Task Force On Climate-related Financial Disclosures Research Articles

Gender diversity and climate disclosure: a tcfd perspective

AbstractThe paradigm of corporate environmental disclosures aimed at investors developed in 2017 with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Existing literature on social responsibility disclosures points to gender diversity on the board of directors as an influencing factor. This study aims to assess the influence of gender diversity in climate-related financial disclosures, as recommended by the TCFD based on a sample of 27 companies operating within the sectors of electricity, oil, coal and gas, water, and alternative energy that have announced their adherence to the recommendations from 2017 to 2021. By applying a linear regression model, the results indicate the presence of a positive association between the level of TCFD disclosures and board gender diversity, as well as other factors, such as company size, CEO duality, and general liquidity. However, the influence of board gender diversity on corporate reporting based on the TCFD recommendations suggests that the commitment of boards to the reporting of climate change risks and opportunities is not significantly dependent on gender diversity, as the presence of women in the Boards is favorable for the reporting but without a significant impact on the level of disclosures. This research offers insights into sustainability reporting practices, focusing on a relatively new perspective of reporting climate-related financial topics and their determinants. The findings hold implications for organizational leaders and stakeholders, mainly investors, as these recent sustainable reporting practices are challenging but also bring new opportunities related to transparency towards climate-related issues.

Sustainability reporting in corporations: A comparative review of practices in the USA and Europe

As global awareness of environmental, social, and governance (ESG) issues intensifies, corporations are increasingly recognizing the importance of sustainability reporting in demonstrating their commitment to responsible business practices. This Review provides a comparative review of sustainability reporting practices in corporations, focusing on the distinctions between the USA and Europe. The USA and Europe, as major economic regions, exhibit distinct approaches to sustainability reporting, reflecting diverse regulatory frameworks, cultural considerations, and stakeholder expectations. This review delves into the key elements characterizing sustainability reporting in both regions, highlighting the convergences and divergences that shape corporate disclosure practices. In the USA, sustainability reporting is predominantly driven by voluntary initiatives and market forces. Companies often engage in ESG reporting to meet the expectations of investors, consumers, and other stakeholders who increasingly prioritize sustainable business practices. The absence of a standardized regulatory framework has led to a heterogeneous landscape of reporting methodologies, with some corporations adhering to global standards like the Global Reporting Initiative (GRI) or adopting industry-specific frameworks. In contrast, Europe has witnessed a more structured and regulatory-driven approach to sustainability reporting. The European Union (EU) has been at the forefront of shaping sustainable finance policies, introducing frameworks such as the Non-Financial Reporting Directive (NFRD) that mandate certain companies to disclose non-financial information. European corporations, therefore, navigate a more standardized reporting landscape, aligning with established frameworks like the EU Taxonomy Regulation and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This comparative analysis explores the motivations behind sustainability reporting, the disclosure frameworks commonly employed, and the impact of regional regulatory contexts on corporate practices. By shedding light on the unique dynamics in the USA and Europe, this review contributes to a nuanced understanding of how corporations navigate the evolving landscape of sustainability reporting, ultimately fostering transparency, accountability, and responsible corporate citizenship.

Exploring Sustainable Finance: A Qualitative Inquiry into Responsible Investment and ESG Risk Evaluation

This research explores the landscape of sustainable finance, responsible investment, and ESG (Environmental, Social, and Governance) risk evaluation, aiming to understand their complexities and implications for financial markets and sustainability outcomes. Employing a qualitative research approach, the study conducts a comprehensive review and synthesis of existing literature, drawing insights from academic databases, journals, reports, and other relevant sources. The research design involves purposive sampling of literature based on relevance, rigor, credibility, and significance criteria. Data collection comprises systematic review and analysis of scholarly literature, while thematic analysis is employed for data interpretation. The findings underscore the growing recognition of ESG factors' importance in investment decision-making processes, driven by their materiality to financial performance and sustainability outcomes. Institutional investors play a pivotal role in mainstream adoption of responsible investment practices, driven by the acknowledgment of ESG factors' impact on investment risk and return profiles. However, methodological challenges related to ESG data quality, measurement, and comparability persist, hindering effective ESG integration and risk assessment. Regulatory initiatives like the United Nations Principles for Responsible Investment (PRI) and the Task Force on Climate-related Financial Disclosures (TCFD) have contributed to mainstreaming ESG considerations but face challenges of regulatory fragmentation and inconsistencies. Addressing these challenges requires collaborative efforts from stakeholders to develop standardized ESG reporting frameworks, enhance stakeholder engagement, and promote regulatory coherence. This study contributes to understanding sustainable finance dynamics and calls for interdisciplinary collaboration to bridge financial theory, sustainability science, and regulatory policy.

