TCFD Reporting is a Huge Opportunity for Asset Managers

As
of
2023,
the
TCFD’s
recommendations
have
been
publicly
supported
by
almost
5,000
organisations
across
more
than
100
jurisdictions,
leading
to
an
increase
in
TCFD
reporting
within
firms.
These
supporters
represent
a
combined
market
capitalisation
of
$29.5
trillion
(£23.5
trillion),
with
over

1,800
financial
institutions
responsible
for
assets
of
$222.2
trillion.

The
International
Financial
Reporting
Standards
(IFRS)
has
now
taken
over
the
responsibility
of
monitoring
how
companies
are
approaching
climate-related
disclosures,
which
was
agreed
prior
to
the
TCFD
disbanding
after
the
publication
of
their
final
report
in
October
2023.  

What
Are
the
TCFD
Reporting
Requirements?

The
TCFD
recommendations
outline
four
thematic
areas
considered
key
components
of
how
organisations
operate.
These
are:
governance,
strategy,
risk
management,
and
metrics
and
targets.
Within
each
of
the
four
categories,
the
TCFD
has
provided
supporting
recommended
disclosures.

Governance
refers
to
how
organisations
oversee
climate-related
risks and
opportunities.
As
part
of
the
TCFD
reporting
process,
firms
should:

1.
Describe
their
boards
oversight
of
activities
around
climate
risks
and
opportunities;
2.
Describe
how
management
assess
and
manage
climate-related
activities. 

Strategy
refers
to
the
impact
both
real
and
potential
climate-related
risks
and
opportunities
may
have
on
an
organisation’s
overall
business,
strategy,
and
financial
planning,
and
how
these
risks
and
opportunities
are
articulated
and
accounted
for.

To
fulfil
their
TCFD
reporting
requirements,
firms
should
be
prepared
to:

1.
Disclose
the
short-,
medium-,
and
long-term
risks
and
opportunities
they
have
identified;
2.
Describe
the
impact
of
climate
risks
and
opportunities;
3.
Outline
how
their
organisation
will
respond
to
climate-related
events
and
scenarios.

Risk
Management
outlines
how
organisations
identify,
assess,
and
manage
climate-related
risks.
As
part
of
the
climate
reporting
disclosure
process,
firms
should:

1.
Describe
their
process
for
identifying
and
assessing
climate
risks;
2.
Report
on
how
they
manage
climate-related
risks;
3.
Outline
how
climate-related
risks
are
factored
into
their
overall
risk
management.

Metrics
and
Targets
refer
to
how
climate-related
risks
and
opportunities
are
measured
and
tracked,
such
as
the
international
goal
of
below
2°C,
or
physical
risks
like
damages
due
to
losses,
to
name
just
a
few.

Firms
need
to
disclose:

1.
Which
metrics
are
used
in
their
climate
assessments
and
how
they
align
with
their
risk
management
process
and
organisational
strategy;
2.
Scope
1,
Scope
2,
and
Scope
3
–
greenhouse
gas
emissions
(if
appropriate),
along
with
the
associated
risks;
3.
The
climate-related
targets
set
by
the
company
and
how
they
measure
performance.

Why
TCFD
Reporting
is
Beneficial
for
Asset
Managers

The
financial
damage
caused
by
climate-related
disasters
is
increasing.

In
the
US
alone,
$92
billion
of
damage
was
caused
by
events
such
as
wildfires,
flooding,
and
severe
storms
in
2023.
For
EU
Member
States,

2022
costs
for
climate-related
incidents
exceeded
€52.3
billion.
As
the
climate
crisis
worsens,
and
extreme
weather
is
set
to
become
more
frequent,
these
costs
are
expected
to
increase
further.

Asset
managers
are
more
likely
to
be
impacted
by
climate
change
and
the
transition
to
a
low-carbon
economy,
but
they
are
also
uniquely
placed
to
mitigate
climate
risks.

By
adhering
to
the
TCFD
recommendations
and
focusing
on
TCFD-aligned
reporting,
asset
managers
will
strengthen
their
ability
to
communicate
climate-related
risks
and
opportunities
to
potential
investors.
Additionally,
asset
managers
will
benefit
from
ensuring
their
internal
risk
management
processes
are
aligned
across
their
organisation.

By
equipping
investors
with
high-quality
and
transparent
data
(which
will
continue
to
improve
and
expand
over
time
as
more
data
becomes
available),
investors
will
be
able
to
make
more
informed
decisions
about
how
their
capital
is
allocated,
combat
greenwashing,
and
be
empowered
to
align
their
portfolios
with
their
beliefs
and
play
their
part
in
addressing
the
climate
crisis.
By
drawing
on
TCFD
reports,
investors
will
be
much
better
placed
to
understand
the
potential
climate
risks
faced
by
companies
they
may
wish
to
invest
in.

Making
TCFD
Reporting
Impactful

Alongside
the
four
thematic
areas
that
make
up
the
framework
for
TCFD-aligned
reporting,
there
are
seven
principles
asset
managers
need
to
consider
to
ensure
meaningful
disclosure.

To
be
effective,
disclosures
must
be:

• Relevant;
• Specific
and
complete;
• Clear,
balanced,
and
understandable;
• Consistent;
• Comparable
across
companies
within
a
sector,
industry,
or
portfolio;
• Reliable,
verifiable,
and
objective;
• Provided
in
a
timely
manner.

Is
TCFD
Reporting
Mandatory?

This
depends
very
much
on
where
asset
managers
are
based.
However,
many
of
the
wealthiest
nations
publicly
support
the
TCFD
recommendations.
Many
of
the
world’s
largest
asset
owners
require
TCFD
reporting.

Around
the
world,
various
governments
have
made
TCFD
reporting
mandatory
in
certain
organisations
and
jurisdictions.
In
the
UK,
central
government
departments
must
follow
guidance
regarding
TCFD
compliance
statements,
while
the
Financial
Conduct
Authority
requires
asset
managers
to
make
TCFD
disclosures
at
both
a
portfolio
and
entity
level.

Outside
the
UK,
countries
that
have
TCFD
mandates
include
Canada,
Japan,
Brazil,
Switzerland,
and
the
European
Union.
In
the
United
States,
the
Securities
and
Exchange
Commission
has
proposed
that
all
registrants
make
climate-related
disclosures
in
line
with
the
TCFD
recommendations,
though
it
is
not
yet
mandatory.

How
Morningstar
is
Helping
Asset
Managers
Adapt

Given
the
complex
nature
of
the
climate
crisis,
alongside
the
various
requirements
and
recommendations
for
effective
reporting,
it’s
no
wonder
many
financial
participants
–
such
as
asset
managers
–
are
feeling
overwhelmed. 

In
response
to
this
rapidly
evolving
landscape,
Morningstar
has
compiled
an
extensive
suite
of
holistic
solutions
to
help
professionals
navigate
this
field.
To
learn
more,
download


The
Asset
Manager’s
Guide
to
Climate
Reporting,
a
free
resource
designed
to
help
you
explore
Morningstar’s
solutions.

SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk