Successful investing in any stock exchange relies on access to facts. For this reason, all publicly traded companies are required to publish regular financial disclosures, including financial figures, dates, procedures and innovations.
As climate change increasingly impacts our planet, it has affected the stability of global finance, and thus investor decisions. A new layer of climate-related information has become necessary for investors, so in 2015 the Financial Stability Board created a body called the Task Force on Climate-related Financial Disclosures (TCFD). Made up of 32 members from across G20 nations, the TCFD has developed a new framework of requirements and recommendations for financial disclosures related to climate risk.
The TCFD framework recommends eleven disclosures across four pillars: governance, strategy, risk management, and metrics & targets. For each of these pillars, companies are encouraged to document how climate risks are considered and managed in their activities. In the short term, these disclosures intend to give investors, lenders and insurers a better understanding of which companies will thrive and which will struggle as the impacts of climate change unfold. In the long term, they are intended to guide financial markets to price climate-related risks and opportunities correctly, incentivising financial markets to transition to a low-carbon economy.
As of 2021, the TCFD has been adopted by Brazil, the European Union, Hong Kong, Japan, New Zealand, Singapore, Switzerland and the United Kingdom. Numerous private sector organisations, representing a combined market capitalization of $25 trillion, also support the TCFD.