While Europe remains the leading region for climate-related financial disclosures, companies in the Asia Pacific placed second in divulging information.
All regions significantly increased their levels of disclosure over the past three years, says the Task Force on Climate-related Financial Disclosures (TCFD) in their annual report released Oct 13.
The Task Force reviewed publicly available reports for over 1,400 large companies using artificial intelligence technology. The average level across the 11 recommended disclosures for European companies was 60% for FY2021, growing 23 percentage points since FY2019.
Concurrently, 36% of Asia Pacific companies did the same — an increase of 11 percentage points over the same period. In third place, North American companies scored an average of 29% for disclosures, an increase of 12 percentage points.
While over half of the companies in the Asia Pacific region disclosed their climate-related metrics, only 36% disclosed their climate-related targets.
The two are part of 11 disclosures recommended by the TCFD, divided across four categories: governance, strategy, risk management and metrics and targets.
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In June 2017, the Financial Stability Board’s TCFD released its final recommendations, which provide a framework for companies, asset managers and other organisations to develop more effective climate-related financial disclosures.
Since the release of its 2017 report and at the request of its parent, the Financial Stability Board (FSB), the TCFD has issued five annual status reports describing companies’ alignment with the TCFD recommendations.
Amid continued momentum behind the Task Force’s recommendations, over 1,300 other companies and organisations have become supporters since its 2021 status report, bringing the total number of supporters to 3,960. Of these supporters, 3,723 are companies, and 237 are other organisations, such as industry associations and governments.
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These supporters come from around the world, but the Asia Pacific region has the highest percentage of supporters at 47%, driven mainly by supporters in Japan.
Companies supporting the TCFD represent a broad range of sectors with a combined market capitalisation of US$26 trillion ($36.4 trillion). This includes over 1,500 financial institutions responsible for assets of US$220 trillion.
Early adopter
Of the world’s 100 largest public companies, 92 support the TCFD, report in line with the TCFD recommendations, or both. Larger companies are more likely to disclose TCFD-aligned information than smaller ones, says the TCFD.
Some 49% of the companies reviewed with a market capitalisation greater than US$12.2 billion disclosed information aligned with the TCFD recommendations for FY2021.
In contrast, only 29% of companies with a market capitalisation in the bottom third (less than US$3.4 billion) did so.
This year’s report used Singapore Telecommunications (Singtel) Group as a case study for TCFD’s recommendations. The telecommunications company, present in Singapore, Australia and across Asia, was an early adopter of TCFD, officially endorsing it in 2017.
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Singtel Group’s top executives have 10% and 20% of their short- and long-term incentives, respectively, tied to environmental, social and governance (ESG) key performance indicators (KPIs). Within those KPIs, a fifth are climate-related, says Singtel.
Singtel has committed to the Science-Based Targets initiative (SBTi) 2030 target to reduce absolute Scope 1 and 2 greenhouse gas (GHG) emissions by 42% and Scope 3 by 30%, compared to a 2015 baseline. This is an example of climate-related metrics and targets recommended by the TCFD.
However, broader ESG issues, like the data hacks suffered by Singtel’s Australian units Optus and Dialog, are beyond the remit of the TCFD and its climate-related recommendations.
Climate change poses a range of strategic and operational risks, says Singtel. “These can include financial risks as a result of stranded assets in the transition to a low-carbon economy, disruption of business activities and damage to network infrastructure due to extreme weather events, as well as impact to people’s livelihoods.”
Singtel adds: “Board members and top management are used to thinking about issues in terms of the financial drivers of the business. TCFD helped us think through how we could formally map climate-related physical and transition risks to the income and balance sheet impacts on the business.”
National participation
The TCFD chair is Michael Bloomberg, founder of Bloomberg and Bloomberg Philanthropies. Among its three vice-chairs is Yeo Lian Sim, special advisor for diversity to the Singapore Exchange (SGX).
While the TCFD remains a voluntary, market-led initiative, many governments and regulators are taking steps to require or encourage disclosures based on the TCFD recommendations.
In December 2021, the SGX amended its rules requiring issuers to provide climate-related disclosures — based on TCFD — on a “comply or explain” basis for their financial year beginning on Jan 1.
For the financial year beginning on Jan 1, 2023, issuers in the financial and energy industries, along with those involved in agriculture, food and forest products, will be subject to mandatory climate-related reporting. Issuers from the materials, buildings and transportation industries will be subjected to this reporting in 2024.
Last November, the Hong Kong Exchanges and Clearing (HKEX) published guidance to support listed companies in implementing the TCFD recommendations and developing climate-related disclosures, stating: “In light of the direction towards mandatory TCFD-aligned climate-related disclosures by 2025, we encourage our listed issuers to commence reporting by the TCFD recommendations.”
That same month, Hong Kong’s Mandatory Provident Fund Schemes Authority issued a circular with principles for fund trustees on integrating ESG factors into their investment and risk management processes. One of the principles focuses on disclosing metrics and targets and references the TCFD recommendations.
Last December, the Hong Kong Monetary Authority issued a supervisory policy manual for banks, restricted licence banks, and deposit-taking companies on critical elements of managing climate-related risk. The manual indicates that authorised institutions should “take actions to prepare climate-related disclosures by TCFD recommendations as soon as practicable and make their first disclosures no later than mid-2023”.
Meanwhile, Malaysia’s Joint Committee on Climate Change published a guide to support the domestic implementation of climate-related disclosures aligned with TCFD recommendations in June.
The guide is aimed at financial institutions regulated by the Bank Negara Malaysia and the Securities Commission Malaysia. It includes commercial banks, investment banks, insurance and reinsurance companies and fund management companies.
Thailand could be the next Asean nation to mandate the TCFD’s recommendations. In February, the Bank of Thailand issued a consultation paper on the financial landscape that describes policies to support three objectives for the financial sector, including helping businesses and households transition to a digital economy and manage environmental risks.
Among the potential policies raised is to set disclosure standards for financial institutions consistent with international frameworks, like the TCFD.
