Task Force on
Climate-related
Financial Disclosures

Guidance on Metrics, Targets,
and Transition Plans

October 2021

Contents
A. Overview and Background1

1. Overview

2

2. Background4

B. Scope and Approach6

1. Organizations in Scope

7

2. Approach

7

3. Key Considerations

8

C. Climate-Related Metrics

10

1. Characteristics of Effective Climate-Related Metrics

11

2. Disclosing Climate-Related Metrics

13

3. Driving Toward Comparability: Cross-Industry Metric Categories

14

4. Portfolio Alignment Metrics for the Financial Sector

27

D. Climate-Related Targets

29

1. Characteristics of Effective Climate-Related Targets

31

2. Disclosing Climate-Related Targets

35

E. Transition Plans

38

1. Characteristics of Effective Transition Plans

40

2. Transition Plan Considerations

41

3. Disclosing Transition Plan Information

43

F. Financial Impacts

45

1. Inputs for Estimating Financial Impacts

48

2. Disclosing Financial Impacts

49

Appendix 1: Further Information on Select Cross-Industry,
Climate-Related Metric Categories

54

1. Scope 3 GHG Emissions54

2. Internal Carbon Prices

59

Appendix 2: Example Disclosures

61

Appendix 3: Glossary and Abbreviations

65

Appendix 4: References

68

A.
Overview andBackgroundThe Task Force on Climate-related Financial Disclosures

A. Overview and Background
1. OVERVIEWWhen the Task Force on Climate-related
Financial Disclosures (the Task Force or TCFD)
issued its final recommendations in June 2017(2017 report), it understood the early natureof climate-related reporting and anticipatedthat disclosure would evolve as climate-related
financial reporting matured.1

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

Over the past few years, several market
and industry initiatives have focused onconverging reporting standards that cover
climate issues as well as aligning and improving
comparability of climate-related metrics(Box A1, p. 3). These efforts include work toharmonize greenhouse gas (GHG) accounting
methods to allow financial organizations to
consistently measure GHG emissions financedby their loans and investments (referred to asfinanced emissions). In addition, many nations
and organizations have committed to climate
targets, such as those related to “net-zero” andthe Paris Agreement. 2 These commitments
have led users of climate-related financial
disclosures — investors, lenders, and insurance
underwriters — to increasingly seek decision-

useful information on organizations’ plans andprogress to move to a low-carbon economy,referred to as transition plans, including theuse of associated climate-related metrics andtargets to track such progress.
Since 2017, the Task Force has sought toclarify issues raised by organizations in theirimplementation of the TCFD recommendations
and provide additional supporting guidance andother information where appropriate. To address
recent developments and feedback from users,
preparers, and others, this document provides
additional guidance for preparers regarding
disclosures of climate-related metrics and targets
and key information from transition plans.
The Task Force also modified certain aspectsof its 2017 Implementing the Recommendationsof the Task Force on Climate-related Financial
Disclosures (2017 annex) to provide additional
guidance on disclosing metrics, targets, andtransition plan information in line with the TCFD
recommendations (2021 annex).3

E.
Transition Plans
F.
Financial Impacts
Appendices1 he Task Force’s 2017 report states “as understanding, data analytics, and modeling of climate-related issues becomesT
more widespread, disclosures can mature accordingly” (p. 41).

2

United Nations Framework Convention on Climate Change, ”Paris Agreement,” December 2015. According to the Intergovernmental
Panel on Climate Change (IPCC), in order to keep warming to 1.5°C, GHG emissions must reach “net-zero” by 2050. The “net” in net-zeromeans any residual GHG emissions from hard-to-abate industries need to be removed from the atmosphere through technology or
nature-based solutions.

3 CFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (2017 annex), June 29, 2017;
T
TCFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (2021 annex), October 14, 2021.

2

The Task Force on Climate-related Financial Disclosures

Box A1Market and Industry Developments
Global Standard Convergence

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics• In December 2020, a group of sustainability
standard setters — CDP, the Climate DisclosureStandards Board (CDSB), the Global Reporting
Initiative (GRI), the International Integrated
Reporting Council (IIRC), and the Sustainability
Accounting Standards Board (SASB), referredto herein as the “the Alliance” — published a
prototype climate-related financial disclosure
standard. The prototype outlines a shared visionthat integrates both financial accounting andsustainability disclosure and builds on the TCFD
recommendations.

• In April 2020, the CRO Forum, a group of Chief
Risk Officers from large multinational insurancecompanies, released the Carbon Footprinting
Methodology for Underwriting Portfolios, which
describes an approach for insurance underwriters to
calculate a weighted average carbon intensity metric.

• In February 2021, The International Financial
Reporting Standards (IFRS) Foundation Trustees(Trustees) announced plans to produce a proposal
for the establishment of a sustainability
standards board.

• In April 2021, the United Nations launched the
Glasgow Financial Alliance for Net Zero (GFANZ)
to bring together various financial-sector alliances
focused on net-zero GHG emissions targets by
mid-century.

• In February 2021, the International Organizationof Securities Commissions (IOSCO) welcomed
the announcement from the Trustees andfurther welcomed the Alliance prototype “as apotential basis for the [International Sustainability
Standards Board (ISSB)] to develop climaterelated reporting standards.”4• In April 2021, the Science Based Targets initiative(SBTi) released its Financial Sector Science-Based
Targets Guidance. The guidance encourages
financial institutions to use PCAF’s Global GHG
Accounting and Reporting Standard to measurefinanced emissions.

• In March 2021, the Trustees announced theirstrategic direction and established a working
group to accelerate convergence in global
sustainability reporting standards, building on the“well-established work” of both the TCFD and theAlliance. The working group is chaired by the IFRSFoundation and includes participation from CDSB,
the International Accounting Standards Board, IIRC,
SASB, TCFD, and the World Economic Forum (WEF).

D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts• In June 2021, IOSCO released a Report on
Sustainability-related Issuer Disclosures providing
more details on gaps in current sustainability
reporting as well as IOSCO’s vision for the ISSB.

Appendices

Improving Comparability of Climate-Related
Metrics, Targets, and Transition Plans• In September 2019, the Corporate Reporting
Dialogue released a report mapping the alignment
between the TCFD’s recommended disclosures
and CDP, GRI, and SASB indicators, which showedbroad alignment across metrics.

• In November 2020, the Partnership for Carbon
Accounting Financials (PCAF) released the Global
GHG Accounting and Reporting Standard for the
Financial Industry, which outlines methodologies
for measuring financed emissions for specific asset
classes in line with the GHG Protocol.

• In April 2021, the European Commission issued
a proposed Corporate Sustainability Reporting
Directive that would amend existing reporting
requirements to include a broader range ofcompanies and require sustainability reporting
according to standards to be developed by theEuropean Financial Reporting Advisory Group.5
The reporting standards would specify the
information companies should report, including
climate-related metrics and targets.
• Throughout 2019, 2020, and 2021, the World
Business Council for Sustainable Development(WBCSD) published four reports to help nonfinancial companies implement the TCFD
recommendations, including by providing sectorspecific metrics and case studies. These TCFD
Preparer Forums focused on the Electric Utilities;
Construction and Building Materials; Food,
Agriculture, and Forest Products; and Auto sectors.

