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Reporting climate change risk: Preparing for compulsory disclosure

How your company can report climate change risk in line with the Task Force on Climate-related Financial Disclosures (TCFD) 11 recommendations, now mandatory in many countries.
pieces of ice melting in sea close up

The push for an international agreement on reporting climate change risk according to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations is gaining momentum, with the United Nations, International Financial Reporting Standards Foundation, and G20 calling for adoption of the framework.

TCFD compliance is a significant undertaking for many companies, but the process presents the opportunity to improve climate change risk pricing and risk management generally, gain wider access to capital, and better meet investors’ demands.

Organizations that do not take action regarding the TCFD recommendations risk having their exposure to climate change estimated by another party, likely to their detriment, while those adopting a proactive approach will undoubtedly reap benefits.

What is the TCFD?

There are numerous standards and frameworks for sustainability reporting, but the Financial Stability Board — which promotes financial stability worldwide — has chosen the TCFD as its vehicle for developing a globally accepted framework.

The TCFD was established in 2015 to promote more targeted and standardized climate-related reporting for use by companies, banks, and investors in providing information to stakeholders. The intention is that increased awareness of the financial implications of climate change will lead to more sustainable business models and solutions.

As Michael Bloomberg, who chairs the TCFD, said:

“The risk climate change poses to businesses and financial markets is real and already present. It is more important than ever that businesses lead in understanding and responding to these risks — and seizing the opportunities — to build a stronger, more resilient, and sustainable global economy.”

The TCFD advocates making 11 recommended disclosures around four core elements of climate-related risks:

  • Governance: Disclose an organization’s governance relating to climate-related opportunities and risks.
  • Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.
  • Risk management: Disclose how the organization identifies, assesses, and manages climate-related risks.
  • Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

One of the task force’s key disclosure centers on the resilience of an organization’s strategy, when different climate-related scenarios are taken into account. This includes a 2°C or lower scenario, where energy use and emissions are consistent with limiting the global average temperature increase to 2°C above the pre-industrial average.

Which countries have backed the TCFD?

Countries and regulators globally support the idea of making the TCFD recommendations compulsory. So far, 12 countries have endorsed the TCFD framework and eight are in the process of making it mandatory (see figure A). Additionally, the International Financial Reporting Standards Foundation is establishing the International Sustainability Standards Board (ISSB) which will be aligned with the TCFD. This board could significantly widen implementation of the recommendations.

The global shift to compulsory climate reporting

The framework known as the Taskforce on Climate-related Financial Disclosure, or TCFD, is shifting from a voluntary approach to being the main regulatory response to climate risk.

European Union

Has not officially adopted the TCFD framework but is implementing the Sustainable Financial Disclosure Regulation, which has a broader reach than the climate-focused TCFD.

G-7: US, UK, Canada, France, Germany, Italy, Japan
In June 2021, the G-7 backed the idea of compulsory TCFD reporting.

North America

Canada: Tied pandemic bailout funding to TCFD-aligned disclosures. The Bank of Canada has said it is “working towards aligning its future disclosures” with the guidelines.

United States: In March 2021, the SEC asked for public input about climate change disclosures, including the TCFD. Treasury Secretary Janet Yellen has also indicated her backing for sustainability reporting, singling out the TCFD.

Latin America

Brazil: The central bank plans to require banks to disclose in line with the TCFD.

Mexico: Banco de México recommends development of a regulatory/supervisory strategy following TCFD recommendations.

Asia Pacific

Japan: Revised its corporate governance code in June 2021 noting that listed companies must disclose climate-related financial risks to their business in line with the TCFD recommendations.

New Zealand: In September 2020, became the first country to announce the implementation of mandatory TCFD reporting. Financial entities are likely to be required to make disclosures in 2023, at the earliest.

Singapore: The stock exchange regulator — Singapore Exchange Regulation — will require mandatory, TCFD-aligned disclosure starting in 2022 for issuers. In 2023, it will become mandatory for companies in key industries like finance and transportation, and in most industries in 2024.