Disclosures of banks’ sustainability reports, climate change and central banks: An empirical analysis with unstructured data

Climate change will impact the economy in the long term but also in the medium run potentially affecting financial stability and the whole economic system (Nyambuu & Semmler, 2023). Some studies suggested that climate change may hit financial actors even if there are few studies related to the role of banks’ sustainability disclosure and central banks’ mandates. This paper examines the sustainability reports disclosures of the banks listed on the FTSE Italia All-Share Italian Stock Exchange for the year 2021–2020. It applies five kinds of multivariate techniques on unstructured data using Iramuteq (www.iramuteq.org) and SAS Viya (www.sas.com). The article tries to assess how and whether banks are disclosing transition and physical risk, and how and whether they conducted scenario analysis through the lens of the Task Force on Climate-related Financial Disclosures (TCFD) framework. Even though banks provided environmental, social, and governance (ESG) disclosure, they paid scant attention to furnishing climate change information to market and central banks, and to prioritize their complying with international frameworks. The article addresses the main research gap in the literature review and focuses on the role of disclosures and central banks’ mandates, sustainability data gap and solutions through machine learning, analysis of deep uncertainty for monetary policy, and the use of scenario analysis when it is impossible to apply deterministic or probabilistic approaches and text mining for central banks in the context of unstructured data.

The use of corporate external environmental reporting in the evaluation of the state environmental policy

The condition for carrying out an evaluation of the environmental policy is the availability of relevant information. One source of this information could be corporate external environmental reporting. The aim of the article is to determine to what extent the applicable UE legal regulations, Global Reporting Initiative (GRI) and Task Force on Climate-related Financial Disclosures (TCFD) guidelines for corporate environmental reporting enable the use of the disclosed information by enterprises in the assessment of the state environmental policy. The content analysis of legal acts and guidelines was used in the research. The applicable EU legal regulations, GRI and TCFD guidelines enable the use of corporate environmental reporting in evaluating environmental policy mainly in terms of environmental efficiency and, to a small extent, in terms of cost-effectiveness and implementation feasibility.

Climate-Related Disclosure for Canadian Energy Companies - Getting Ready for the Mandatory Regime: Voluntary Guidelines, Rule Proposals, Governance Implications, and Best Practices to Avoid Greenwashing Allegations

Canadian energy companies are increasingly releasing corporate statistics, metrics, and strategy on climate-related matters to the public. These disclosures, offered both independently and in response to investor and stakeholder demand, detail strategic management of risks and opportunities related to a company’s present and future environmental impact. The Task Force on Climate Related Financial Disclosures (TFCD) and the International Sustainability Standards Board (ISSB) have helped to standardize voluntary disclosure frameworks and standards, influencing recent proposals for mandatory disclosure rules issued by securities regulators in Canada and the United States. This article presents a comprehensive review of this fast-shifting landscape, outlining governance implications and best practices to help organizations navigate these complex regulatory developments. In this context, it also presents noted trends and international perspectives to help Canadian companies manage legal exposure to civil and regulatory “greenwashing” allegations stemming from voluntary and mandatory public disclosures.