4“ Securities regulators and other capital market authorities are responsible for the oversight of capital markets. This oversight
responsibility generally includes the development, application and enforcement of accounting standards, auditing standards,
and disclosure regulations.” IOSCO, Report on Sustainability-related Issuer Disclosures, June 2021, p. 1.

5

 he proposed Corporate Sustainability Reporting Directive would amend the existing requirements under the Non-Financial ReportingT
Directive. For an overview of relevant amendments, see the European Commission’s “Corporate sustainability reporting.”

3

The Task Force on Climate-related Financial Disclosures

2. BACKGROUNDThe Task Force was created to develop
voluntary, consistent climate-related financial
disclosures that would be useful to investors,
lenders, and insurance underwriters inappropriately assessing and pricing climaterelated risks (Figure A1 shows the Task
Force’s recommendations). Without theright information, investors and others may
incorrectly price or value financial assets,
leading to a misallocation of capital.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics

Accurate and timely disclosure of the actual andpotential impacts of climate-related risks andopportunities on an organization is fundamental
to pricing risks. In addition, recognizing theimportance of disclosing potential impacts
associated with climate change, the Task Forceasks organizations to describe the resilience of
their strategies under different climate-related
scenarios and encourages certain non-financialorganizations to describe potential qualitativeor quantitative financial implications of theclimate-related scenarios used.6
Unfortunately, organizations’ disclosure of theresilience of their strategies under different
climate-related scenarios is relatively low.7

As described in the Task Force’s four annual
status reports, this information consistently has
the lowest level of disclosure across the Task
Force’s 11 recommended disclosures.
To monitor and promote implementation of
its recommendations, the Task Force engages
in formal and informal consultations anddiscussions with users, preparers, and otherstakeholders. As part of those efforts, theTask Force has confirmed with users that suchfinancial impact information is an importantelement in their assessments.
Based on a comprehensive survey of the specifictypes of climate-related information thatinvestors, lenders, and insurance underwriters
find the most useful, the Task Force foundusers were nearly unanimous in identifying
the actual impact of climate-related issues onan organization’s businesses and strategy as
the most useful. When asked to rank specifictypes of information that could be disclosed
to describe a range of impacts, including bothfinancial and non-financial, users were nearly
unanimous in identifying financial impacts on
capital expenditures and capital allocation as
most useful. When asked about the most useful
information organizations could disclose whenD.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
AppendicesFigure A1

TCFD Recommendations
The Task Force’s recommendations on climate-related financial disclosures are structured around four thematic
areas that represent core elements of how companies operate: governance, strategy, risk management, andmetrics and targets.*
Governance

Strategy

Risk Management

Metrics and Targets

Disclose the company’s
governance aroundclimate-related risks andopportunities.

Disclose the actual andpotential impacts ofclimate-related risks andopportunities on thecompany’s businesses,
strategy, and financial
planning where suchinformation is material.

Disclose how thecompany identifies,
assesses, and manages
climate-related risks.

Disclose the metrics andtargets used to assess
and manage relevant
climate-related risks
and opportunities wheresuch information ismaterial.

*The four recommendations are supported by 11 recommended disclosures intended to help investors and others understand how reportingorganizations assess and address climate-related risks and opportunities.

6In the context of the TCFD recommendations, “non-financial organizations” refer to those organizations within the four sector groups
specified in the 2017 report: (1) Energy, (2) Transportation, (3) Materials and Buildings, and (4) Agriculture, Food, and Forest Products.

7

 CFD recommended disclosure Strategy c), including information on potential financial impact, consistently has the lowest level of disclosureTin the Task Force’s annual reviews of publicly available reporting: TCFD, 2021 status report, October 14, 2021, p. 30; TCFD, 2020 status report,
October 2020, p. 11; TCFD, 2019 status report, June 2019, p. 8; TCFD, 2018 status report, September 2018, p. 9.

4

The Task Force on Climate-related Financial Disclosures

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendicesdescribing the resiliency of their strategies
to climate-related issues — in other words,
potential impact — users identified an indicationof the direction or ranges of potential financial
implications under different climate-related
scenarios as most useful. For a summary of thecomplete survey results, please see the Task
Force’s 2020 status report.8

The remainder of this document is organized
as follows:

Given the importance to users of information
describing the actual and potential financial
impacts of climate-related issues onorganizations and the low levels of disclosure
associated with the latter, the Task Forceundertook work in 2021 to better understandthe types of information organizations use todescribe the financial impacts associated withclimate change and challenges associated withmaking such disclosures.

• Section C. Climate-Related Metrics. Thissection provides information on selecting anddisclosing metrics, including the Task Force’s
view on a set of metrics that all organizations
should disclose.

Based on the Task Force’s findings (as describedin its 2021 status report) as well as market andindustry developments, the Task Force believes
it is critical to reinforce the importance oforganizations disclosing the actual and potential
financial impacts of climate change on theirbusinesses and strategies to support users’
assessments. In addition, based on feedback
through interviews and the Task Force’s 2021
public consultation on its Proposed Guidance on
Metrics, Targets, and Transition Plans, users arekeenly interested in organizations disclosing
certain fundamental categories of metrics thatare critical inputs for measuring financial risk.9, 10• Section B. Scope and Approach. This section
outlines the types of organizations addressedin this report, the approach the Task Force took
to develop this guidance, as well as some key
considerations for preparers.

• Section D. Climate-Related Targets. Thissection provides guidance on selecting anddisclosing climate-related targets as well as
details on the role of scenario analysis indetermining targets.
• Section E. Transition Plans. This section
describes how organizations might include
aspects of their transition plans in theirclimate-related financial disclosures.
• Section F. Financial Impacts. This section
underscores the way in which climate-related
metrics, targets, and information fromtransition plans provide useful underlying
information with which to estimate the actualor potential impact of climate-related issues
on an organization’s financial performanceand position.

The Task Force developed this guidance tosupport preparers in disclosing decision-usefulmetrics, targets, and transition plan informationand linking those disclosures with estimates offinancial impacts. Such information will enable
users to appropriately assess their investment
and lending risks.

8

TCFD, 2020 status report, pp. 27–34 and 93–103.

9

F or more information on the interviews, see TCFD, 2021 status report, p. 58.

10

 or a summary of responses from the consultation, see TCFD, Proposed Guidance on Metrics, Targets,
F
and Transition Plans Consultation: Summary of Responses, October 14, 2021.

5

B.
Scope andApproach

The Task Force on Climate-related Financial Disclosures

B. Scope and Approach
Organizations implementing the Task Force’s
recommendations come from various industries
and use a wide range of strategies, metrics, andtargets to assess and manage their climaterelated risks and opportunities. The Task Forceacknowledges that many informative climaterelated metrics and targets will be specific to anorganization’s industry or business model.11

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

However, the Task Force received feedback
through a number of channels related to
implementation of the Strategy and Metrics
and Targets recommendations that warranted
further TCFD guidance. To address this feedback,the Task Force focuses this guidance on several
key aspects of metrics, targets, and transition
plans it believes most organizations can disclose
to enhance their climate-related reporting.

1. ORGANIZATIONS IN SCOPE
In developing this document, the Task Forceconsidered the types of organizations that might
benefit most from additional guidance. This
guidance is intended to cover a wide range oforganizations. As with its recommendations ingeneral, the Task Force expects this guidance tobe useful to organizations of all sizes and locatedin various countries around the world.

