Climate-Related Disclosures and TCFD Recommendations

Cynthia Williams is the Osler Chair in Business Law at the Osgoode Hall Law School at York University; and Ellie Mulholland is Director of the Commonwealth Climate and Law Initiative (CCLI). This post is based on a CCLI memorandum. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).

Companies, investors and regulators are increasingly recognising that climate change is not just a social or environmental problem. It is a business problem too. The physical impacts of climate change and the economic impacts of the transition to a zero-carbon economy present foreseeable, and often material, financial risks to the performance and prospects of companies. These non-diversifiable risks affect nearly all industries and sectors within mainstream investment horizons. [1] So much so, that in 2015 Bank of England Governor and head of the G20 Financial Stability Board Mark Carney declared that climate-related financial risk threatens the very stability of the global financial system. [2]

Against this trend towards understanding climate change as a mainstream business and investment consideration, last month Wachtell advised its corporate clients to ‘scrutinize their disclosures relating to the effect (if any) that climate change may have on their operations’. [3]

The advice was set out in a client memorandum critical of the burgeoning trend of climate litigation against oil and gas companies. Municipal authorities in New York, California, Baltimore and elsewhere have instigated proceedings against energy companies seeking compensation for the costs cities will incur due to rising sea levels and other impacts of climate change on the basis of ‘public nuisance’ principles under tort law. [4] Federal district courts in June dismissed the cases brought by San Francisco and Oakland, and, in July (after the memorandum was published) dismissed the case brought by New York. However, other cases have been brought in state courts, so the rulings of Judge William Alsup for the Northern District of California and Judge John Keenan for the Southern District of New York will not necessarily apply. Wachtell warns its clients that the threat of litigation is real and the legal theory in these cases is not limited to oil and gas companies. Accordingly, one of the steps Wachtell suggests companies can take to reduce their chances of becoming a target is to carefully scrutinize their climate disclosures. As the authors note, ‘State Attorneys General have used allegedly inadequate disclosures as a basis to begin climate-change investigations of multiple companies, including in the oil industry’. [5]

While the advice to scrutinize climate disclosure is pragmatic, in the context of a memorandum that was highly sceptical about this litigation, Bloomberg Law reported that it ‘could have a significant impact on disclosures going forward, curbing some of the gains made over the last decade by investors and sustainability advocates to get more reporting out of companies’.

So what could, or should, that scrutiny of disclosure relating to the impacts of climate change on a company’s business involve?

We argue that to avoid the risk of inadequate disclosures which capture the attention of regulators and potential litigants, companies should be disclosing in accordance with the recommendations of the G20 Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

Developed by a global panel of experts drawn from large banks, insurers, asset managers, pension funds, large non-financial companies, accounting firms and credit rating agencies, the TCFD recommendations are based on substantial consultation with stakeholders in the business and investor community.

Bank of America, JP Morgan Chase, Rio Tinto and Schneider Electric are among the many large US and multinational companies that have expressed their support for the TCFD recommendations. [6] But the real drive has come from the investor community. Many major investors are demanding robust climate risk disclosure and view the TCFD recommendations as the strongest framework for this. When the final recommendations were released, nearly 400 global investors representing more than US$22 trillion in assets called on the G20 heads of state to implement the TCFD recommendations. [7] And investors are closely monitoring companies’ adoption of the recommendations. In March 2018, BlackRock published its 2018 Engagement Priorities, in which it encourages companies to use the TCFD recommendations and warns that if boards are not dealing with material climate risks appropriately, BlackRock will vote against the re-election of directors most responsible for board process and risk oversight. [8]

The TCFD recommendations provide guidance on the forms of financial analysis and disclosure that are likely to be necessary for companies to make a fair presentation of material financial risks relating to climate change. The framework can be adopted by all organisations across all jurisdictions for disclosure of climate-related risks and opportunities within mainstream financial filings, covering information across four themes: climate governance, strategy, risk management, and metrics and targets for reducing greenhouse gas emissions.

Importantly for directors, these are categories of disclosure well within the ambit of board oversight. They ask for information about what a specific company’s board is doing today to evaluate the risks and opportunities caused by changes in the physical environment, changes in the regulatory environment, and the necessary transition to a lower-carbon economy. Parts of these disclosures should often already be part of mainstream financial filings, that is, in the mandatory Form 10-K for companies based in the US and in the Form 20-F for foreign companies that have securities that are registered and traded in the US. Accordingly, the TCFD climate disclosures should go through the same assurance process as disclosures relating to other material financial risks.

Recognising that climate change presents prospective issues that are ‘without historical precedent’, [9] there is a particular focus in the TCFD on scenario analysis and the impact of climate change on corporate strategy. Yet investors have faced resistance from some investee companies to the request for disclosure of forward-looking climate-related risks. Company directors commonly cite legal barriers to TCFD-compliance, including liability exposure arising from future uncertainty and lack of assurance of the information being disclosed using the TCFD framework. In the briefing paper published by the Commonwealth Climate and Law Initiative (CCLI), Concerns misplaced: Will compliance with the TCFD recommendations really expose companies and directors to liability risk?, the authors explain that this concern misunderstands the nature of the TCFD recommendations and potentially misrepresents the application of securities disclosure laws in many jurisdictions. Rather, companies and their directors are likely to face greater liability exposure in many jurisdictions if they fail to assess and, where material, meaningfully disclose the financial risks associated with climate change and their impact on company performance and prospects. [10]

Further, not all the information suggested to be disclosed according to the TCFD recommendations is forward-looking. Disclosures of an organization’s governance and risk management around climate-related risks and opportunities involves information on the corporate governance practices that are in place now and does not require speculation about the future. As the TCFD recommendations make clear, there will be a learning curve for many companies making these disclosures. As organisations begin to disclose in financial filings, climate-related issues will become mainstream business issues and investment considerations, and users and preparers of financial reports will develop greater understanding of information such as scenario analysis and stress testing. [11] This will feed back into more sophisticated climate risk disclosures which are clear, comparable and consistent across organisations.