Credible transition plans for coal power sector: current disclosure framework and considerations for transition finance

The zero-carbon transition of the coal power industry comes with substantial economic costs, both in terms of the cost of stranded assets and the innovation and application of carbon reduction, zero-carbon, and decarbonization technologies. Mobilizing social capital through transition finance is crucial to support companies in their efforts to reduce carbon emissions. The lack of high-quality data and consistent, comparable disclosure frameworks hinders proper due diligence and strategic planning, presenting a major obstacle to financing the transition. To identify the mismatches between existing disclosure frameworks for transition plans and the needs of transition finance, we conducted a systematic review of various transition disclosure frameworks, such as TCFD (Task Force on Climate-Related Financial Disclosures), CA100+ (Climate Action 100+) and TPT (Transition Plan Taskforce), and compared them with the information requirements of financial institutions for assessing coal phase-out plans of production entities. The results indicate that the ex-ante assessment of transition finance requires disclosure frameworks to be further expanded and aligned in areas such as technological distinctions and data quality to meet the demands of pricing, risk management, new product innovation, and disclosure of financial institutions’ carbon footprints in their asset portfolios. Moreover, the implementation of the current disclosure standards by coal power enterprises may encounter dual constraints from soft regulatory practices and the external business environment, resulting in the emergence of the “green silence” phenomenon. The inconsistency between disclosure frameworks may also give rise to regulatory arbitrage, leading to a distorted evaluation of the transition process of coal power enterprises by the capital market, resulting in potential price distortions and credit risks.

НАПРЯМИ КООРДИНАЦІЇ НОРМАТИВНОГО РЕГУЛЮВАННЯ ВІДПОВІДАЛЬНОГО (ESG) ІНВЕСТУВАННЯ У СВІТІ: ФРАГМЕНТАЦІЯ ЧИ УНІФІКАЦІЯ?

To date, processes of regulatory coordination of responsible or ESG (Environmental, Social, and Corporate Governance) investing are characterized by a combination of fragmentation and unification efforts. On the one hand, there is a noticeable degree of fragmentation of the regulatory landscape for responsible investing. At the level of different regions and countries, their own regulatory frameworks, standards and guidelines for disclosure of ESG information and sustainability reporting are being actively developed and improved. In particular, the European Union (EU), Great Britain, the USA and Canada, some countries of the Asia-Pacific region (Australia, China, Hong Kong, New Zealand, Singapore, etc.) have made special progress. For example, the EU has taken a significant step with the introduction of the so-called triad of regulatory instruments: the Sustainability Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR), aimed at standardizing ESG reporting and classifying investments in sustainable development in member countries. This fragmentation creates difficulties for investors and companies operating in different jurisdictions as they must navigate and comply with different requirements. On the other hand, efforts to unify and harmonize ESG disclosure and regulatory rules are increasing. Recognizing the global nature of ESG challenges, international organizations are working to establish common principles and standards. Initiatives such as the Global Reporting Initiative (GRI), the International Sustainability Standards Board (ISSB), the Task Force on Climate-related Financial Disclosures (TCFD) have gained prominence worldwide, promoting transparency and consistency ESG reporting. While the trend toward unification is promising, achieving full regulatory coordination of responsible investing remains challenging. Different political priorities, cultural and economic differences between countries prevent the creation of a universally recognized regulatory framework. However, the growing recognition of the importance of ESG and the collective efforts of stakeholders around the world indicate a gradual convergence towards more coherent ESG regulations.