2. APPROACH
As part of monitoring adoption of its
recommendations, the Task Force has
formally solicited stakeholder input on specificimplementation issues. Although analysis of
public company reporting shows that metrics
and targets is one of the highest areas of
disclosure, the majority of respondents to a 2019
Task Force survey on implementation found theMetrics and Targets recommendation “somewhat
difficult” or “very difficult” to implement.12
Respondents that identified as preparers statedthat increased standardization of metrics andtargets would ease implementation challenges,
while respondents that identified as users noted
increased standardization would help drive
toward comparability across companies’ climaterelated financial disclosures.

In addition, the Task Force held two public
consultations on elements of its Strategy andMetrics and Targets recommendations overthe past year to understand current preparer
practices on disclosure, including challenges
regarding implementation, and to collect input
from users on the types of climate-related
information that would be more useful.
• The October 2020 Forward-Looking Financial
Sector Metrics Consultation (consultation on
forward-looking metrics) solicited views on
decision-useful, forward-looking metrics to bedisclosed by financial organizations, requesting
feedback on forward-looking metrics that havegained interest from the financial sector inrecent years and the challenges and usefulnessof such metrics.13• In June 2021, the Task Force released a draft
version of this guidance for consultation, theProposed Guidance on Climate-related Metrics,
Targets, and Transition Plans (consultation
on metrics, targets, and transition plans).14
The consultation asked preparers to provide
information on their disclosure of certain11

 he Task Force welcomes the ongoing work of existing standards setters, industry associations, and similar organizations
T
that are best positioned to develop industry-specific climate-related frameworks or standards.

12

TCFD, 2021 status report, p. 30; TCFD, 2020 status report, p. 11; TCFD, 2019 status report, p. 8; TCFD, 2018 status report, p. 9.

13

TCFD, Forward-Looking Financial Sector Metrics Consultation, October 2020.

14

 CFD, Proposed Guidance on Climate-related Metrics, Targets, and Transition Plans, June 7, 2021; Portfolio Alignment Team,T
Measuring Portfolio Alignment: Technical Supplement, June 7, 2021.

7

The Task Force on Climate-related Financial Disclosures

metrics, targets, and transition plan elements,
as well as the challenges of disclosure, andfor users to assess the usefulness of suchdisclosures. The consultation also asked about
proposed updates to the supplemental guidance
for financial sectors, including on disclosureof Scope 3 GHG emissions and alignment offinancial sector business activities with a 2°C
or lower GHG emissions pathway (“portfolioalignment”).15 In addition, respondents provided
input on developments and changes in user
expectations since the original guidance wasreleased in 2017.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics

Responses to these public consultations allowed
the Task Force to better assess the burden of
disclosure on preparers as well as the need forconsistent and decision-useful information forusers, a balance that is foundational to the Task
Force’s work. Based on the over 400 responses
received through both consultations, the Task
Force has clarified and simplified the proposedguidance and updated specific sections of its
Implementing the Recommendations of the Task
Force on Climate-related Financial Disclosures(2021 annex).16
The Task Force’s guidance for all sectors released
in 2017 explicitly or implicitly addresses the

topics covered in this guidance. Nevertheless,the Task Force believes it is critical to emphasize
the importance of disclosing certain climaterelated metrics and targets and to explicitly
address the types of information organizations
should disclose as it relates to their plans fortransitioning to a low-carbon economy, wheresuch disclosures are appropriate.

3. KEY CONSIDERATIONSThe Task Force encourages preparers to readthe guidance in the context of the following
considerations.
Principles for Effective Disclosures. To
underpin its recommendations and help guidedevelopments in climate-related financial
reporting, the Task Force developed a set offundamental principles for effective disclosure(Figure B1). These principles can help achieve
high-quality and decision-useful disclosuresthat enable users to understand the impact
of climate change on organizations. The Task
Force encourages organizations adopting its
recommendations to consider these principles as
they develop climate-related financial disclosures.

D.
Climate-Related Targets
E.
Transition Plans

Figure B1

Principles for Effective Disclosures

F.
Financial Impacts
Appendices

1

2

3

4

Disclosures should
represent relevant
information

Disclosures shouldbe specific andcomplete

Disclosures should
be clear, balanced,
and understandable

Disclosures should
be consistentover time

5

6

7Disclosures should
be comparable
among companies
within a sector,
industry, or portfolio

Disclosures
should be reliable,
verifiable,
and objective

Disclosures should
be provided ona timely basis

15

 hough the language released for consultation referenced a 2°C or lower temperature pathway, the Task Force recommendationTon portfolio alignment has been updated to reference article two of the 2015 Paris Agreement, which commits parties to “holding
the increasing in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit thetemperature increase to 1.5°C above pre-industrial levels” (emphasis added).

16

TCFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures (2021 annex), October 14, 2021.

8

The Task Force on Climate-related Financial Disclosures

The Task Force’s disclosure principles are
informed by the qualitative and quantitative
characteristics of financial information andfurther the overall goals of the Task Force topromote more effective climate-related financial
disclosure. The principles, taken together, aredesigned to assist organizations in making clear
the linkages and connections between
climate-related issues and their governance,
strategy, risk management, and metrics andtargets. The Task Force’s fundamental principles
for effective disclosure are described in Appendix
3 of the TCFD 2017 report.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Cross-Industry Metric Categories. In Section
C. Climate-Related Metrics, the Task Force
identifies a set of climate-related metriccategories that all organizations should disclose,
where data and methodologies allow. It is
important to note that the cross-industry metriccategories do not prescribe the exact metrics
and units of measure to be used. Rather, theyreflect broader categories of information thatinvestors, lenders, and insurance underwriters
find useful in making financial decisions. The
Task Force recognizes that organizations
may operationalize the metric categories indifferent ways most relevant to their industry,
capabilities, and business model. Therefore,
the metric categories help drive toward further
comparability in disclosure in response tomarket feedback, but also allow flexibility fororganizations, industries, standard setters, andjurisdictions to develop specific climate-related
metrics within those defined categories.
Financial Sector Metrics. This guidance
primarily addresses all types of organizations;however, there are certain areas in which it
provides specific considerations for financial
sector organizations due to the nature of theirbusiness activity. For example, within Scope
3 GHG emissions reporting, financial sector
organizations are specifically encouraged
to disclose GHG emissions related to theirinvesting, lending, and underwriting activities.

In addition, following the Task Force’s consultation
on forward-looking metrics, this guidance
discusses the disclosure of the alignmentof a financial organization’s business activities
with a temperature pathway well below 2°C(“portfolio alignment”) in Sub-Section C.4.
Portfolio Alignment Metrics for the Financial
Sector.17 The Task Force requested that an
independent group of expert analysts fromfinancial organizations (the Portfolio AlignmentTeam) develop technical considerations
outlining its views on developing portfolioalignment metrics and areas of further work
as a resource for organizations interested in
exploring portfolio alignment.18
Transition Plans. While the Task Force’s Strategy
recommendation asks for disclosure of theactual and potential impacts of climate-relatedrisks and opportunities on the organization’s
businesses, strategy, and financial planning,
reporting on transition plans has emerged
more recently as important to users. Therefore,
guidance on transition plans is provided in
Section E. Transition Plans and in the 2021 annex
to assist preparers with developing disclosuresthat meet current user expectations.
Implementation Over Time. The Task Forcerecognizes that some areas addressed inthis guidance are still maturing. While someorganizations already disclose the information inthis guidance today, others may need additionaltime to source appropriate data as well as
update their internal processes and reporting
capabilities before publicly disclosing someelements. The Task Force encourages reporting
based on the updated 2021 annex to be
implemented as soon as possible.

