2022 EFRAG_Appendix IV - TCFD-EFRAG Comparative analysis final
Briefing Document: Reconciliation of TCFD Recommendations and ESRS
Introduction
This document provides a comparative analysis of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and the European Sustainability Reporting Standards (ESRS), focusing on their alignment and differences, particularly in the context of climate-related disclosures. The TCFD specifically addresses climate issues, while the ESRS covers a broader array of sustainability matters, including governance, strategy, risk management, metrics, and targets.
Governance
TCFD Recommendations
- Companies should disclose their governance structures regarding climate-related risks and opportunities, including board oversight and management’s role in these areas.
ESRS Comparison
- Governance disclosures in ESRS include:
- GOV-1, GOV-2, and GOV-3: Align with TCFD, covering governance structures, oversight, and management responsibilities.
- Additions: ESRS emphasizes impacts alongside risks and opportunities and integrates sustainability performance into incentive schemes. It also includes a statement on sustainability due diligence (GOV 4).
Strategy
TCFD Recommendations
- Companies need to disclose the actual and potential impacts of climate-related risks and opportunities on business strategy and financial planning.
ESRS Comparison
- The ESRS requires disclosures on:
- SBM-3 and IRO-2: Align with TCFD, addressing the identification of material impacts and climate-related issues.
- Additions: ESRS includes environmental and social impacts, references to alignment with limiting global warming to 1.5°C, and specific requirements regarding future financial implications of climate risks.
Risk Management
TCFD Recommendations
- Disclose processes for identifying, assessing, and managing climate-related risks.
ESRS Comparison
- ESRS mandates disclosures through:
- IRO-1: Related to the identification and assessment of climate-related risks.
- Additions: More detailed application requirements for physical and transition risks, including climate scenarios and due diligence processes.
Metrics and Targets
TCFD Recommendations
- Companies should disclose metrics and targets used to assess and manage relevant climate-related risks and opportunities.
ESRS Comparison
- The ESRS specifies:
- E1, DR related to GOV-3: Metrics and targets covering energy consumption, greenhouse gas (GHG) emissions, and specific targets for emission reductions.
- Additions: Detailed requirements for different scopes of GHG emissions, the distinction of target types (general, reduction, net-zero), and the exclusion of carbon offsets from GHG reduction targets.
Key Recommendations for Organizations
Governance
- Describe board oversight processes regarding climate-related risks.
- Detail management roles in assessing and managing these risks.
Strategy
- Identify climate-related risks and opportunities across short, medium, and long-term horizons.
- Discuss how these risks impact business strategy and financial planning.
Risk Management
- Outline processes for identifying and managing climate-related risks, integrating them into overall risk management.
Metrics and Targets
- Disclose metrics used to assess climate-related risks and opportunities, including GHG emissions across all scopes.
- Describe targets related to climate risks and performance against those targets.
Conclusion
The reconciliation of TCFD recommendations with ESRS demonstrates a comprehensive framework for climate-related disclosures that integrates governance, strategy, risk management, and metrics. The ESRS broadens the scope to include various sustainability issues while maintaining alignment with TCFD’s climate-centric focus. Organizations are encouraged to adopt these frameworks to enhance transparency and accountability in their sustainability practices.