went into force for Member States on January 1, 2017. The NFD, which affects about 8,000 companies worldwide, requires mandatory disclosure of specific ESG information by EU exchange-listed companies with more than 500 employees, and by certain credit institutions and insurance undertakings. The 28 (27 post-Brexit) Member States were required to transpose the NFD into their national laws by January 1, 2017, with the first company reports to be published in 2018 covering the 2017-2018 financial year. To date, 26 of the 28 Member States have fully or partially transposed the NFD.

The NFD required the EC to issue NFD implementation Guidance (“NFD Guidance”), applicable to all Member States, by December 6, 2016. The EC intentionally delayed the issuance of this Guidance so that it could review the final TCFD Guidance prior to finalizing the NFD Guidance. After conducting a public consultation on implementation of the NFD, the EC published final NFD Guidance on June 27, 2017. It is more detailed in certain respects than the TCFD Guidance, and specifically recommends disclosure of forward-looking information based on climate scenario analysis, a key recommendation of the TCFD Guidance. The EC is required to review Member State implementation of the NFD Guidance at year-end 2018, at which time it may amend or revise the NFD Guidance.

United Kingdom (U.K.)

U.K. Government

The U.K. Government officially endorsed the TCFD Guidance as “a key milestone in the global low carbon transition”, in a statement by UK Climate Minister Claire Perry MP on September 18, 2017, and encourages all listed companies to implement this Guidance to align climate-related risk management and financial governance.

Related: The U.K. Government (HM Treasury and the Department for Business, Energy & Industrial Strategy) has launched a Green Finance Task Force to explore a range of policy measures designed to spur investment in the low carbon transition and reinforce London’s position as a green finance hub.

Bank of England (BOE)

In June 2017, the BOE released analysis on the risk from climate change to financial markets and noted that it was closely following the TCFD’s work.

Related: The BOE, under Governor Mark Carney, has been conducting research on the financial impacts of climate change since 2014. It published a staff paper on climate change impacts upon central banks in May 2016 and a staff paper on climate change impacts upon the insurance sector in September 2015. Governor Carney, who is also Chairman of the FSB, has given several speeches on climate change financial impacts, including remarks at the launch event of the TCFD Guidance.

Financial Reporting Council (FRC)

The FRC, the U.K.’s independent governing regulator for corporate governance and reporting, supports the Guidance and has submitted additional recommendations to the TCFD.

On February 27, 2017, the FRC submitted a comment response to the draft TCFD Guidance. While generally supportive, it was concerned that the size, complexity and detail of the Guidance may impair its usefulness as some companies may be dissuaded by the onerous implementation. Further, it believes that a more principles-based approach, with less emphasis on detailed lists of suggested disclosures, is likely to be more effective. Nonetheless, it believes that the TCFD

“has an important educational role to play in communicating its intention for a gradual implementation process and incremental improvements, with more sophisticated methodologies developing over time. The Task Force can facilitate this through stakeholder outreach, bringing companies and investors together to develop best practice … [which] will be crucial for achieving the widespread adoption envisaged”. FRC Comment Response at page 4.

London Stock Exchange Group (LSEG)

In its April 2016 comment response in the TCFD Phase I consultation, LSEG supported the TCFD work, but urged the TCFD to recognize the existing regulatory and standard-setting environment and to have an active dialogue with all relevant regulators toward the goal of international regulatory alignment and convergence wherever possible. It welcomed the December 2016 draft TCFD Guidance as “an important step in driving improved global consistency in voluntary global reporting standards” and “looks forward to exploring with the TCFD how to support this important work”. LSEG sees itself as “a keen partner in international dialogues on disclosure”. On February 9, 2017, LSEG published detailed “Guidance for issuers on the integration of ESG into investor reporting and communication”, explicitly stating that it builds upon the TCFD Guidance. Mark Makepeace, CEO of FTSE Russell and Director of Information Services for LSEG stated: “It is vital that investors are able to measure and capture their exposure to ESG risks and opportunities, and the launch of LSEG’s Guidance today will help companies understand what good ESG reporting looks like”. LSEG Press Release, “London Stock Exchange Group Launches Guidance for ESG Reporting”, February 9, 2017.


France will push for the TCFD Guidance to be mandatory, according to Brune Poirson, the country’s Secretary of State attached to the Ministry for Ecological Transition and Solidarity under Minister Nicolas Hulot.

Related: Poirson further stated that said the French government is working to build a coalition of countries for broad implementation of disclosure requirements similar to its Article 173 of the Energy Transition for Green Growth law enacted in August 2015 (given effect by Decree no. 2015-1850, December 31, 2015), which requires institutional investors and financial asset managers headquartered or registered in France to disclose investee companies’ “climate risks”, including both physical risks arising from climate change and “transition risks”, which is a main component of the TCFD Guidance.


