The tides are turning for businesses worldwide, with mounting pressure to prioritise sustainability, transparency, and accountability. If you're a business leader, you can't afford to wait any longer to start climate reporting. You'll be better positioned to navigate the rapidly shifting landscape if you embrace these changes now. Read on to find out why and how to begin effectively reporting your carbon, led by the TCFD.
What is the TCFD and why does it matter?
The Task Force on Climate-related Financial Disclosures (TCFD) is an industry-led initiative established by the Financial Stability Board (FSB) in 2015. The primary goal of the TCFD is to develop a set of voluntary, consistent, and globally applicable climate-related financial risk disclosure recommendations.
These recommendations enable businesses to communicate vital information to lenders, insurers, investors, and other stakeholders, helping them assess material risks and opportunities associated with climate change.
The TCFD focuses on four key areas:
- Governance: Disclosing the organisation's governance structure around climate-related risks and opportunities, including board and management roles.
- Strategy: Communicating the actual and potential impacts of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning.
- Risk Management: Describing the organisation's processes for identifying, assessing, and managing climate-related risks.
- Metrics and Targets: Disclosing the metrics and targets used to assess and manage climate-related risks and opportunities, including Scope 1, 2, and 3 greenhouse gas emissions and related targets.
The recommendations released by the TCFD have already had significant impact worldwide:
- Global adoption: Since its inception, the TCFD has gained widespread support from businesses, governments, and regulators worldwide.
- Regulatory preparedness: As governments and regulatory bodies move towards mandatory climate-related disclosures, TCFD recommendations are often used as a basis for government and regulatory decisions.
- Investor expectations: Increasingly, investors are demanding greater transparency around climate-related risks and opportunities, using the TCFD framework as a measuring stick.
- Risk management: TCFD disclosures can be used to help businesses identify, assess, and manage climate-related risks, enabling better-informed decisions and resilience in the face of climate change.
Furthermore, while the TCFD was designed as a voluntary framework, it has become the basis for non-voluntary climate reporting measures as well, including here in New Zealand.
New Zealand impact
In New Zealand, the TCFD recommendations formed the basis of the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act passed by the government in 2021. This legislation instructed the External Reporting Board’s to develop what has become the Mandatory Climate-Related Financial Disclosures framework.
This new regulation mandates that the 200 largest financial companies (banks, lenders, insurers, and so on) must fully report their emissions across all scopes. These reports must be complete, and are held to an audit standard analogous to financial audits.
However, the smaller businesses and non-financial businesses have not escaped unaffected. Finances emissions reporting means that banks and lenders will be required to report the impact of their lending behaviour as part of their carbon reporting, and as such will likely demand businesses receiving funding to provide emissions reporting in turn.
Find out more about the impact of the TCFD and related legislation in New Zealand in our dedicated guide: How New Climate Legislation Affects Every New Zealand Business.
A global trend that's here to stay
Climate reporting is not just a fad—it's part of a worldwide movement towards sustainability and accountability. All the following countries/territories either have mandatory carbon reporting already in play or are in the process of developing proposals around climate related financial disclosures.
- Hong Kong
- United States
- United Kingdom
Notably, Australia is also working on new climate related disclosures legislation that is similar to New Zealand’s. As the world moves in this direction, companies that don't adapt risk being left behind.
The early bird gets the worm: Start carbon reporting now
Businesses that begin the carbon reporting process now, even if they are not yet directly required to do so, put themselves at a significant advantage to those enterprises that wait and see what happens.
- First-mover advantage: By embracing carbon reporting early, you can position your business as a leader in sustainability.
- Time to adapt: Implementing carbon reporting practices can be a complex process. Starting now gives your business the opportunity to refine and improve your approach.
- Avoid regulatory surprises: With climate reporting requirements evolving rapidly, getting a head start can help you avoid last-minute scrambling to meet new regulations.
It takes significant time and resource to create audit-ready carbon reporting processes, built on accurate data and resulting in meaningful, ambitious, and achievable carbon reduction goals. You’ll need to create roles, assign responsibilities, invest in technology, hire for necessary talent and create a cross-business Green Team. For many businesses, it takes up to a year or longer to be able to confidently create a first carbon report.
Read more about the considerations you’ll need to have in our dedicated guide: How to prepare your business for carbon reporting now.
How to get started with carbon reporting
Carbon reporting is more than just compliance. Climate action offers real benefits to businesses that are willing to invest in accurate insights and meaningful climate action.
- Improved efficiency: Identifying areas of high carbon emissions can help you pinpoint inefficiencies and implement targeted strategies for improvement.
- Cost savings: Reducing carbon emissions often goes hand-in-hand with lowering energy consumption and waste, leading to cost savings.
- Enhanced stakeholder relationships: Demonstrating your commitment to sustainability can strengthen relationships with customers, investors, and employees.
To prepare your business for effective carbon reporting and a future where it’s not just the norm, but mandatory, the first step is a carbon footprint or baseline. This offers a foundation from which to build your carbon roadmap, of which carbon reporting is just one part.
To find out more about building a carbon strategy and developing an effective carbon reporting process, download our guide to building a Carbon Roadmap.