17

 rticle two of the 2015 Paris Agreement commits parties to “holding the increasing in the global average temperature to wellA
below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”

18

Portfolio Alignment Team, Measuring Portfolio Alignment: Technical Considerations, October 2021.

9

C.
Climate-Related
Metrics

The Task Force on Climate-related Financial Disclosures

C. Climate-Related Metrics
This section aims to support organizations’disclosure of climate-related metrics bydiscussing characteristics of effective climaterelated metrics, describing the types of
information organizations should consider
including in their disclosure of climate-related
metrics, and setting out categories of metrics fordisclosure across industries. It provides further
details on these cross-industry, climate-related
metric categories, including example disclosures.
The section also includes discussion of metrics
with which to measure the alignment of financial
sector business activities with GHG emissions
reduction goals.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

As described in Figure A1 (p. 4), the Task Force’s
recommendations are structured around fourthematic areas that represent core elementsof how organizations operate — governance,
strategy, risk management, and metrics andtargets. While all four recommendations areinterrelated, the Task Force views metrics
as the “connective tissue” between therecommendations (Box C1).

1. CHARACTERISTICS OF EFFECTIVE
CLIMATE-RELATED METRICS
Many sources offer guidance on how to selectbusiness-relevant metrics.19 In particular, theTask Force believes that climate-related metrics
should have several characteristics to help themmeet the Task Force’s fundamental principles for
effective disclosure.20
Decision-Useful. Climate-related metrics helporganizations understand potential impacts ofclimate-related risks and opportunities over a
specified time period, including financial impacts
and operational consequences. To bedecision-useful, these metrics should be relevantto the organization’s risks and opportunities
and show how the organization manages suchrisks and opportunities as part of its governance,
strategy, and risk management processes.

Box C1
Relationship between Metrics
and Other TCFD Recommendations
Climate-related metrics should inform, and be
informed by, the organization’s governance,
strategy, and risk management processes andcreate a feedback loop over time in the same
way that other key performance indicators andkey risk indicators are used to inform business
management processes.
• Governance. Climate-related metrics enable
an organization’s board and management
to more effectively direct the business bymeasuring and describing the impacts ofclimate-related risks and opportunities on
the organization — recommended disclosures
Governance a) and b). Metrics are also essential
for informing investors, lenders, insurance
underwriters, and other stakeholders about
how senior management tracks and manages
climate-related risks and opportunities. Climaterelated metrics, such as remuneration, can show
how directors and managers are incentivized toachieve climate-related objectives.
• Strategy. Climate-related metrics are criticalto measuring and describing the impact ofclimate-related risks and opportunities on theorganization’s businesses, strategy, and financial
planning — recommended disclosure Strategy b)— and the resilience of an organization’s
strategy under different climate-related
scenarios — recommended disclosure Strategy c).
• Risk Management. Climate-related metrics
support the measurement of risk exposuresand levels as part of an organization’s broader
risk management processes. In conjunction
with risk tolerances, risk appetites, and risk
thresholds, climate-related metrics inform thedegree of risk that the organization is prepared toaccept and its risk responses (e.g., accept, avoid,pursue, reduce, share/transfer) — recommended
disclosures Risk Management a) and b). Additional
information is provided in the TCFD’s Guidance on
Risk Management Integration and Disclosure,published on October 29, 2020.

19

 or example: SASB, SASB Conceptual Framework, February 2017, p. 19; van Oudenhoven, et al., Key criteria for developingF
ecosystem service indicators to inform decision making, August 14, 2018; Shah, “Measuring What Matters: How To Pick
A Good Metric,” March 29, 2013; Eckerson, “12 Characteristics of Effective Metrics,” April 19, 2010; Weber, et al.,
Exploring Metrics to Measure the Climate Progress of Banks, May 24, 2018; and Hoffmann, and Busch, “Corporate Carbon
Performance Indicators: Carbon Intensity, Dependency, Exposure, and Risk,” November 11, 2008.

20

TCFD, 2017 report, June 29, 2017, pp. 51–53.

11

The Task Force on Climate-related Financial Disclosures

Clear and Understandable. Disclosure ofclimate-related metrics is most effective when
metrics are presented in a manner that aids
understanding (e.g., both aggregated anddisaggregated, where useful; clear labeling),
including clear articulation of any limitations
and cautions. Climate-related metrics should
provide important context around such
points as management’s thinking in terms ofgoal setting, internal process management,
and communication objectives and should
be supported by contextual and supporting
narrative information on items such asorganizational boundaries, governance,
methodologies, and basis of preparation.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts

Reliable, Verifiable, and Objective. Climaterelated metrics support effective internal
controls for the purposes of data verification andassurance. Climate-related metrics should befree from bias and value judgment so that theyyield an objective disclosure of performance thatusers can leverage regardless of their worldview
or outlook.
Consistent over Time. There are three time
horizons that are relevant to climate-related
metrics: current, historical, and forward-looking,which are defined as follows:• Current. Current period data, outlining
most recent reporting period and covering
the same period as the current period in theorganization’s financial filings (e.g., 12 months
year to date).

• Forward-Looking. Future period data,
covering short-, medium-, and long-term time
horizons. Forward-looking metrics may bebased on methodologies such as scenario
analysis, trend analysis, sensitivity analysis,
and simulations, as well as commitments andclimate-related targets. Unlike historical andcurrent data, forward-looking data are usuallymore appropriately reported as ranges basedon assumptions about the future state of theworld, often tied to one or more plausible
climate scenarios. Forward-looking reportingis most useful when it is presented along withinformation on the designated time horizon,
methodologies, and scenarios used, as well as
key assumptions.
It is helpful for preparers to disclose climaterelated metrics consistently from year to year inorder to facilitate comparative and trend analysis
and to clearly identify the time horizon over whichclimate-related metrics are measured. Climaterelated metrics are most effective when the same
item is reported across all time periods as shownin Figure C1. Measuring the same metrics overtime provides a way to track progress.
Disclosure of GHG emissions, for example, could
include data on the organization’s previous
GHG emissions levels, the amount of GHG
emissions in the organization’s current reporting
period — including an indication of progressagainst GHG-specific targets — and a forwardlooking range for future GHG emissions.

• Historical. Data for the period(s) prior to thecurrent period, covering at a minimum the same
period as in the organization’s financial filings.21

AppendicesFigure C1

Time Horizon

21

Historical

Current

Climate-Related
Metrics

Climate-Related
Metrics

Informed by:
Climate goal
and high-levelclimate strategy

Forward-Looking
Climate-Related
Metrics
Targets
Scenario #1, 2, 3
Projections
Transition Plan

TCFD encourages organizations to provide at least two years of historical data in order to provide a basis for tracking progress.