Australian Prudential Regulation Authority (APRA)

APRA, the prudential regulator of the Australian financial services industry, is very supportive of the TCFD Guidance, including forward-looking climate risk disclosure by all financial and non-financial sectors. APRA supervises banks, credit unions, building societies, general insurers and reinsurers, life insurers, private health insurers, and most of the superannuation industry, representing over USD $5.9 trillion in assets under management.

Geoff Summerhayes, APRA Executive Board Member, in a speech at the Insurance Council of Australia Annual Forum (February 17, 2917), stated that climate-related risks are important for all APRA-regulated entities, including (i) potential exposure of banks’ and insurers’ balance sheets to real estate impacted by climate change and to re-pricing (or stranding) of carbon-intensive assets; and (ii) exposure of asset owners and managers, given the size of Australia’s superannuation sector and its heavy weighting towards carbon-intensive equities and a resource-intensive domestic economy. He further stated:

“it’s unsafe for entities or regulators to ignore risks just because there is uncertainty, or even controversy, about the policy outlook … Like all risks, it is better they are explicitly considered and managed as appropriate, rather than simply ignored or neglected … Robust, scenario-based thinking about risks should be the new standard for risk management … [APRA now has] a greater emphasis on stress testing for organisational and systemic resilience in the face of adverse shocks … For our part, we know that when regulators are slow-moving, or equivocal, it makes problems even worse”.


Canadian Securities Administrators (CSA)

The TCFD Guidance issuance has been the impetus for the CSA to examine Canadian issuers’ disclosure of climate-related risks. The CSA represents securities regulators from the ten provinces and three territories in Canada.

On March 21, 2017, specifically in response to the draft TCFD Guidance issued on December 14, 2017, the CSA announced a Climate Change Disclosure Review Project. This project is intended to review (i) the state of disclosure by Toronto Stock Exchange (TSX)-listed companies on climate change risks and financial impacts; (ii) investor feedback on their climate risk information needs and expectations; and (iii) climate risk disclosure policies of other jurisdictions, including the U.S., U.K., and Australia. The CSA completed its outreach consultation with issuers and investors in August 2017, and will publish a forthcoming progress report outlining its findings. CSA Chairman Louis Morisset said in a statement:

“As securities regulators, it is important to assess whether issuers provide appropriate disclosure regarding risks and financial impacts associated with climate change, which in turn assists investors in making informed investment decisions”.

Related: Canadian public companies are required to disclose material business risks, including climate change and other environmental risks, liabilities, trends, and uncertainties, under existing Canadian securities laws. Also, on October 27, 2010, the CSA issued Staff Notice 51-333, Environmental Reporting Guidance (Oct. 27, 2010), which provides detailed explanation and examples of best practice disclosure.

Canadian Government

The Canadian government is “supportive” of the TCFD work, according to Chloe Luciani-Girouard, spokeswoman for Finance Minister Bill Morneau, and “looks forward to the outcome” of the Climate Change Disclosure Review Project.

Insurance Supervisors

At the UNEP-FI Sustainable Insurance Forum on July 25, 2017, insurance regulators and supervisors from 16 jurisdictions around the world jointly backed the TCFD Guidance in a statement organized by the Sustainable Insurance Forum (SIF). Signatories included the Bank of England Prudential Regulation Authority, the Australian Prudential Regulation Authority, France’s Autorité de Contrôle Prudentiel et de Resolution, the Monetary Authority of Singapore, the California Department of Insurance, and representatives from Brazil, Ghana, Jamaica, Mongolia, Morocco, the Netherlands, Portugal, South Africa, Sweden, UAE and the U.S. state of Washington. SIF views the Guidance as setting a new global standard for disclosure by insurance firms, and sees scenario analysis as a critical tool. The group appreciated “the forward-looking orientation of the TCFD recommendations, and specific Guidance on scenario analysis”, and identified four key areas where insurance supervisors have an important role in supporting market uptake, thereby strengthening insurance markets, namely:

  • By raising awareness of the TCFD recommendations among regulated firms.
  • By supporting the TCFD recommendations as a best practice to be considered by insurers in their financial disclosures.
  • By working with market actors to build capacity and share tools, including for the development of scenarios and metrics.
  • By incorporating relevant insights from climate disclosures into routine supervisory activities.

Responses from Market Participants


Somewhat surprisingly, given the complexity and implementation challenges of the Guidance, issuer responses have been very positive, although it is unlikely that those issuers opposed to the Guidance would express their displeasure publicly and expose themselves to potential reputational, competitive, or stock price risk. Following are notable issuer responses.

