From Morningstar:

The Financial Stability Board (FSB) established the Taskforce on Climate-Related Financial Disclosures (TCFD) in 2015. The TCFD’s goal is to promote transparent climate reporting so that investors and lenders have the data they need to make more informed decisions about capital allocation.

As of 2023, the TCFD’s recommendations have been publicly supported by almost 5,000 organizations representing a combined market capitalization of $29.5 trillion, with over 1,800 financial institutions responsible for $222.2 trillion in assets. The International Financial Reporting Standards (IFRS) has taken over monitoring how companies approach climate-related disclosures.

The TCFD recommendations outline four thematic areas considered key components of how organizations operate. These are governance, strategy, risk management, and metrics and targets.

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.

Asset managers are uniquely placed to mitigate climate risks. By focusing on TCFD-aligned reporting, they will strengthen their ability to communicate climate-related risks and opportunities to potential investors and align their portfolios with their beliefs.

To be effective, TCFD-aligned disclosures must be relevant, specific and complete, clear, balanced, consistent, comparable, reliable, verifiable, and objective. Many of the world’s largest asset owners require TCFD reporting. Various governments have made TCFD reporting mandatory in certain organizations and jurisdictions.

Morningstar has compiled an extensive suite of solutions to help asset managers navigate the complex climate crisis and TCFD reporting. They have released a free resource, The Asset Manager’s Guide to Climate Reporting, to support professionals in this field.



Read more: TCFD Reporting is a Huge Opportunity for Asset Managers