Investors and lenders are beginning to publicly urge companies from a wide variety of industries to implement the June 2017 Final Recommendations of the G20 Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD) and account for climate-related risks and opportunities in their public financial filings. The TCFD’s recommendations are a voluntary disclosure framework, but shareholders, non-governmental organizations (“NGOs”), and others are pushing for their widespread adoption. The energy industry will certainly be a focus as the TCFD looks to implement its recommendations, and the recommendations themselves include a note that the group will promulgate additional, sector-specific guidance for the energy industry at a later time. This post provides a step-by-step analysis of the TCFD’s recommendations and how these recommendations incorporate but also move far beyond any current voluntary climate disclosure program. Energy companies should be aware of the full extent of what the TCFD is requesting as they consider their overall policies and strategy on climate change.

Moving Beyond Questionnaires to Public Financial Disclosures

The TCFD was created by the FSB in 2015 and tasked with creating a global framework for accounting for and disclosing climate change risks and opportunities that would come with a potential transition to a low-carbon future as anticipated by the Paris Agreement. On June 29, 2017, the TCFD released the final version of its recommendations on a voluntary climate change accounting and disclosure framework. The TCFD’s framework borrows much from current voluntary disclosure programs, including CDP (formerly the Carbon Disclosure Project), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), and others. However, the TCFD’s framework moves far beyond any of these programs by pushing companies to undertake a robust analysis of climate change risks and opportunities and then disclose many aspects of this analysis in public reporting filed with the SEC under the Exchange Act of 1934, e.g., in annual reports on Form 10-K or quarterly reports on Form 10-Q. As noted below, whether the TCFD’s framework will be widely adopted remains to be seen.

The TCFD’s Climate Change Accounting Framework

Not satisfied with current disclosures of climate change risks and opportunities, the TCFD breaks risks down into two categories and seeks for companies to account for risks under each category — (1) transitional risks, meaning risks from technological innovations, policy changes, carbon pricing, and so forth in the transition to a low-carbon future and (2) physical risks, meaning risks from climate change, which the TCFD describes as acute or chronic weather events, that could affect the company’s business. As companies undertake this analysis, the TCFD expects that risks and opportunities will eventually be accounted for not only in specific portions of annual reports on Form 10-K or quarterly reports on Form 10-Q dedicated to climate change but also in companies’ financial statements, as shown below.

In pushing companies to consider more fully the risks and opportunities from climate change and disclose them in public filings, the TCFD has chosen four areas, based on current disclosure programs, where the TCFD recommends that companies focus their internal analysis as well as their disclosures: (1) Governance, (2) Strategy, (3) Risk Management, and (4) Metrics and Targets.


  • the processes and frequency by which the board and committees are informed about climate issues
  • the instances where the board and committees consider climate issues when undertaking major company actions
  • how the board monitors progress against goals and targets for addressing climate issues
  • the management-level position in charge of climate issues
  • the organizational structure of those in the company who undertake climate-related decisions
  • the process by which management is informed about climate issues
  • how management monitors climate-related issues


  • a description of short-, medium-, and long-term horizons for the company’s assets and infrastructure and how climate-related issues play into these horizons
  • a description of climate-related issues arising in each horizon that could have a material financial impact on the company
  • a description of the process used to determine which risks and opportunities could have a material financial impact on the company
  • how climate-related issues affect: products and services, supply chain, adaptation and mitigation activities, investment in R&D, and operations
  • how climate-related issues serve as an input into a company’s financial planning process, including their effect on operating costs and revenues, capital expenditures, acquisitions or divestments, and access to capital
  • the resiliency of the company to climate risks and opportunities
  • the climate-related scenarios and associated time horizons the company uses (described below)

Risk Management

  • a description of how a company determines the relative significance of climate-related risks in relation to other risks
  • whether the company considers existing and emerging regulatory requirements related to climate change
  • the process for assessing the potential size and scope of climate-related risks
  • definitions of the risk terminology used or references to an existing framework
  • the company’s processes for managing climate-related risks
  • how the company’s process for managing climate-related risks is integrated into the company’s overall risk management