ESG analytics in investment decision making: in search for material information

Subject. The article considers approaches to determining information that is material for corporate reporting and analyses the way they affect the usefulness of the information presented to stakeholders and required for decision making. The choice of a particular approach determines the identification and formulation of material topics, information sources, and the target audience. Users need to understand the principal approach of the company to determining material information in corporate reporting in order to avoid controversies and unreasonable decisions.Objectives. The purpose of our study was to analyse approaches to defining material information for non-financial reporting and assess their impact on the usefulness of the information for stakeholders, primarily for investors.Research methods. The research involved using methods of comparative, logical, and financial analysis. The materials analysed were standards of financial and non-financial reporting, including frameworks and guidelines. The analysis was performed in order to define the concept of material information and requirements for it as well as suggested methods of identification of material topics and parameters to be presented in corporate reports of organisations. The following standards were analysed: GRI standards; standards by the International Sustainability Standards Board (ISSB); standards of the Sustainability Accounting Standards Board (SASB); Corporate Sustainability Reporting Directive (CSRD), and recommendations on disclosure of financial consequences of climate change of the Task Force on Climate-related Financial Disclosures (TCFD). The analysis of information disclosure practices was performed based on the sustainability statements of leading Russian companies operating in oil and gas industry and in steel industry for 2019-2021. We also used data from ESG ratings and rankings of Russian rating agencies.Results and discussion. The results of our study showed that while basic approaches to defining materiality suggested by leading international initiatives in corporate reporting have a lot in common, there are still crucial differences. The main difference is the focus on either the impact of external factors on the company (financial materiality) or the impact of the company on the society and environment (impact materiality). The understanding of these differences can help stakeholders to integrate the ESG information in the decision making process and use it to substantiate the decisions made. The problems revealed by the study, as well as the dynamic nature of the assessment of materiality of ESG data make it difficult to regulate the process of non-financial disclosure as compared to the disclosure of financial data. At the same time, the existing methods of determining material ESG information, taking into account industry specifics and based on the analysis of the organisation’s activities, its context, and requirements of the stakeholders, make it possible to find a practical solution to the problem.Conclusions. The conclusions and results of the study can be used to develop recommendations on public non-financial reporting for Russian companies taking into account the requirements of stakeholders.

Legal Underpinnings Drive ESG Amidst Global Flux

The paper studies the complex global dynamics governing Environmental, Social, and Governance (ESG), including the evolving scope and structures of ESG frameworks. The impact of the significant expansion in the scope and spread of legal underpinnings over the last decade studied along with the increase in strategic applications of ESG like risk management. There is specific focus on developments the European Union, and an assessment of the impact of the changing ESG and regulatory scenario on India. The accelerated alignment of reporting standards, post the release of Task Force on Climate-Related Financial Disclosures (TCFD) guidelines has been complemented by legal and regulatory progress globally. The gradual development of legal underpinnings has put ESG or business sustainability on a stronger footing, by providing binding mandates to transition towards sustainability, albeit in varying in strength and forms across jurisdictions. The paper studies the development of these legal underpinnings and analyses how it has been critical in ensuring progress on the ESG front. These were critical in ensuring progress continued despite significant headwinds emerging of the Ukraine War and COVID-19, albeit in a slower but sustained manner. This contrasted with the scenario over the last four decades wherein vested interests could easily derail progress on climate change fronts in the absence of the legal underpinnings and binding mandates. This analysis is based on study of recent sustainability mechanisms, including a study of the architecture of the Paris Agreement, the TCFD guidelines, the compliance-based European Union (EU) Sustainability Action Plan in EU, and other international regulatory developments, including India’s BRSR and the recent regulatory proposals by RBI and SEBI etc. Global financial investors’ strong push for ESG based risk-assessment and investments is analysed along with the introduction of mandated ESG compliances for businesses and trade is pushing companies and countries with older ESG standards to respond, which has important implication for India and Indian businesses.

On valuing (m)other nature in times of climate crises – A reflection on the non and nom of accounting for (m)other nature

This manuscript presents a reflection on the work of Cooper (1992). It is set within the context of the very urgent need to address global warming before we hit the irreversible “tipping point”. Cooper’s (1992) theoretical perspective is discussed alongside the political milieu within which it was written. The manuscript then turns to the work of Wendy Brown (1995) to formulate a critique and expand our understanding of Cooper’s (1992) work. Brown (1995) analyses experiences of women under capitalism, reminding us of the importance of understanding that capitalism is overlaid by gender and vice versa. The perspectives of Brown (1995) and Cooper (1992) are then combined to discuss one of the latest environmental accounting initiatives, the Task Force on Climate Related Financial Disclosures (TCFD). The paper concludes that so many years and reporting initiatives after Cooper (1992), we still have not emancipated from the masculine symbolic order in accounting (or more generally).

