Companies are providing public disclosure on their climate-related risks and opportunities at a substantially greater rate than even a few years ago, according to the Task Force on Climate-related Financial Disclosures’ (TCFD) 2023 Status Report, although significant room for increased reporting remains, with the vast majority of companies not yet reporting across all TCFD recommendations.

The new status report marks the 6^th and final annual update from the TCFD, with responsibility for monitoring the progress of climate related reporting now being transferred to the IFRS Foundation’s International Sustainability Standards Board (ISSB), following the ISSB’s recent publication of global standards for sustainability and climate reporting.

The TCFD was established by the Financial Stability Board in 2015, with the goal of developing consistent disclosure standards for companies, in order to enable investors and other stakeholders to assess the companies’ climate-related financial risk. The recommendations were published in June 2017, and have until now effectively been serving as the industry standard for climate-related disclosure. The TCFD recommendations were broadly incorporated into the requirements of the ISSB’s climate related disclosure standard.

For the new status report, the TCFD conducted a study, using artificial intelligence technology, of the publicly available reports of more than 1,350 large companies across a broad range of regions and sectors over three years.

The study found a significant increase in both the number of companies providing disclosure aligned with the TCFD recommendations, as well as an increase in the number of recommendations followed by the companies. According to the report, 90% of companies in 2022 provided disclosures in line with at least one of the TCFD’s 11 recommendations, compared with 80% in 2021 and only 64% in 2020, and 58% of companies are now reporting on at least 5 recommendations, up from 40% last year and only 18% in 2020. Average disclosures per company reached 5.3 in 2022, up 66% from 3.2 in 2020.

While each of the 11 recommendations have seen increases in reporting over each of the past two years, the category that saw the most significant growth in reporting was “Climate-related risks and opportunities,” which were disclosed by 62% of companies in 2022, marking a sharp increase from only 36% in 2020, followed by reporting on board oversight, up to 64% from 39% in 2020, and climate-related targets, reported by 66% of companies in 2022, compared to only 42% in 2020.

The category with the lowest level of reporting in each of the three years according to the study was the of companies’ strategies under different climate-related scenarios, with only 11% of companies providing disclosure on this recommendation in 2022. According to the report, 90% of companies rated this recommended disclosure as somewhat or very difficult to implement.

The report also examined disclosure across company dimensions including sector, region and size. The energy and materials & buildings industries saw the highest number of average disclosures per company, at 6.3 and 5.8, respectively, with the lowest number of disclosures by technology and media companies at a 3.7 average. Companies in Europe saw the highest number of average disclosures at 7.2, while Middle East and Africa-based companies had the lowest at 3.8. Large cap companies (market cap greater than $12.3 billion) had much higher reporting rates than their smaller counterparts with 6.7 disclosures per company, compared with 3.9 for companies with market caps under $3.2 billion.

The report also reviewed the publicly available reports of the top 50 asset managers and top 50 asset owners based on assets under management, indicating that 70% of the asset managers and 30% of the asset owners reported in line with at least five of the TCFD recommendations. Based on survey results, asset managers and asset owners rated insufficient information from investee companies as the top challenge to climate-related reporting.

While the TCFD found the results of the survey “encouraging,” it added that “more progress is needed to improve transparency on the actual and potential impact of climate change on companies,” and that “more companies need to consider the effects of climate-related issues on their financial statements.” The report noted that only 4% of companies reported in alignment with all 11 TCFD disclosure recommendations in 2022, and that TCFD-aligned climate-related disclosures were 4 times more likely to be disclosed in sustainability and annual reports than in financial filings.

Click here to access the 2023 TCFD Status Report.