12

The Task Force on Climate-related Financial Disclosures

2. D ISCLOSING CLIMATE-RELATEDMETRICS
Effective disclosure of climate-related metrics
generally involves providing metrics alongwith contextual and supporting narrative
to help users understand the meaning anduse of climate-related metrics and the basis
on which they have been prepared. Climaterelated metrics, and associated narrative,
should be integrated with an organization’s
other disclosures to provide a coherent set of
information on the organization’s climate-relatedrisks and opportunities and actual and potential
financial impacts.22 Organizations should also
consider which metrics to present as point
estimates and which to present as ranges or
qualitative categories, and whether to include
the level of confidence associated with the valueof the metric.
A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

In presenting climate-related metrics andassociated contextual information in theirdisclosures, an organization should consider
providing the following, where relevant:23• Types of measurements used, including
whether information comes from direct
measurements, estimates, proxy indicators,
or financial and management accounting
processes.
• Methodologies and definitions used,
including the scope of application, data
sources, critical factors or parameters,
assumptions, and limitations of themethodology. For example, the GHG Protocolsuggests that organizations discuss GHG
emissions factors, scope, and boundaries.
For metrics informed by scenario analysis,organizations should include information
on which climate scenarios were used andtheir assumptions and limitations (Box C2).
Organizations should also provide context ifthey adjust the methodology or definition ofparticular metrics.
• Trend data to allow for consideration of
how metrics have changed in absolute andrelative amounts over time, including whether
acquisitions, divestments, or policies haveaffected results.

• How results are connected with business
units, company strategy, and financial
performance and position. Where it aids
understanding, organizations should consider
disaggregating information by categories suchas geographic area, business unit, asset, type,
upstream and downstream activities, source,
and vulnerability of area.
• How value chains will be affected overtime by climate-related transition andphysical risks, including life cycle GHG
emissions reporting.
• Reconciliation with financial accounting
standards, if needed. If climate-related
metrics are presented in financial terms,
disclosures should clarify how such metrics
reconcile with financial accounting standards
and explain any differences.

Box C2
Importance of Disclosing Details on
Climate-Related Scenario Analysis
As noted in the 2020 TCFD Guidance on Scenario
Analysis for Non-Financial Companies, users
desire greater transparency into the types ofscenarios preparers are using and their impact
on the organization’s strategy. In particular,
preparers should “describe processes used for
scenario analysis; the range and assumptionsof scenarios used; key findings; whether it is astandalone analysis or integrated with company’srisk management and strategy processes,” TCFD,
Guidance on Scenario Analysis for Non-Financial
Companies, October 29, 2020, p. 45.
Using a common set of scenarios and inputs(e.g., parameters, timelines, industry-specificmetrics, methodologies) increases comparability
across companies, provides greater reliability
and relevance, and can help reduce the resources
required by preparers to develop scenarios inhouse. On the other hand, using a common set of
scenarios across organizations may reduce theirability to assess their individual situations and how
climate-related risks may uniquely affect them, andthus could increase concentration of risk.

22

 or more information see, for example, Section 3.5 Key Performance Indicators (pp. 12–20) within the European
F
Commission, Guidelines on non-financial reporting: Supplement on reporting climate-related information, June 20, 2019.

23

TCFD, 2021 annex, pp. 7–8, provides more detail on location of disclosure.

13

The Task Force on Climate-related Financial Disclosures

3. D RIVING TOWARD COMPARABILITY:
CROSS-INDUSTRY METRICCATEGORIESA.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

disclosures and guidance for all sectors since
the release of its 2017 report. In selecting metriccategories, the Task Force sought to emphasize
categories that meet several criteria, as follows:

Climate-related metrics can be generally
categorized into two groups — those that
apply to all organizations (cross-industry) andthose that are specific to an industry (industryspecific).24 In its 2020 status report, the Task
Force acknowledged industry associations,standard setters, and similar organizations are
best positioned to identify and operationalize
industry-specific metrics and highlighted manyof the groups working on such metrics. Notably,
the IFRS Foundation has since announced plans
to establish the International Sustainability
Standards Board (ISSB) to meet the need for
globally consistent sustainability reporting.25• indicative of many basic aspects and drivers ofclimate-related risks and opportunities;

The Task Force has identified seven categories
of climate-related metrics from the Task Force’s
11 recommended disclosures and guidance forall sectors that all organizations should disclose(Table C1, p. 16), recognizing that for somecategories, implementation may take time asdata and methodologies evolve. The Task Forceencourages reporting based on the updated
2021 annex to be implemented as soon as
possible, as disclosure of metrics aligned withthese seven categories will support convergencein the disclosure of key metrics.

The Task Force, however, is not a standardsetting body and has defined metriccategories broadly to allow flexibility fororganizations, industries, and jurisdictions
to develop and adopt specific climate-related
metrics to support these metric categories. The
current ability of organizations and industries
to specify metrics applicable to these categories
will vary, and the state of methodologies anddata may need to further evolve in some areas.
The TCFD believes, however, that it is important
to articulate a common set of metric categories
to encourage industries and standard setters
to further operationalize specific metrics
that address each category. In the meantime,
preparers should use common taxonomies
or methodologies, where appropriate.

Importantly, the seven metric categories
are not additions to the Metrics and Targets
recommendation as they relate to metrics thathave been part of the Task Force’s recommended• useful for understanding how an organization
is managing climate-related risks andopportunities;• widely requested by climate reporting
frameworks, lenders, investors, insurance
underwriters, and regional and national
disclosure requirements; and,• key inputs for estimating financial impacts ofclimate change on organizations.

F.
Financial Impacts
Appendices24

 or further discussion of the distinction between cross-industry and industry-specific disclosures, see SASB,F
Climate Risk Technical Bulletin, April 13, 2021, p. 21.

25

IFRS, Consultation Paper on Sustainability Reporting, September 2020; IFRS, “IFRS Foundation Trustees announce
next steps in response to broad demand for global sustainability standards,” February 2, 2021.

14

The Task Force on Climate-related Financial Disclosures

The Task Force recommends that preparers
disclose metrics consistent with the crossindustry, climate-related metric categories forthe current, historical, and forward-looking
periods.26 Forward-looking information,
particularly information related to theorganization’s medium- and long-term time
horizons, may be more appropriate to reportas ranges, qualitative directions, or numbers
tied to specific assumptions about the futurestate of the world, such as those informedby scenario analysis.27 It is also important tonote that the recommended disclosures withinboth the Strategy and Metrics and Targets
recommendations are subject to materiality,
except for the disclosure of Scope 1 and Scope 2
GHG emissions (Box C3).

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

The Task Force encourages all preparers to begin
disclosing metrics consistent with the crossindustry, climate-related metric categories, but
acknowledges not all will have the resources
to present quantitative information acrossall metric categories. Instead, the Task Forceencourages organizations to begin where
resources and expertise allow; for example,
by disclosing qualitative information first or
focusing on the sectors, business lines, or assets
with the most significant climate-related risks
and opportunities and improving quantitative
disclosures over time.
Organizations typically use a wide variety of
information internally and externally to manage
their operations. These cross-industry,
climate-related metric categories are
not meant to supplant or replace otherinformation that organizations track as partof their business planning or that industries
converge on to track climate-related risks
or opportunities specific to their industry ororganization. Rather, the Task Force intends
for this set of cross-industry metric categories
to provide a base of comparability across andwithin industries and form a framework forthe types of climate-related metrics that allorganizations should report.

