How does the Task Force on Climate-Related Financial Disclosures impact the SDGs?

The Task Force on Climate-Related Financial Disclosures, or TCFD, is all about climate change. Or is it? Carolina Karlstrom, independent action researcher and sustainability expert, takes a closer look at the financial disclosure initiative and identifies how its impact on the Sustainable Development Goals (SDGs) is wider than you might think.

How does the Task Force on Climate-Related Financial Disclosures impact the SDGs?

Increasingly, I hear businesses talk about the TCFD or the Task Force. But what is it, and how does it apply to your business, especially in relation to the SDGs?

What is the Task Force on Climate-Related Financial Disclosures?

The TCFD is a is a market-driven initiative, established to develop recommendations for voluntary and consistent climate-related financial risk disclosures. The resulting framework enables organisations to be transparent about their risks and opportunities related to climate change. TCFD is mainly aimed at publicly listed companies and financial institutions. However, other market stakeholders, such as industry regulators and government organisations, can also express their support for the recommendations and choose to follow them. Supporting the TCFD disclosure recommendations comes with strong benefits, including:

  • easier or better access to capital by increasing investor and lender confidence that the company’s climate-related risks are appropriately assessed and managed;
  • increased awareness and understanding of climate-related risks and opportunities within the company, resulting in better risk management and more informed strategic planning; and
  • a public demonstration of leadership.

TCFD or the SDGs? Why great companies align with both

As a business, it can be challenging to keep up with all guidelines, recommendations and standards that are available. But here’s why it’s important to understand how these frameworks interact: if you implement the TCFD recommendations, you will have a positive effect on your organisation’s impact on the SDGs.

And, if you’re already pursuing the SDGs, you can easily include the TFCD recommendations as part of this work. Recognising where the two initiatives work in synergy while aiming for the same outcomes – creating agency for achieving a more sustainable and responsible future and thereby tackling some of the greatest challenges of our times – makes your job easier. But why do this at all?

  • Competitive advantage: Both initiatives are voluntary for businesses, which means there is a leadership benefit in adopting the TCFD and the SDGs.
  • Reputational gain: Investors and other stakeholders are asking for both frameworks; showing leadership in this respect responds to your key stakeholders and offers opportunities to engage with them to further your key business aims.

How are the TCFD and SDGs linked?

As its name implies, the TCFD disclosure recommendations are particularly relevant to SDG 13 on Climate Action – although the example below will show that an impact on SDG 13 naturally leads to an impact on other SDGs too.

The TCFD recommendations relate to four key areas: governance, strategy, risk management, and metrics and targets. The TCFD offers specific disclosures that organisations should follow in their financial, sustainability and other reporting to provide decision-useful information to stakeholders about climate-related risks and opportunities over the short, medium and long-term. Risks come in many shapes and forms and can be related to either the transition to a low-carbon economy or to physical impacts of climate change which require adaptation.

While risk can have a negative implication (with TCFD disclosure also demonstrating a negative impact on the SDGs), it also offers a flip side – of opportunity. Being aware of a risk and thereby being able to act and mitigate it, could lead to a positive impact in achieving the SDGs.

You can see this in the following example:

Risk / Opportunity

Potential Financial Impact

Relevant SDG

Increased carbon price

Increased operating costs

SDG 8 Decent work and economic growth

Substitution of existing products and services with lower emissions options

 

Changing customer behaviour

Reduced or increased demand for products and services

SDG 12 Responsible consumption and production

Increased resource efficiency

Increased value of fixed assets (e.g., highly rated energy efficient buildings)

SDG 11 Sustainable Cities & Communities

Development of new products or services through R&D and

Innovation

Increased revenue through demand for lower emissions

products and services

SDG 9 Industry, Innovation and Infrastructure

Participation in renewable energy programs and adoption of energy efficiency measures

Increased reliability of supply chain and ability to operate

under various conditions

SDG 7 Affordable Clean Energy

Embedding the recommendations from the TCFD into an organisation’s work to achieve the SDGs offers opportunities to carefully examine the risks and opportunities for the organisation, identify the relevant SDGs, and include the results in company’s regular reporting.

It is not one or the other…

Perhaps most importantly, both the TCFD and the SDGs enable an organisation to collaborate across company borders and across sectors, being transparent in the risks and opportunities it is facing and working with others to manage these risks. This is hugely important, as collaboration is the only way to solve the climate or any other crisis. In whatever we do, we should always be working towards achieving SDG 17, partnership for the goals, where people and the planet are put in the centre of our everyday decisions.

Carolina Karlstrom

Topics: CSR & ethics
Tags: | investors | low carbon | Sustainable Development Goals | tcfd
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