TCFD: quality of climate reporting improves

On 5 June 2019, the Task Force on Climate-related Financial Disclosures (TCFD) published its second status report. It contains a detailed analysis of the progress in disclosing climate-related risks and risk management, and the use of this information by investors. The analysis is supplemented by numerous examples from a wide range of sectors.

The TCFD was set up in 2016, shortly after the Paris climate change conference (COP21), and published its recommendations in 2017. Two years later, we can conclude that the quality of climate reporting has improved considerably and that the number of reports has increased. However, there are still important steps that need to be taken. This is not a surprise, though. At the time of the publication of its recommendations in 2017, the TCFD itself anticipated an implementation period of around five years.

485 respondents completed an extensive survey among businesses and other organisations. 91 percent of these indicated that they have partially or fully implemented the recommendations of the TCFD. European companies lead the field here. DSM and Shell are elaborated as examples of 'decision-useful' reporting.

At the sector level, companies from the energy sector as well as the materials and buildings cluster have made most progress, particularly with respect to disclosing climate strategies. Scenario analysis still proves to be a bottleneck, as companies are apprehensive about publishing confidential strategic information.

Climate reporting is also playing an increasingly important role in financing and investment decisions by financial organisations. 76 percent say that they use TCFD reports. Reporting according to the TCFD framework is also one of the spearheads of Climate Action 100+, the engagement initiative in which we participate.

The main area of improvement mentioned by investors is the translation of climate-related risks and opportunities into financial impact on companies. There is often also a lack of insight into the resilience of companies under several scenarios.

For years, climate change has been a focus area of PGGM and our clients. It is also one of the four specific themes which form the focus of a special impact mandate, for which we have created an equity portfolio, administered by the Long-Term Equity Strategy team. The previously mentioned DSM has an important position in this portfolio.

Better reporting about climate-related risks and opportunities, and their management by companies, enables us to make better investment choices, manage risks better and contribute to the financing of climate solutions. That is why we have joined the TCFD and we are committed to its further implementation. We do that, among others, via the Investor Leadership Network, launched last year at the occasion of the G7 summit in Canada with the support of the Canadian government.

It is important to practice what we preach. We have therefore published our own TCFD report this year.