  • On June 29, 2017, 100 public company CEOs, with market capitalizations totaling more than USD $3.3 trillion, signed a statement of support to encourage take-up of the TCFD Guidance, stating that the disclosures “are an important step forward in enabling market forces to drive efficient allocation of capital and support a smooth transition to a low-carbon economy”. These companies included oil companies—Royal Dutch Shell and Eni (Italy); mining giants—Barrick Gold, Bhp Billiton, Vale, Glencore (but not Rio Tinto); and utilities—Enel. (Italy). Financial firms, responsible for assets of more than USD $24 trillion, included HSBC, Bank of America, Citigroup, ING Group, BNP Paribas, AXA, Aviva, and Aegon (but, interestingly, not BlackRock, Banco Bradesco, JP Morgan, or Mercer, all of whom are proponents of responsible investing).
  • On September 19, 2017, ten large companies pledged to implement the TCFD Guidance within the next three years. Signatories included Aviva plc, Royal DSM, Enagás, Ferrovial, Iberdrola, Marks & Spencer, Philips Lighting, Sopra Steria Group, Wipro Ltd., and WPP.

Related: There is a continuing signatory effort to support U.S. implementation of the 2015 Paris Agreement. More than 1,000 companies to date have now signed a letter calling for the U.S. to “realize the Paris Agreement’s commitment of a global economy that limits global temperature rise to well below 2 degrees Celsius”. These companies represent more than USD $3.7 trillion in annual revenues and employ nearly 8.6 million workers, according to CERES. The largest oil and gas companies support continued U.S. participation in the Paris Agreement, including ExxonMobil, BP, Chevron, ConocoPhillips, and Shell. ExxonMobil hailed the Paris agreement as an “effective framework for addressing the risks of climate change”.

Credit Rating Agencies

In response to the TCFD Guidance, on August 15, 2017, S&P Trucost launched a scenario analysis tool “to help companies get ahead of carbon regulation” and perform scenario analysis in line with the TCFD Guidance. The tool looks at three set scenarios, assessing risk exposure to 2030, including asset-level analysis and risk relating to supply chains. S&P commented regarding the TCFD Guidance impact upon credit ratings:

“The TCFD disclosures, if widely adopted, should enable a better and more granular understanding and credit rating analysis of an entity’s resilience to climate-related risks and uptake of climate-related opportunities. However, insufficient adoption of the voluntary recommendations or inconsistencies in disclosure could limit our credit rating analysts’ ability to perform peer analysis, which can be an important element of our credit rating analysis”.

Institutional Investors

According to the Global Sustainable Investment Alliance, USD $20 trillion of professionally managed assets globally now incorporate ESG approaches, out of USD $75 trillion of total global institutional investor assets under management.

The Asset Owners Disclosure Project (AODP), in its fifth AODP global climate 500 index report (2017), found that 60% of asset owners, including pension funds, sovereign wealth funds, insurance companies, foundations and endowments, and about 50% of asset managers, are now taking action to manage the risks and opportunities posed by climate change.

Not surprisingly, numerous investor coalitions have expressed strong support for the Guidance:

  • In February 2017, the Institutional Investors Group on Climate Change (IIGCC) submitted a comment response in the draft TCFD Guidance public consultation. It welcomed the Guidance as “a vital step forward in global efforts to drive harmonization of climate-related disclosure”. However, it also suggested certain improvements, urging the TCFD to strengthen its recommendations relating to the standardization and comparability of data, including standardizing a two-degree scenario with commonly determined (and disclosed) assumptions and procedures. It also called for additional disclosures regarding board-level expertise on climate risk, and whether board and management remuneration reflected climate-related performance.
  • In February 2017, the UN-supported Principles for Responsible Investment (“PRI”), representing 1,650 signatories globally with USD $63 trillion in assets under management, submitted a comment response in the draft TCFD Guidance public consultation period. It urged the TCFD and the FSB to accelerate their efforts, with a stronger emphasis upon follow-up actions to drive implementation of the Guidance. It also stated it will conduct several activities to support strong company and investor implementation of the TCFD Guidance, including (1) adjusting and aligning the PRI Reporting Framework with the TCFD Guidance for asset owners and investment managers; (2) providing practical Guidance to PRI signatories to advance investment practices in applying the Guidance in company and portfolio-level analysis; (3) convening collaborative investor engagement with companies to promote the Guidance; and (4) convening investor input and collaboration with policymakers on implementation across the G20.
  • Great Britain’s Environment Agency Protection Fund plans to link its annual report to the TCFD framework, according to a statement on June 29,2017 by Faith Ward, the Fund’s chief responsible investment officer, further stating: “We are aiming to be one of the first asset owners to do this to show our support for the TCFD and its pick up by other asset owners”. The EAPF is a founding member of the Transition Pathway Initiative (TPI), which aims to help asset owners assess companies’ management of their greenhouse gas emissions and of risks and opportunities related to the low-carbon transition. More than USD $3.9 trillion of assets are now being invested using the TPI’s guidelines.
  • On July 3, 2017, five investor coalitions—UNPRI, IGCC, AIGCC, CDP, and CERES, representing 389 investor signatories with more than USD $22 trillion in assets under management, submitted a letter to G20 Finance Ministers, urging them to maintain momentum on climate change action, including continuing to support and implement the Paris Agreement, driving investment into the low carbon transition, and implementing climate-related financial reporting frameworks, including supporting the TCFD Guidance.
  • On July 20, 2017, Aviva Investors, which oversees USD $437 billion of assets under management, stated that it will vote against the annual reports and accounts of companies that fail to embrace the TCFD Guidance, and warned that more than 1,000 companies globally face shareholder backlash at their annual meetings in 2018 if they fail to publicly disclose the risks posed to their business models by climate change. It is noted that a previous study by Aviva Investors and the Economist Intelligence Unit estimated that the expected value of a future with 6°C of warming represents potential present value losses of USD $43 trillion, or 30% of the entire stock of manageable assets, when the current market capitalisation of all the world’s equity markets is roughly USD $70 trillion.

