Unpacking the IFRS announcement about the TCFD

It is bittersweet to learn that the Task-force on Climate-related Financial Disclosures (TCFD), created by the Financial Stability Board in December 2015 in the wake of the Paris Agreement of COP 21, will be disbanded. This initiative was as timely as it was effective in accomplishing its mission of “delivering recommendations for consistent company disclosures that would help financial market participants understand their climate-related risks”. 

Its recommendations were first rapidly voluntarily adopted by countless organizations, and now they have been fully embedded in the IFRS Sustainability Disclosure Standard S2 on climate-related disclosures, as well as the European Sustainability Reporting Standards (ESRS) E1 on climate change and countless regulatory initiatives at various stages of adoption. Tip of the hat for a job well done!

 

This week the IFRS Foundation announced that it had been asked by the Financial Stability Board (FSB) to “take over the monitoring of the progress on companies’ climate-related disclosures from the Task Force on Climate-related Financial Disclosures (TCFD)”. This may have caused some confusion as to exactly what responsibilities were being transferred to the standard setting body. 

Thankfully, the Financial Stability Board’s 2023 progress report on its Roadmap for Addressing Financial Risks from Climate Change Progress provides a more detailed source of information. This report explains that the TCFD will continue to promote and monitor progress in companies’ adoption of its recommendations and will publish next fall the 2023 edition of its annual Status Report (see the 2022 edition for an example). 

It further states that “the publication of this year’s progress report by the TCFD will be its final task. The TCFD will be disbanded, and the FSB will ask the ISSB to deliver a report in 2024 on progress in firms’ disclosures, liaising with IOSCO as appropriate, including early take-up of the ISSB standard for climate-related disclosures and progress in achieving interoperability.” The key here is that the TCFD will be disbanded. Its work will end. (It will not be transferred.) 

This makes a lot of sense and demonstrates coherence, rationality, and efficiency on the part of the FSB. Why? Because the recommendations of the TCFD have been completely embedded in both the IFRS S2 climate-related disclosure standard and the European Sustainability Reporting Standards ESRS E1 on climate. They are substantially embedded in countless other regulatory initiatives, including the US SEC’s proposed climate disclosure rules, Canada’s OSFI B-15 for federally regulated financial institutions. The Task Force has indeed accomplished its mission.

 

The FSB’s 2023 progress report makes for a very interesting read for anyone looking for a comprehensive overview of what’s happening in the global financial sector on climate-related oversight and disclosures. In particular, the Block 1 Disclosures annex (p. 18-27) offers an insightful illustration of the interconnection between the International Organization of Securities Commissions (IOSCO) – a.k.a. the regulators – and the IFRS’s International Sustainability Standards Board (ISSB), the International Auditing and Assurance Standards Board (IAASB) and even the International Ethics Standards Board for Accountants (IESBA), all of which are developing standards on sustainability-related disclosures or the assurance thereof. 

The document also offers glimpses of how things are likely to unfold in the coming years in terms of regulators’ adoption of IFRS S1 across the globe. Apparently, we can expect all sorts of guidance, training support, and even capacity building programs for regulators. For corporate reporters, perhaps help is on the way.