Climate risk disclosures and global sustainability initiatives: A conceptual analysis and agenda for future research

AbstractClimate change impacts, risks and sustainability disclosures have attracted increasing attention from scholars in various streams of the economics and finance literature towards achieving the UN's Sustainable Development Goals (SDGs). Within the stream of climate finance, the global initiatives for corporate social responsibility (CSR) and environment, social and governance (ESG) practices have had important roles in leveraging firms to become more actively involved in environment‐related disclosure, in which climate risk reporting is central to evaluating whether and to what extent a firm and its operations are friendly to the environment. Along with the growth of the UN Principles for Responsible Investing in 2005, one of the most recent global initiatives that has been formed is the Taskforce on Climate‐Related Financial Disclosures (TCFD), which has considered the climate‐related financial disclosure recommendations of G20 finance ministers. Given that TCFD recommendations have recently been released for a broad domain of players (such as banks, investors, insurers and governments) in various countries (e.g., New Zealand, the United States and Japan), we surveyed the most recent studies on the TCFD by using a conceptual framework for climate‐related disclosures focusing on studies published worldwide. On the basis of a thorough review, we highlight the essential functions of financial markets and also provide the critical implications for different market players ranging from providers to supporters of the TCFD. Our study offers a timely conceptual review of the TCFD which is critical for stimulating sustainable investments, climate finance and enhanced corporate reporting.

Climate reporting quality following the recommendations of the task force on climate‐related financial disclosures: A Focus on the German capital market

AbstractThis paper investigates the quality of climate reporting by German DAX30 companies based on legitimacy theory. The study refers to a content analysis of climate‐related corporate disclosures from 2018 to 2020, related to the recommendations of the Task Force on Climate‐related Financial Disclosures (TCFD). The results show that there is still considerable room for improvement among carbon‐sensitive as well as less carbon‐sensitive firms. In particular, the companies showed poor reporting rates in the corporate governance domain, indicating that they use climate reporting symbolically to present themselves in a favorable light and to gain legitimacy in society. Moreover, carbon‐sensitive companies were more likely to report strategically relevant information on climate issues. The results are most relevant for researchers, business practice and regulatory bodies.

How does the research community contribute to corporate climate‐related risk disclosures? The gap between ideals and reality

AbstractSince the inception of the Task Force on Climate Related Financial Disclosures (TCFD) and its publication of a series of guidelines to instruct companies how to respond to climate change, physical and transition risks have become must‐know terms for businesses around the world. The development of various physical and transition risk assessment tools has become an urgent task for not only climate service companies but also for the scientific research community. Nevertheless, there is still an obvious gap between the contribution of the scientific research community and enterprise needs for clarification of the TCFD requirements. This article draws on interviews from representatives of more than a dozen related corporations and institutions in Taiwan, including private firms, research units, and industry associations, to understand and summarize their experience and expectations for the research community's contributions to TCFD alignment. The interview findings point out that physical risk assessment, transition risk assessment, data/information disclosure and integration, and policies and systems are the most concerned aspects of the interviewees. Based on these findings, the paper then provides suggestions for improvement by the research community, policy makers, and decision makers, including appropriate policies and systems, localized high‐quality climate services, and international competition, helping to effectively bridge the gap between daily research work and external expectations for the research results.

Task Force on Climate‐related Financial Disclosures (TCFD) Implementation: An Overview and Insights from the Australian Accounting Standards Board Dialogue Series

AbstractThe article provides an overview of recent developments and the regulatory position on sustainability reporting in Australia. It summarises practical challenges and opportunities pertinent to scenario analysis and disclosures in the Task Force on Climate‐Related Financial Disclosures (TCFD) implementation discussed at the March 2022 Australian Accounting Standards Board (AASB) Dialogue Series session. The common theme from the discussion session is that the TCFD implementations and disclosures will improve as entities continuously understand stakeholder needs, review their climate‐related risk assessments and processes, climate‐related metrics and targets, and disclosure policies and procedures.