Box C3
Application of Materiality
When the Task Force released its
recommendations and implementing guidelines
in 2017, it noted that “[t]he disclosures related
to the Strategy and Metrics and Targets
recommendations involve an assessment ofmateriality,” while the disclosures related togovernance and risk management do not. 28
As part of the Proposed Guidance on Metrics,
Targets, and Transition Plans, the Task Forcerequested that respondents comment on whether
the cross-industry metric categories, or a subsetof them, should be disclosed independent ofan assessment of materiality. 29 Respondents
expressed strong support for disclosure of Scope
1 and Scope 2 GHG emissions independent of anassessment of materiality, with 70% saying Scope
1 and Scope 2 GHG emissions should be disclosed.
An additional 47% supported disclosure of Scope
3 GHG emissions independent of a materiality
assessment. 30 Further analysis of open-text
responses highlighted the importance of Scope 1,
Scope 2, and Scope 3 GHG emissions information
as foundational data with which to assess climaterelated risks and opportunities. Disclosure of theother metric categories was more mixed, with33%–42% of respondents requesting disclosure
independent of a materiality assessment acrossthe remaining six categories.
Based on the consultation on metrics, targets,and transition plans, the Task Force has updated
its 2021 annex to specify that “[t]he Task Forcebelieves all organizations should disclose absolute
Scope 1 and Scope 2 GHG emissions independentof a materiality assessment. The disclosure of
Scope 3 GHG emissions is subject to materiality;
however, the Task Force encourages organizations
to disclose such emissions.” 31, 32 The othercross-industry, climate-related metric categories
remain subject to materiality. Organizations
should determine materiality for climate-related
metrics consistent with how they determine themateriality of other information included in theirfinancial filings.

26

 s noted in the 2021 annex, “Asset owners and asset managers should report to their beneficiaries and clients, respectively,Athrough existing means of financial reporting, where relevant and where feasible. Asset owners and asset managers are also
encouraged to disclose publicly via their websites or other public avenues of disclosure” (p. 8).

27

F or more information, see TCFD, Guidance on Scenario Analysis for Non-Financial Companies, October 2020, pp. 46–51.

28

TCFD, 2017 report, pp. 33–34; TCFD, 2017 annex, p. 3.

29

TCFD, Proposed Guidance on Metrics, Targets, and Transition Plans, June 7, 2021, p. 31.

30

 orty-seven percent responded that Scope 3 GHG emissions should be disclosed irrespective of materiality; 43% responded
F
that they should be disclosed based on a materiality assessment; 10% were not sure. TCFD, Consultation on Proposed Guidanceon Metrics, Targets, and Transition Plans: Summary of Responses, October 14, 2021.

31

TCFD, 2021 annex, p. 7.

32

 hile the Task Force agreed that organizations should disclose Scope 1 and 2 GHG emissions independent of a materialityW
assessment, a few Task Force members preferred keeping such disclosures as subject to materiality.

15

The Task Force on Climate-related Financial Disclosures

Table C1

Cross-Industry, Climate-Related Metric
Categories and Example Metrics
Metric Category
GHG Emissions
Absolute Scope 1, Scope 2,
and Scope 3;34 emissions
intensity

Example Unitof Measure33

Example Metrics

MT of CO2e

• Absolute Scope 1, Scope 2, and Scope 3 GHG emissions• Financed emissions by asset class• Weighted average carbon intensity• GHG emissions per MWh of electricity produced• Gross global Scope 1 GHG emissions covered underemissions-limiting regulations

Transition Risks
Amount and extent
of assets or businessactivities vulnerable
to transition risks*A.
Overview and Background

Amountor percentage• Volume of real estate collaterals highly exposedto transition risk
• Concentration of credit exposure to carbon-related
assets• Percent of revenue from coal mining

B.
Scope and Approach• Percent of revenue passenger kilometers not covered
by Carbon Offsetting and Reduction Scheme forInternational Aviation (CORSIA)C.
Climate-Related Metrics

Physical Risks
Amount and extent
of assets or businessactivities vulnerable
to physical risks*D.
Climate-Related Targets

Amountor percentage• Number and value of mortgage loans in 100-year
flood zones• Wastewater treatment capacity located in 100-year
flood zones

E.
Transition Plans• Revenue associated with water withdrawn andconsumed in regions of high or extremely highbaseline water stressF.
Financial Impacts• Proportion of property, infrastructure, or otheralternative asset portfolios in an area subject
to flooding, heat stress, or water stress

Appendices• Proportion of real assets exposed to 1:100
or 1:200 climate-related hazards
Climate-Related
Opportunities
Proportion of revenue,
assets, or other businessactivities alignedwith climate-related
opportunities

Amountor percentage• Net premiums written related to energy efficiency
and low-carbon technology• Number of (1) zero-emissions vehicles (ZEV), (2) hybrid
vehicles, and (3) plug-in hybrid vehicles sold• Revenues from products or services that support
the transition to a low-carbon economy• Proportion of homes delivered certified to a thirdparty, multi-attribute green building standard
Continued on next page33

 he Task Force has noted the most common unit of measure. There are multiple ways to measure and disclose metrics, andTdifferent jurisdictions or industries may follow different practices. Allowing for differences in units of measure can help provide
organizations with flexibility without significantly impacting comparability as long as units are clearly stated.

34

 he Task Force believes Scope 3 GHG emissions are an important metric reflecting an organization’s exposure to climate-relatedTrisks and opportunities and recognizes the data and methodological challenges associated with calculating such emissions.
The Task Force encourages organizations to refer to the GHG Protocol’s The Corporate Value Chain (Scope 3) Accounting andReporting Standard for guidance on reporting these emissions.

16

The Task Force on Climate-related Financial Disclosures

Table C1 continued
Metric Category

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Example Unitof Measure33

Example Metrics

Capital Deployment
Amount of capital
expenditure, financing,or investment deployed
toward climate-relatedrisks and opportunities

Reporting currency

Internal Carbon Prices
Price on each ton of GHG
emissions used internallyby an organization

Price in reporting
currency, per MT
of CO2e• Internal carbon price

Remuneration
Proportion of executive
management
remuneration linked
to climate
considerations**

Percentage, weighting,description, or
amount in reporting
currency• Portion of employee’s annual discretionary bonus
linked to investments in climate-related products• Percentage of annual revenue invested in R&D
of low-carbon products/services• Investment in climate adaptation measures(e.g., soil health, irrigation, technology)• Shadow carbon price, by geography• Weighting of climate goals on long-term incentivescorecards for Executive Directors• Weighting of performance against operationalemissions’ targets for remuneration scorecard

Note: While some organizations already disclose metrics consistent with these categories, the Task Force recognizes
others — especially those in the early stages of disclosing climate-related financial information — may need time to adjust
internal processes before disclosing such information. 35 In addition, some of the metric categories may be less applicable tocertain organizations. For example, data and methodologies for certain metrics for asset owners (e.g., impact of climate change
on investment income) are in early stages of development. In such cases, the Task Force recognizes organizations will need time
before such metrics are disclosed to their stakeholders.
On the application of materiality, the Task Force believes all organizations should disclose absolute Scope 1 and Scope 2 GHG
emissions independent of a materiality assessment. The disclosure of Scope 3 GHG emissions is subject to materiality; however,
the Task Force encourages organizations to disclose such emissions. The other cross-industry, climate-related metric categories
remain subject to materiality. Organizations should determine materiality for climate-related metrics consistent with how they
determine the materiality of other information included in their financial filings.
*Transition and Physical Risks: Due to challenges related to portfolio aggregation and sourcing data from companies or
third-party fund managers, financial organizations may find it more difficult to quantify exposure to climate-related risks.
The Task Force suggests that financial organizations provide qualitative and quantitative information, when available.
**Remuneration: While the Task Force encourages quantitative disclosure, organizations may include descriptive
language on remuneration policies and practices, such as how climate change issues are included in balanced scorecards
for executive remuneration.
Additional context, including alignment with existing standards and example disclosures, is provided in Appendix 2: Example Disclosures.

