The Taskforce on Climate-related Financial Disclosures (TCFD) was created in 2015 by the Financial Stability Board of the G20 group of nations. Designed primarily to provide information to investors on how private and public companies are managing climate risk, its framework is also being used by national and subnational governments (including municipalities) to provide transparency around their climate mitigation and adaptation management. The TCFD recommendations released in 2017 provide a standardized framework for entities to develop effective climate-related financial disclosures which can be incorporated into existing reporting, detailing governance, strategy, risk management, and metrics and targets related to climate risk.
Like most international frameworks, different countries are responding to TCFD in different ways. The UK has emerged as a leader in its implementation, mandating TCFD compliant disclosure for financial and non-financial sectors by 2025, replacing the current ‘comply or explain’ model. While many larger companies already report on how they are managing climate risk, TCFD provides consistency and reliability in disclosure, allowing for more meaningful comparisons among entities. All publicly traded companies, as well as privately held larger companies as well as all financial institutions, insurers and pension schemes will be required to report.
In the 2021 federal budget, the Government of Canada pledged to “engage with provinces and territories, with the objective of making climate disclosures, consistent with the TCFD, part of regular disclosure practices for a broad spectrum of the Canadian economy.” Canadian municipalities are not yet required to implement TCFD, but leading municipalities like Toronto, Vancouver and Edmonton have already done so. This helps build both internal and public support for climate action, demonstrate good governance and transparency, and actionize municipal climate emergency declarations.
Municipalities implementing TCFD recommendations must describe how their governance, strategy, risk management, and metrics/targets account for climate risk. For governance, this can include detail of how Council is overseeing climate risk and how management is assessing and managing this risk. The strategy recommendation area means describing short-, medium- and long-term climate risks the municipality has identified, how these risks affect municipal strategy and financial planning, and the relative resilience of the municipal strategy over a range of climate scenarios. Municipalities must also describe their risk management processes, detailing how climate related risk is identified, assessed, and managed, as well as detail regarding how climate risk is integrated in the broader suite of municipal risk management. Finally, municipalities must disclose the metrics used to assess and manage climate risk and how these metrics are performing against targets, and their GHG emissions (scope 1 and 2 at a minimum) and targets (or carbon budgets).
In their most recent Status Report released in October 2021, the Task Force notes that public- and private-sector support for the TCFD recommendations have accelerated rapidly over the previous 12 months. To date, 12 governments and dozens of financial regulators have expressed formal support for TCFD recommendations. Over 2,600 organizations have endorsed them, an increase of over 70% since last year. TCFD is fast becoming a reality for Canadian municipalities – we can demonstrate leadership and contemporary good governance now by using this framework, before it becomes a mandated practice for all.
By Kevin Behan, Deputy Director, Clean Air Partnership