From the Chair

On September 10, 2022, in Tampa, Florida, the Business Valuation Committee convened during the 85th International Appraisers Conference. We thank our business valuation conference planning committee members, cochairs Laurie-Leigh White, ASA, and Ken Pia, ASA, and Todd Larson, ASA, Jeff Tarbell, ASA, and Ronald Seigneur, ASA. The conference was well attended and held both in person and via video formats. It was great to come back together again and see so many familiar faces and make new acquaintances. Conference speakers included Roger Grabowski, FASA, Ron Seigneur, ASA, Chris Rosenthal, ASA, Chris Mercer, FASA, Michael Gregory, ASA, and Jay Fishman, FASA. Additionally, Roger received ASA's new Shannon Pratt Award, which recognizes business valuation members with notable contributions to the appraisal community. Make sure you save the date for the next International Appraisers Conference to be held in New Orleans, October 1 to 3, 2023.The BVC welcomed new committee members Dan Daitchman, ASA, and Brian Crotty, ASA. Dan hails from Chicago and is a managing director at B. Riley Advisory Services. Brian is a director at HDH Advisors, LLC, in Des Moines.At our BV Committee meeting, we discussed appraisal standards, ESG-IA, and education, among other topics. Richard Wise, ASA, standards committee chair, stated the 2021 USPAP will be in effect until December 31, 2022, and the subcommittee will be looking into standards as they relate to ligation assignments and possible conflicts, particularly at the federal level. Also appraisal standards, in general, are being considered in light of the impact of ESG (environmental, social, and governance) factors and the valuation of an enterprise.Adam Smith, ASA, is looking to put together an ESG-IA subcommittee. He participates in an international working group that examines financial standards as they relate to ESG-IA, board of directors, regulators, and stakeholders. The ESG-IA working group references standards of the European Financial Reporting Advisory Group (EFRAG), the Task Force on Climate-Related Financial Disclosures (TCFD), the International Sustainability Standards Board (ISSB), and the Global Reporting Initiative (GRI). The international ESG-IA working group is collaborating on a white paper that will discuss the metrics and quantitative disclosures that can impact enterprise value.In education subcommittee news, Bill Johnston, ASA, discussed new upcoming one-day courses that are being planned and our first ever ESOP Virtual Conference held June 21. The conference was well attended with timely topics, including discussion of the landmark Bowers case, the increase in class action lawsuits by private plaintiffs, and the do-away of control premiums by trustees. Liza Bowersox, our webinars education chair, discussed increasing the number of one-hour webinars to add to our collection of two-hour webinars and to suggest that conference speakers also do an extension of their topic into a webinar.Since releasing the sixth edition of Valuing a Business (VAB6), the ASA has made the text available online in electronic format. Additionally, our POV education courses are being revised to coincide with the layout of VAB6, which is now overseen by the ASA as Dr. Shannon Pratt's legacy to the business valuation community. We are already in talks to update the sixth edition, possibly as early as 2023, as well as work on another text originally authored by Dr. Pratt.The BVC will now have meetings quarterly, all being via teleconference with the one in-person meeting taking place at the annual conference. You are welcome to guest at any of these meetings, and I also highly encourage you to volunteer for subcommittees or even seek a position as a BVC member. Ultimately, the ASA needs our members to support its sustainability and future.

Sustainable governance and climate-change disclosure in European banking: the role of the corporate social responsibility committee

PurposeThe purposes of this paper are: firstly, to assess the disclosure related to climate change (CC) by major European banks to understand if the banks have grasped the most substantive aspects of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and secondly, to evaluate the contribution of a non-traditional committee (i.e. corporate social responsibility (CSR) committee) to TCFD-compliant disclosure.Design/methodology/approachUsing content analysis and ordinary least squares regressions on a sample of 101 European banks, this study sought to investigate completeness, tone and forward-looking orientation of CC disclosure and explore the relationships between CSR committee and previous disclosure aspects.FindingsThis study shows that European banks have been able to reach an intermediate level of adequacy of compliance in terms of completeness of information but forward-looking orientation seems to be the aspect that needs the most improvement. The existence of a CSR committee dedicated to sustainability issues seems to constitute the difference between the banks in terms of disclosure. The results highlight vulnerabilities in disclosure and board characteristics relevant for improving CC disclosure.Practical implicationsFirms interested in strengthening stakeholder engagement and capturing strategic opportunities involved in CC should be encouraged to establish a CSR committee and appoint female directors in financial companies. This paper should be of interest to policymakers, governance bodies and boards of directors considering the initiative of corporate sustainable governance complementary to Directive 2014/95/EU on non-financial reporting by the European Commission.Originality/valueTo the best of the authors’ knowledge, no prior study has investigated the relationship between the CSR committee and the application of the TCFD’s recommendations in the European banking industry.

