More US companies are preparing to disclose their climate-related financial risks, but they face challenges to measure these risks and integrate them in their financial reporting. These were among the findings of a new report that explores the extent to which US companies have adopted the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The report (“The State of Climate Risk Disclosure: A Survey of US Companies”) includes results from a survey of members of the Society for Corporate Governance, the leading association dedicated to advancing corporate governance practices among US companies. The survey found:
- US companies are at varying stages in their implementation of the TCFD recommendations. One-third of respondents said their companies have begun the risk assessment process and are at least a year from making disclosures, a finding that underscores the complexity of the task.
- Companies are beginning to use advanced analytic tools to assess their climate risks and opportunities, with 44% of respondents saying they use scenario modeling or stress testing. A recent update from the TCFD noted that scenario modeling is a challenge for many companies and few have used it in their climate disclosures so far.
- Board engagement – a key recommendation of the TCFD report – is crucial for identifying and managing climate risks. The survey indicated that boards mainly review climate risks on an as-needed basis. About 24% review the issues on a quarterly or annual basis, while a fifth of respondents said their board never discusses climate issues.
- The impediments to TCFD implementation include a lack of measurement tools for assessing climate risks and opportunities and difficulty integrating climate risk with the financial reporting process.
The TCFD was created by the Financial Stability Board to address the need for better information on climate risks to support informed investment, lending and insurance underwriting decisions. Its groundbreaking 2017 report offered detailed guidance to companies on how to report decision-useful information on their climate-related risks and opportunities. Since the report was released, nearly 800 public and private-sector organizations have announced their support for the TCFD and its work, including global financial firms responsible for assets in excess of $118 trillion. In June 2019, the TCFD published an update in which it examined current disclosure practices and identified challenges associated with implementing its recommendations.
The report was written by Gargiulo + Partners, in partnership with the Society for Corporate Governance and Donnelly Financial Solutions (DFIN), a leading risk and compliance company.
Gargiulo + Partners and DFIN are leaders in the evolving field of climate risk disclosure, and this new paper follows their 2017 report, which set out practical steps for public companies beginning the TCFD implementation process.