What is more, disclosure evidences the substance of corporate governance practice. In many jurisdictions, directors face potential liability for breach of their duties to act in the best interests of the company and with care, skill and diligence where they fail to assess, actively manage, and, where material, disclose financial risks relating to the impacts of climate change. [12] Disclosures provide a basis for investors and regulators to assess whether directors are discharging their duties. Boards can use TCFD-compliant disclosures to demonstrate their understanding of the risks and opportunities climate change presents to their business, and how they manage these risks and take advantage of these opportunities for the long term viability of the company.

As the CCLI briefing paper shows, the existing legal framework permits disclosures that are compliant with the TCFD recommendations. Directors duties respond to evolving business norms and market dynamics. As the early adopters move from disclosure of governance and strategy, to disclosure of stress testing and scenario analysis, this is likely to inform courts’ views on how a reasonable director would act and redefine the boundary between acceptable and unacceptable conduct.

Yet disclosure in line with the TCFD recommendations is not just a compliance strategy for companies and directors. In light of increasing market demand for robust climate risk disclosure, there are also significant commercial benefits associated with making such disclosures. [13] A recent Wachtell client memorandum on the board’s role on ESG and sustainability (discussed on the Forum here) notes:

When constructively avoiding premature, immaterial or duplicative disclosures, or those that involve unwarranted time, effort or cost, it is prudent to also recognize that a complete lack of transparency is unlikely to be a sustainable approach over the long term. In the current environment, disclosure of the right kind may be viewed as an opportunity instead of just as a cost.

Disclosure in accordance with the TCFD recommendations is just that: disclosure of the right kind. It is the kind of disclosure that will minimise the chances of litigation against the company and its directors and it is the kind of disclosure that investors are increasingly demanding. The direction of travel on this issue is clear: companies and directors who begin their climate risk reporting journey now will be rewarded and the laggards will be left facing the spectre of liability.


The Commonwealth Climate and Law Initiative (CCLI) is a research, education, and outreach project focused on four Commonwealth countries: Australia, Canada, South Africa, and the United Kingdom. The CCLI examines the legal basis for directors and trustees to be required to take account of physical climate change risk and societal responses to climate change, under prevailing statutory and common laws. In addition to the legal theory, we also undertake a practical assessment of the materiality of these considerations, in terms of the scale, timing, and probability of liability and the potential implications for company and investor decision-making. Analyses of the obligations of directors and investment trustees in Australia, Canada, South Africa, and the United Kingdom are available here. Work is currently on-going to extend the analyses to the United States which, although not a member of the Commonwealth, has fiduciary law based on common principles.


1Task Force on Climate-Related Financial Disclosures, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) at 5-8.(go back)

2Mark Carney, ‘Breaking the tragedy of the horizon—climate change and financial stability’, Speech given at Lloyd’s of London (Sep. 29, 2015) back)

3John F. Savarese and Jeffrey M. Wintner, Wachtell, Lipton, Rosen & Katz, Climate Change Litigation Threatens to Spread Beyond Oil and Gas (July 10, 2018) at 2.(go back)

4See, e.g., City of New York v. BP p.l.c, No. 1:18-cv-00182 (S.D.N.Y) (filed in 2018, the defendants’ motion to dismiss was granted on July 19, 2018, but has been appealed by the City of New York); City of Oakland v BP p.l.c., No. 3:17-cv-06011 (N.D. Cal, July, 27, 2018) (filed in 2017, the defendants’ motion to dismissed was granted 25 June 2018 and judgment given on 27 July 2018). For a full list of these cases, see Sabin Center for Climate Law, Climate Litigation Database—Common Law Claim back)

5See, e.g., the subpoena issued on April 11, 2015 by the New York Attorney General to Exxon Mobil in relation to the New York Martin Act: back)

6Task Force on Climate-Related Financial Disclosures, Supporting Companies back)

7AIGCC, CDP, Ceres, IGCC, IIGCC and PRI, Letter from Global Investors to Governments of the G20 nations (July 3, 2017) back)

8BlackRock, Investment Stewardship Engagement Priorities for 2018 (March 2018) back)

9TCFD, supra note 1, at 10.(go back)

10Alexia Staker, Alice Garton and Sarah Barker, CCLI, Concerns misplaced: Will compliance with the TCFD recommendations really expose companies and directors to liability risk? (September 2017) back)

11TCFD, supra note 1, at 42.(go back)

12For research on directors’ liability and climate risk in four major common law jurisdictions, see: Janis Sarra and Cynthia Williams, CCLI, Directors’ Liability and Climate Risk: Canada—Country Paper (April 2018); Sarah Barker, CCLI, Directors’ Liability and Climate Risk: Australia—Country Paper (April 2018); Alexia Staker and Alice Garton, CCLI, Directors’ Liability and Climate Risk: United Kingdom—Country Paper (April 2018) <; Christine Reddell, CCLI, Directors’ Liability and Climate Risk: South Africa—Country Paper (April 2018) back)

13Staker, Garton and Barker, supra note 10, at 15-17.(go back)

Both comments and trackbacks are currently closed.