One Day In July Supports TCFD

What is TCFD?

TCFD stands for Task Force on Climate-related Financial Disclosures (fsb-tcfd.org). It was created in 2015 by the Financial Stability Board, an international body dedicated to strengthening financial systems and addressing systemic financial risks (fsb.org).

TCFD is chaired by Michael Bloomberg and is comprised of more than 30 members from across the G20 nations. Members come from a variety of financial and industrial sectors and bring expertise as both preparers and users of financial data.

Why was TCFD created?

TCFD was created to help address the growing financial risk presented by climate change. TCFD’s mandate is to develop recommendations for better corporate disclosure of climate-related risks. Greater transparency around these risks assists investors in making more informed choices and should also push companies to better quantify and address the climate-related risks they face. This in turn may lead to more investment in sustainable processes, technologies, and business models.

What types of disclosures does TCDF recommend?

TCFD recommends that companies disclose their exposure to two broad types of climate-related risks. Transition risks arise from potential losses as the world transitions to a lower carbon economy. Examples include increased regulatory costs, obsolescence brought on by new technologies or changing consumer preferences, and legal and reputational risk, among others. Physical risks arise from a company’s direct exposure to a shifting climate. These may include potential damage to facilities, changes in the availability or cost of required supplies, and employee safety, among others.

TCFD also recommends that companies disclose climate-related business opportunities. These may include the creation of new products or services to address climate change, the opportunity to utilize safer and cheaper sources of energy, and the opportunity to reduce costs through processes such as recycling and waste management.

What principles does TCDF encourage for climate-related disclosure?

In order increase usefulness to investors, disclosures should be provided on a timely basis and should be as specific as possible. Disclosures should maintain objectivity and should be presented in a way that is straightforward and understandable. Information provided should be highly reliable and independently verifiable to the extent possible. Disclosures should be presented consistently over time so that investors can see what has changed from period to period and so comparisons can be made between multiple companies in the same industry.

One Day In July supports the TCFD recommendations in conjunction with our environmental investing strategy. The two climate-related criteria we use to screen our fund investments are carbon intensity and exposure to fossil fuel reserves. The TCFD recommendations should foster more accurate and complete disclosure of these metrics, allowing us to continue to drive down our portfolios’ exposure to climate change. Additionally, we believe the TCFD recommendations may help speed corporate transitions to lower carbon products and services, opening up more impact investing opportunities for our clients in the future.