Climate change financial disclosure and firm performance: empirical evidence from Indian energy sector based on TCFD recommendations

PurposeThe paper aims to examine the climate change-related disclosure patterns of listed Indian firms and its impact on firm performance. Specifically, it strives to analyse the conformance of the selected firms with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board of G20 nations.Design/methodology/approachThe study conducts content analysis of the annual reports and/or sustainability reports of 22 selected firms from the energy sector for the period spanning 2018–2019 and 2019–2020 based on the four-fold recommendations of TCFD, namely, governance, strategy, risk management and target and metrics, to compute the overall and respective climate-change disclosure scores. Further, a panel data regression model is used to appraise the impact of such disclosure on the performance of the firms.FindingsThe findings of the study indicate that the disclosure level of Indian firms in the energy sector is moderate. The regression results establish a positive relation between climate change-related financial disclosure and firm performance indicating that firms can witness improved financial performance by disclosing more information on climate change.Originality/valueThis is the first study in the Indian context to evaluate the climate change-related disclosure practices of the selected firms based on the TCFD’s recommendations and to trace its association with the performance of the firms. The results of the study shall hence be of relevance for the policymakers and diverse stakeholders.

Climate-related Financial Risks: Considering an Emerging Framework for Assessment and Disclosure in a Regulatory Perspective

Climate-related financial risks have become a crucial concern in financial policymaking. This recent development is propelled by concerns that financial markets have underestimated, and are unprepared for, the costs and losses that will follow as the effects of climate change escalate. It is also driven by the enormous scale of investments required to facilitate the transition to a low-emission society. The Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are one example of a response to these developments in the realm of financial policymaking. They aim to encourage disclosure of climate-related risks, by introducing new categories of risk – namely, physical risk and transition risk. This article examines the new categorization of risks and discusses both its integration into non-binding reporting guidelines in the European context and its potential for broader adoption. Climate-related financial risk, Action Plan on Financing Sustainable Growth, ESG, TCFD, physical risk, transition risk, non-financial reporting, responsible investment

Taming the Green Swan: a criteria-based analysis to improve the understanding of climate-related financial risk assessment tools

ABSTRACT Understanding climate-related risks has become a key priority in financial decision-making and for regulatory supervision in the financial sector since the Task-force on Climate-related Financial Disclosures (TCFD) launched its recommendations on climate risk disclosures in 2017. However, a systematic approach to identify scientifically sound and decision-useful climate risk indicators and the tools to derive such risk metrics is still missing. Focusing on climate-related financial transition risks, we propose a set of analysis criteria rooted in climate science, economics, finance, and risk management, to assess whether climate transition risk analysis tools provide high quality, comparable, and decision-relevant results. We find that for a sample of 16 climate transition risk tools, some tools perform high on all criteria, but that especially model transparency, scenario flexibility, output-related uncertainties, and assumptions communication require considerable improvements. Financial supervisors and regulators should define appropriate ways to obtain comparable climate risk metrics, to ensure their interpretability, and to ensure that climate risk metric disclosures reflect the underlying assumptions and uncertainties surrounding the analyses. Researchers and any user of climate risk metrics should carefully understand and report the analysis tools’ setup, and interpret their findings in light of the analysis assumptions. Key policy insights Providers of climate risk analysis tools should increase transparency on the tools’ setup in standardized templates. Reporting templates should include information on whether the tool has been peer-reviewed, the depth of risk analysis, key modelling steps and underlying assumptions. Firms should report the tool setup and modelling assumptions in their voluntary climate-related disclosures. In addition, uncertainties surrounding the analysis should be reported, for example, via confidence intervals or probability distributions. Financial regulators and corporate reporting regulation should ensure that mandatory climate risk disclosures are understandable and comparable. Regulators should ask firms to disclose their risks based on harmonized climate risk metrics disclosure templates, to ensure that key assumptions, the model setup, limitations of the analyses and analysis uncertainties are reported alongside the metrics.