Using TCFD recommendations will help avoid the risk of market fragmentation, the FSB says.
The FSB (Financial Stability Board) has issued a statement encouraging the IFRS Foundation, and national and regional authorities, to use the TCFD recommendations as the basis in their work to develop standards for climate-related financial risk disclosures.
“Globally consistent and comparable disclosures by companies of their climate-related financial risks are increasingly important to market participants and financial authorities as a means to give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change,” the FSB says.
The FSB created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to develop a set of voluntary disclosure recommendations for use by companies in providing decision-useful information to investors, lenders and insurance underwriters about the climate-related financial risks that companies face.
Since the publishing of the TCFD recommendations in 2017, nearly 1,700 organisations have expressed their support for the TCFD recommendations, including nearly 60 percent of the world’s 100 largest public companies.
The FSB notes that a growing number of official sector initiatives are developing requirements or guidance at the national or regional level, or considering the development of international standards, for climate risk reporting. “It is important that steps by the official sector and private sector are well aligned in promoting globally consistent disclosures and avoiding fragmentation,” it says.
While welcoming the approach recommended by the Trustees of the IFRS Foundation to initially focus on standards for climate-related financial disclosures, as set out in a September 2020 consultation paper, the FSB asks that this work use the TCFD recommendations for its basis.
Similarly, the FSB “strongly encourages” national and regional authorities to consider using the TCFD recommendations as the basis for their work in developing requirements or guidance for climate-related disclosures.
“Such consistency in approach would help to avoid the risk of market fragmentation, both across jurisdictions, and between requirements and guidance being developed today and international standards that may be introduced in the future,” it says.
To further promote global coordination, the FSB says it will explore with standard-setters and other international bodies ways to promote globally comparable, high-quality and auditable standards of disclosure based on the TCFD recommendations.