Metrics and Targets

  • metrics on climate-related risks associated with water, energy, land use, and waste management where relevant and applicable
  • for material issues, how performance metrics are incorporated into compensation policies
  • the company’s internal carbon prices as well as opportunity metrics
  • metrics for historical periods to allow for trend analysis
  • Scope 1, Scope 2, and where appropriate, Scope 3 greenhouse gas (GHG) emissions (described below)
  • climate-related targets related to GHG emissions, water usage, energy usage, etc., or other climate-related goals
  • detailed information on the target, including whether it is absolute or intensity based, the time frame, the base year from which progress is measured, and key performance indicators including a description of the methodologies used to calculate the targets

The TCFD recommends that risks and opportunities related to “Strategy” and “Metrics and Targets” should be disclosed only in public financial filings (such as SEC filings, for U.S.-based public companies) if those risks and opportunities are determined to be “material.” Information on “Governance” and “Risk Management,” on the other hand, should be disclosed by all companies in SEC filings or other reports without regard to any materiality assessment. The TCFD recommends that risks and opportunities determined to not meet the materiality threshold still be disclosed in “official company reports” for companies in the energy, transportation, materials and building, agriculture, food, and forest products industries (which the TCFD labels “non-financial industries”) with more than one $1 billion U.S. dollar equivalent (USDE) in annual revenue.

Scenario Analysis

The TCFD recommends that companies, in assessing their resiliency to climate change, posit a future hypothetical context — comprising environmental, regulatory, and business factors — projecting how a company’s current or future business model is prepared to handle and thrive in this future, challenging context. The TCFD recommends that companies implement a broad range of scenarios to account for transitional risks stemming from the current economy transitioning to a low-carbon economy, such as risks presented by a 2 degree Celsius or lower scenario, and physical risks if current trajectories related to climate change go unchecked or are only minimally mitigated. According to the TCFD, the objective of scenario analysis is to force companies to think through and prepare for future scenarios that could compromise their operations and to inform shareholders regarding both these potential risks and the extent to which companies are thinking about and preparing for them.

Scope 1-3 Emissions

One significant aspect of the TCFD’s disclosure framework for energy companies is the TCFD’s recommendation that energy companies disclose Scope 3 emissions. Notably, the TCFD does not include this recommendation for all industries. As shown in the graphic below, Scope 1 refers to all direct GHG emissions. Scope 2 refers to indirect GHG emissions from consumption of purchased electricity, heat, or steam. And Scope 3 refers to other indirect emissions not covered in Scope 2 that occur in the value chain of the reporting company, including both upstream and downstream emissions. Examples of Scope 3 emissions include: the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g., transmission and distribution losses), outsourced activities, and waste disposal.

Looking Forward

As shown on the timeline below, the TCFD has set forth an ambitious plan for moving beyond the current state of climate change disclosures toward a future where there is a “[b]road understanding of the concentration of carbon-related assets in the financial system and the financial system’s exposure to climate-related risks.”

Whether the TCFD will meet the goals set forth in this timeline depends not only on the TCFD but also on many forces beyond the control of the TCFD, including market forces and regulatory fluxes. The TCFD has acknowledged that its recommendations do not displace or supersede existing disclosure frameworks in individual countries and, without an enforcement mechanism, the TCFD could not claim to do so. Because the TCFD’s recommendations provide a voluntary disclosure framework, adoption will depend much more on investors’, lenders’, and peer companies’ practices than it will depend on regulatory forces, at least for the foreseeable future. To date, over 100 CEOs of major companies and many institutional investors, including BlackRock and State Street, have pledged their support for the TCFD. It should be noted, however, that Shell is the only energy company with U.S. headquarters to support the TCFD to date. Indeed, the companies that have pledged their support so far may not be representative of those most affected by the potential transition to a low-carbon future and that could potentially have more to risk in disclosing detailed climate information in their public financial filings. Energy companies in particular should consider their current policies and overall strategy on climate change and whether or where the TCFD’s recommendations might fit, recognizing the full extent of what the TCFD is asking companies to do.