Related: In an ongoing initiative coordinated by ShareAction and Boston Common Asset Management, 105 asset owners and managers representing about USD $2 trillion in assets under management (as of September 15, 2017), are signatories to a Banking on a Low-Carbon Future investor letter addressed to the CEOs of 62 of the world’s largest banks, urging them to adopt the TCFD Guidance. Specifically, they are calling for more robust and relevant climate-related disclosure in four key areas: climate-relevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration with other actors on climate change.

Voluntary Sustainability Reporting Frameworks

Somewhat predictably, voluntary sustainability reporting frameworks have been deferential, enthusiastic, and cooperative in responding to the Guidance.

International Integrated Reporting Council (IIRC)

The IIRC welcomed the TCFD Guidance. IIRC CEO Richard Howitt stated: “The IIRC shares the task force’s vision that this isn’t just about businesses changing, but about reshaping the whole capital market system … we are proud that major financial and non-financial reporting frameworks have jointly committed to integrating the task force recommendations in our work to achieve a more aligned and coherent reporting system overall”. IIRC Press Release, “Integration and Alignment Key to Implementing FSB Task Force on Climate-Related Financial Disclosures Recommendations”, June 29, 2017.

Climate Disclosure Standards Board (CDSB)

The CDSB praised the TCFD Guidance. CDSB chairman Richard Samans said in a statement:

“We believe there is a clear value to businesses implementing the TCFD recommendations … Companies can become more resilient to the systemic risks that climate change creates and improve their relationships with investors and other stakeholders by collecting, assessing and reporting information about climate-related financial risks and opportunities”.

CDSB Press Release, “Rapid, High-Quality Implementation of TCFD Recommendations Needed to Build a Sustainable Financial System”, June 27, 2017.

UN Environment Finance Initiative (UNEP-FI) Banking Programme

On March 24, 2017, the UNEP-FI Banking Programme launched a Project on Piloting the Implementation of the TCFD Recommendations for banks. It seeks to establish a group of first-mover banks to collaborate on developing scenarios, models, methods, metrics, and targets for TCFD Guidance implementation, which could gain traction in the banking industry more broadly. It is now working with 11 leading banks representing more than USD 7 trillion in capital. Erik Solheim, Head of UN Environment, stated: “Transparency on how financial institutions mitigate the risks and seize the opportunities of a two degrees pathway is crucial to move international markets towards actively supporting a low carbon and climate resilient future”. UNEP FI Press Release, “14 UNEP-FI Member Banks Representing Over $ 7 Trillion are First in Industry to Jointly Pilot the TCFD Recommendations”, July 11, 2017, updated September 26, 2017.

Concluding Remarks

Given the scale and significance of climate-related risk forecasts and trajectories, climate risk disclosure is likely to remain under scrutiny and vigilance by the G20 and the FSB for several decades. Further, this risk disclosure has a compelling rationale as a permanent cornerstone and building block in the low-carbon economy transition. Thankfully, due to the involvement of macroprudential oversight authorities and other related developments, climate-related financial reporting, in many if not most countries, will now be subject to the data and process quality controls and governance discipline required of all financial reporting under securities laws.

Climate-related financial disclosure, including the TCFD Guidance, now merits serious consideration by all financial regulators, including corporate, securities, accounting/audit, banking, insurance, and pension fund regulators, across policymaking, rulemaking, and enforcement functions.

Global macro-prudential supervision and mandatory financial disclosure status will mitigate to a large extent the current problematic state of climate-related reporting, i.e., the incompleteness, inconsistency, incomparability, and unreliability. It also will pave the way for international regulatory alignment in this area, assuming the active participation of key financial policymakers and regulators. A subsequent article will discuss potential pathways for developing this internationally coordinated structural governance and disclosure standardization.

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