The first category, GHG emissions, is foundational
data on which other climate-related disclosures
are often based. The next three categories,
transition risks, physical risks, and climate-related
opportunities, relate to point-in-time disclosureof climate-related risks and opportunities.
The next, capital deployment, covers future
capital expenditure, financing, or investment
to address these risks and opportunities, while
the last two categories, internal carbon prices
and remuneration, relate to management’s
incorporation of climate considerations.

As part of the consultation on metrics, targets,and transition plans, the Task Force asked users
whether the proposed cross-industry metriccategories would be useful, whether preparers
currently made such disclosures, and any
remaining challenges to implementation.36 A
summary of the results related to cross-industry,
climate-related metric categories is provided in
Box C4 (p. 18). Full results are discussed in the
TCFD’s Proposed Guidance on Metrics, Targets,
and Transition Plans Consultation: Summaryof Responses, October 14, 2021.

35

 rganizations may need time to evaluate and determine which metrics are relevant to disclose, identify and collect data andOother information needed for the calculation of metrics, implement new or update existing processes to address or include
relevant metrics, etc. The Task Force recognizes the amount of time needed to disclose certain metrics (e.g., physical risks)consistent with the categories identified in Table C1 (p. 16) depends on various factors and encourages organizations
to work with industry associations, standard setters, and others to agree on relevant and consistent metrics.

36

The consultation questions referred to these “metric categories” as “metrics.”

17

The Task Force on Climate-related Financial Disclosures

Box C4
Survey Results from the Consultation on Metrics, Targets, and Transition Plans
The results showed that many preparers are currently disclosing or planning to disclose the metriccategories, particularly GHG emissions, and that users would find such disclosures useful.
1%
5%
5%
3%
5%

4%
9%

10%

4%

5%

7%

13%

14%

13%

21%

17%

20%

22%

15%
10%

41%

6%
81%

30%
23%
43%

8%

13%
22%

54%

14%
18%

12%

Scope 1 and 2

B.
Scope and Approach

Scope 3

CarbonPrice

20%

Physical
Risks

14%

7%
6%

10%

25%

25%

21%

23%

Transition
Risks

Climate-Related
Opportunities

Remuneration

Capital
Deployment

Currently disclose

Currently estimate, but do not disclose

Planning to disclose

Planning to estimate,
but not necessarily disclose

No plans to estimate or disclose

I’m not sure

2%
8%

5%
15%

11%

C.
Climate-Related Metrics

8%

8%

7%

21%

22%

22%

46%

D.
Climate-Related Targets

91%

71%

Very useful

Scope 3

Somewhat useful

Carbon
Price

73%

72%

42%

Appendices

22%

41%

71%

Scope 1 and 2

6%
18%

54%

E.
Transition Plans
F.
Financial Impacts

15%

7%

17%

18%

A.
Overview and Background

8%

16%

42%

Physical
Risks

Transition
Risks

Climate-Related
Opportunities

Remuneration

Capital
Deployment

Not at all or not very useful

Source: TCFD, Proposed Guidance on Metrics, Targets, and Transition Plans Consultation: Summary of Responses, October 14, 2021

(1) GHG Emissions: Absolute Scope 1, Scope 2,
and Scope 3; emissions intensity

GHG emissions intensity information can provide
a useful comparison across organizations.

Disclosure of GHG emissions is crucial for users
to understand an organization’s exposure toclimate-related risks and opportunities andis also foundational information from which
other climate-related information is estimated.
Disclosure of absolute GHG emissions acrossan organization’s value chain provides insight
into how a given organization may be affectedby policy, regulatory, market, and technology
responses to limit climate change, while associated

Organizations with higher GHG emissions orwith fewer options with which to reduce GHG
emissions may be more impacted by transition
risk. In addition, current or future constraints
on GHG emissions, either set by policymakers
or by the organizations themselves, may impact
an organization’s strategy or financial planning.
GHG emissions are also key inputs to estimatingother metrics, determining financial impact, andperforming scenario analysis.

18

The Task Force on Climate-related Financial Disclosures

Recommended disclosure Metrics and Targets b)calls for organizations to disclose “Scope 1,
Scope 2, and, if appropriate, Scope 3 greenhousegas (GHG) emissions” and specifies in theguidance that such disclosures should be madein line with the GHG Protocol methodology
to allow for aggregation across organizations
and jurisdictions.37, 38
Since 2017, there have been two major
developments impacting the reporting of GHG
emissions, including by broadening the range oforganizations for which Scope 3 GHG emissions
are appropriate.
• An increasing number of organizations arereporting Scope 1, Scope 2, and Scope 3 GHG
emissions, suggesting that organizations are
gaining experience with such reporting.39

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts• There has been significant work to advancethe understanding and calculation of GHG
emissions for financial organizations,allowing financial preparers to disclose
their own Scope 3 GHG emissions in a morecomparable and complete manner.
The Task Force believes all organizations
should disclose absolute Scope 1 and Scope 2
GHG emissions independent of a materiality
assessment given the foundational aspectof these emissions in assessing exposure toclimate-related issues. In addition, the Task
Force strongly encourages all organizations todisclose Scope 3 GHG emissions.40, 41 The Task
Force believes that disclosure of GHG emissions
is critical to understanding an organization’s
exposure to climate-related risks andopportunities and hopes that encouraging more
disclosure of GHG emissions will help support
and accelerate improvements in methodology
and coverage of disclosure.
The Task Force recognizes several challenges
associated with disclosure of Scope 3 GHG
emissions, including data availability, calculation
methodologies, scoping, and organizational
barriers (Appendix 1: Further Information
on Select Cross-Industry, Climate-Related
Metric Categories provides further details).
In addition, there are inherent limitations of
the methodology for Scope 3 GHG emissions
accounting and reporting, including the issueof double counting emissions.42 The most wellknown and widely referenced Scope 3 reporting
methodology is the GHG Protocol’s Corporate
Value Chain (Scope 3) Accounting and ReportingStandard, commonly referred to as the Scope
3 Standard, which notes that “companies shall
publicly report [a] list of scope 3 categories andactivities included in the inventory. A list of scope
3 categories or activities excluded from theinventory with justification of their exclusion.”43
Nonetheless, disclosure of Scope 3 GHG emissions
is an essential component of climate-related risk
analysis in commercial and financial markets
and is increasingly being requested by investors
and other market participants. In particular,
better disclosure of GHG emissions is necessary
to inform lending, investing, and insurance
underwriting decisions. Recognizing theirimportance, a growing number of organizations
are working to improve how they calculate anddisclose their Scope 3 GHG emissions.44
As with all TCFD recommendations, organizations
should take account of their regional or national

Appendices37 hile challenges remain, the GHG Protocol methodology is the most widely recognized and used international standardW
for calculating GHG emissions. Organizations may use national reporting methodologies if they are consistent with the
GHG Protocol methodology.

