Understanding the TCFD

Understanding the 11 Categories of a TCFD Report: A Guide for Businesses

Climate change is no longer a future problem—it's a present reality impacting companies across all industries. Investors, regulators, and stakeholders are increasingly expecting businesses to disclose how they're addressing climate-related risks and opportunities. That’s where the Task Force on Climate-related Financial Disclosures (TCFD) comes in. The TCFD framework provides a comprehensive approach to help companies assess and disclose the financial implications of climate risks and opportunities. But understanding and implementing these recommendations can be challenging.

In this blog, we’ll walk you through the four key pillars of a TCFD report and break down the 11 specific disclosures you need to address. We’ll also offer a sample framework to help you think through how to answer each question for your organization.

1. Governance

Disclosure 1a: Describe the board’s oversight of climate-related risks and opportunities.

Sample Framework:
Start by defining the role your board plays in evaluating climate risks. Is there a specific committee focused on sustainability? What frequency does the board discuss climate-related issues? A sample answer might look like this:

"Our board of directors receives quarterly updates on climate-related risks and opportunities from the sustainability committee. Climate risks are incorporated into our annual strategic planning session, where long-term environmental impacts are assessed alongside financial and operational risks."

Disclosure 1b: Describe management’s role in assessing and managing climate-related risks and opportunities.

Sample Framework:
Outline the specific roles within management that are responsible for climate-related issues. For example, do you have a Chief Sustainability Officer or an ESG task force? A sample answer might be:

"Our Chief Risk Officer, in collaboration with the Director of Sustainability, oversees climate-related risks. This team is responsible for ensuring compliance with regulatory requirements and integrating climate risk assessments into our operational risk management framework."

2. Strategy

Disclosure 2a: Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.

Sample Framework:
Identify and categorize risks by time horizon. Short-term might involve regulatory changes, medium-term could focus on market shifts, and long-term risks might include physical risks like floods or hurricanes. A possible answer:

"In the short term, we anticipate increasing carbon regulation affecting our energy costs. Over the medium term, we see market opportunities for low-carbon product innovation. Long-term, we are preparing for the physical impacts of more frequent extreme weather events, including supply chain disruptions due to floods and hurricanes."

Disclosure 2b: Describe the impact of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning.

Sample Framework:
Focus on the potential financial impacts—how will these risks and opportunities affect your revenues, costs, or capital expenditures? Here's an example:

"Climate-related risks have driven our decision to increase investment in energy efficiency across our facilities. We expect this to reduce operational costs by 10% over the next five years. Additionally, we are diversifying our supply chain to mitigate the risks of climate-related disruptions."

Disclosure 2c: Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

Sample Framework:
Discuss scenario analysis and how your business would fare under different climate outcomes. An example answer could be:

"We have conducted a scenario analysis that assumes global temperatures rise by 2°C. Under this scenario, we project a 15% increase in raw material costs due to water shortages but are planning to mitigate this through investment in resource-efficient technologies."

3. Risk Management

Disclosure 3a: Describe the organization’s processes for identifying and assessing climate-related risks.

Sample Framework:
Explain how you identify and evaluate risks—do you have a formal risk assessment process? Is it integrated into broader risk management? Here’s a sample answer:

"We conduct annual climate risk assessments that are integrated into our enterprise risk management framework. These assessments involve cross-functional teams and focus on both physical and transition risks."

Disclosure 3b: Describe the organization’s processes for managing climate-related risks.

Sample Framework:
Discuss how you actively manage these risks. This could include mitigating measures, such as investing in renewable energy or developing new policies. Here’s an example:

"To manage identified risks, we have implemented energy efficiency programs across our operations and have transitioned to 50% renewable energy sources. We also have flood protection measures in place for our coastal facilities."

Disclosure 3c: Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management.

Sample Framework:
Highlight how climate risks are part of your overall risk management approach. A potential response:

"Climate-related risks are incorporated into our broader risk management system, which includes regular reviews by senior leadership. These risks are treated on par with operational, financial, and regulatory risks, ensuring a comprehensive approach to risk management."

4. Metrics and Targets

Disclosure 4a: Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process.

Sample Framework:
Provide examples of key metrics—these could include emissions data, energy usage, or other sustainability metrics. A sample answer might be:

"We track metrics such as carbon emissions (Scopes 1, 2, and 3), energy consumption, and water usage across our operations. These metrics are reviewed quarterly by senior leadership and inform our sustainability strategy."

Disclosure 4b: Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.

Sample Framework:
Be specific about your emissions reporting and how you assess related risks. A sample answer could be:

"Our Scope 1 and Scope 2 emissions for the last fiscal year were 150,000 metric tons of CO2 equivalent. We have identified our supply chain as a key area for reducing Scope 3 emissions and are working with suppliers to minimize their carbon footprints."

Disclosure 4c: Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets.

Sample Framework:
Explain the targets you've set and how you're performing against them. A sample answer might look like this:

"We have set a target to reduce our carbon emissions by 30% by 2030. As of 2023, we have achieved a 10% reduction, primarily through energy efficiency improvements and increased use of renewable energy."

Conclusion

Navigating the complexities of the TCFD reporting framework can feel overwhelming, but it’s a vital step for businesses that want to demonstrate their commitment to managing climate risks. By following the TCFD recommendations, your company can not only meet stakeholder expectations but also build long-term resilience.

At Beehive, we make this process easy. Our platform is designed to help you seamlessly integrate climate data into your reporting and develop a comprehensive TCFD report that actually makes your company more resilient. Reach out to us at sales@beehiveclimate.com to learn how we can assist your organization in climate risk management and TCFD reporting.