Hong Kong: The Securities and Future Commission announced in December 2020 that by 2025, financial institutions and listed companies must disclose the financial impacts of climate change to their businesses in line with the TCFD framework.

Europe, The Middle East, and Asia

South Africa: The national treasury has recommended standards on environmental and social risks incorporating TCFD recommendations.

Switzerland: Has said it will enshrine TCFD reporting into law making it “binding”.

United Kingdom: Has said it will make TCFD-aligned disclosures mandatory across the economy by 2025, with many of the requirements in place by 2023.

As of August 18, 2021. Map includes select countries that are moving to make climate reporting under the TCFD framework mandatory rather than voluntary. 

Sources: Allen & Overy; S&P Global Sustainable1; TCFD.

Impact for companies and organizations

Organizations across all sectors will ultimately be affected. However, the largest organizations and those with the most material climate risk are being targeted first. A company is likely to be impacted via two main channels:

Mandatory disclosures

The TCFD recommendations may become mandatory for certain companies. The TCFD has so far highlighted the following sectors as key: agriculture, food and forest products; energy; materials and buildings; transportation; and financial. Countries are adopting rollout strategies targeting these sectors first.

Voluntary disclosures

Action on the TCFD recommendations may follow after a company has voluntarily backed the initiative. Nearly 60% of the world’s 100 largest public companies support the TCFD, among more than 2,700 supporters worldwide.

Companies have declared support for a number of reasons, including pressure from investors, lenders, underwriters, and supply chain partners and also to increase their understanding of climate risks and opportunities within their business.

Benefits of climate-related risk reporting

Physical, transition, and liability risks are increasing as a result of climate change.

The Financial Stability Board (FSB) reported that global economic losses resulting from weather-related catastrophes rose from US$214 billion in the 1980s (in 2019 prices) to $1.62 trillion in the 2010s, approximately trebling as a share of global GDP.

Public and private financial markets are already taking climate risks into account and pricing them accordingly, and alignment with the TCFD recommendations will enable them to do this further. Benefits to be gained from the process, especially if an organization goes beyond simply compliance, include:

  • Improvement of enterprise risk management (ERM) following integration of climate risks.
  • More informed strategy planning and scenario analysis.
  • Increased access to capital and better terms.
  • Progress on operational resilience.
  • Improved ability to meet existing disclosure requirements by reporting material information in financial filings.
  • Competence to address investors’ demands for climate-related information, and in the format they request.

Key actions

It is crucial for a company to understand its “go live” date, if there is one, and start preparing for that deadline early.

Ideally, a company would be reporting according to TCFD recommendations for several years before the disclosures become compulsory.

Engage stakeholders, such as lenders, banks, and insurers.

Ask what information they would like to see.

Analyze physical and transitional risks. Building a picture of a company’s climate-related risks is perhaps the most difficult component of the TCFD recommendations.

It is advisable to tackle the harder aspects of this exercise early on. Marsh’s expertise in helping clients navigate catastrophic events makes us the de-facto leader in physical climate risk quantification.

Understand the four themes of the TCFD.

Also its 11 recommended disclosures, as outlined below.

How to fulfil the TCFD’s 11 recommended disclosures


Establish a risk management framework, as well as corporate risk and sustainability risk policies and procedures. Benchmark corporate practices against environmental, social, and governance (ESG)- related guidance.


Map both physical risks resulting from climate change and the risks associated from transitioning to a reduced carbon economy. Benchmark likely outcomes with those of competitors.

Risk management

Quantify the financial impact of climate-related risks by sector and by geography, and analyze supply chain risk. Create resiliency through emergency response planning for physical risks and consider risk transfer options.

Metrics and targets

Establish relevant metrics for risk evaluation. These metrics could include revenues, expenditures, impact of climate change risk on assets, and capital financing. Undertake carbon footprint modeling. 

Marsh’s key services include physical and transition risk modeling, embedding of climate risk in enterprise risk management (ERM) frameworks and assistance in articulating climate risk analysis, ambition and resilience strategies for reporting requirements, including TCFD.

If you have questions on the TCFD recommendations, please contact your Marsh advisor.


Reporting climate change risk

Preparing for compulsory disclosure