38

In collaboration with the World Resources Institute and WBCSD, the GHG Protocol established a Land Sector andRemovals Initiative to develop new guidance on GHG accounting related to carbon removals and land use. The guidance
will build on the GHG Protocol Standards to cover the following activities: land use, land use change, carbon removals andstorage, bioenergy and other biogenic products, and related topics. The guidance is expected for publication in Q4 2022.

39

 ighty-one percent of respondents in the Task Force’s consultation on metrics, targets, and transition plans said theyEcurrently disclose Scope 1 and Scope 2 GHG emissions, with another 54% disclosing Scope 3 GHG emissions. Task
Force analysis of 2,500 organizations within the MSCI All Country World Index (ACWI Index) found that from 2017–2019,organizations disclosing Scope 1 GHG emissions grew from 43% to 52%; organizations disclosing Scope 2 GHG emissions
grew from 42% to 51%; and organizations disclosing Scope 3 GHG emissions grew from 28% to 34%.

40

 hen considering whether to disclose Scope 3 GHG emissions, organizations should consider whether such emissions
W
are a significant portion of their total GHG emissions. For example, see discussion of 40% threshold in SBTi’s paper
SBTi Criteria and Recommendations, Version 4.2, April 2021, Section V, p. 10.

41

CDP, Transparency to Transformation: A Chain Reaction, February 2021, p. 14.

42

 HG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, September 2011, p. 6, notes “Use ofG
this standard is intended to enable comparisons of a company’s GHG emissions over time. It is not designed to support
comparisons between companies based on their Scope 3 GHG emissions. Differences in reported emissions may be a
result of differences in inventory methodology or differences in company size or structure.”43

GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, September 2011, p. 119.

44

 WF, Overcoming Barriers for Corporate Scope 3 Action in the Supply Chain, November 2019; Blanco, Caro, and Corbett,W
The State of Supply Chain Carbon Footprinting: Analysis of CDP Disclosures by US Firms, May 17, 2016; BHP, Addressing
greenhouse gas emissions beyond our operations: Understanding the ‘scope 3’ footprint of our value chain, August 2018.

19

The Task Force on Climate-related Financial Disclosures

disclosure requirements when disclosing Scope
3 GHG emissions.45 For instance, the United
Kingdom’s Financial Conduct Authority proposes
in its consultation on “Enhancing climate-related
disclosures by asset managers, life insurers, andFCA-regulated pension providers” that “firms
should disclose Scope 3 GHG emissions fromno later than 30 June 2024. This is 1 year later
than the deadline for the first disclosures inaccordance with the rest of our proposals.”46
Organizations may find it useful to disclose
GHG emissions by relevant business line, GHG

emissions split out by the seven gases coveredby the Kyoto Protocol, and emissions intensity.47
Disclosing cumulative GHG emissions overtime relative to the baseline year used foran organization’s GHG emissions reduction
target can also help users better understandan organization’s exposure to climate-related
issues and the potential need to make stronger
GHG emissions reductions in later years if
earlier interim targets are not met.48 Figure C2
shows one bank’s approach to disclosing
forward-looking estimates of its absoluteand intensity-based financed emissions.

Figure C2

Example Disclosure: Barclays
Our clients’ activity

A.
Overview and Background

Financed emissions – Energy
Absolute emissions MtCO2 (Indexed 2020 = 100)

B.
Scope and Approach

Fuel mix – Energy
%
1

100
80

C.
Climate-Related Metrics

60
40

55

-15% by 2025

December 2020:
75.0 MtCO₂

41

20

D.
Climate-Related Targets

0

2020

2025

2030

IEA SDS Benchmark: OECD*

E.
Transition Plans

2035

2040

Portfolio target path

Financed emissions – Power
Emissions intensity KgCO2/MWh
350

F.
Financial Impacts

44

39

Barclays Dec 2020

2020 Benchmark OECD

19

Appendices

150

21
2

250
200

33

December 2020:
321 KgCO₂/MWh

100

22

50
0

2020

Coal
Oil
Gas

Fuel mix – Power%-30% by 2025

300

21

2025

2030

IEA SDS Benchmark: OECD*

2035
Portfolio target path

2040

2
29
18

25

30

Barclays Dec 2020

2020 Benchmark OECD

Coal
Oil
Gas
NuclearRenewable(inc. Hydro)

Source: Barclays PLC, ESG Report 2020, p. 16
Note: Some content was reformatted in order to fit the page.

45

 s noted in the 2017 report, “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions
Aand should not be seen as superseding national disclosure requirements. Importantly, organizations should make financial
disclosures in accordance with their national disclosure requirements. If certain elements of the recommendations are incompatible
with national disclosure requirements for financial filings, the Task Force encourages organizations to disclose those elements inother official company reports that are issued at least annually, widely distributed and available to investors and others, and subject
to internal governance processes that are the same or substantially similar to those used for financial reporting” (p. 17).

46

 inancial Conduct Authority, “Enhancing climate-related disclosures by asset managers, life insurers, and FCA-regulated pension
F
providers: Consultation paper,” June 2021, p. 32.

47

 he GHG Protocol Corporate Standard “covers the accounting and reporting of seven greenhouse gases covered by the Kyoto
T
Protocol – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulphur
hexafluoride (SF 6) and nitrogen trifluoride (NF3).” For more information, see https://ghgprotocol.org/corporate-standard.

48

 arbon budget, or cumulative emissions, refers to “the estimated cumulative amount of global carbon dioxide emissions that isCestimated to limit global surface temperature to a given level above a reference period, taking into account global surface temperature
contributions of other GHGs and climate forcers” (original emphasis). IPCC, “Special Report: Global warming of 1.5°C Glossary.”

20

The Task Force on Climate-related Financial Disclosures(2) Transition Risks: Amount and Extent
of Assets or Business Activities Vulnerable
to Transition Risks
As described in the 2017 report, organizations
can be vulnerable to several types of climaterelated transition risks: a) policy and legal risks
reflecting changes in policy and litigation action;b) technology risk as emerging technologies
impact the competitiveness of certain
organizations; c) market risk from changes
to supply and demand; and d) reputationalrisks tied to changing customer orcommunity perceptions.49

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

Disclosure of the amount and extent of anorganization’s assets or business activities
vulnerable to climate-related transition risks
allows users to better understand potential
financial vulnerability regarding issues suchas possible impairment or stranding of assets,
effects on the value of assets and liabilities, andchanges in demand for products or services.
The way in which organizations disclose thismetric category will depend on their industryand organization-specific climate-related risks.
For example, banks may look at the proportionof their lending activities or portfolios materially
exposed to carbon-related assets, while
non-financial companies may choose to reportamount or percentage of operating earnings,
revenues, or production output coming fromhigh-carbon business lines. Figure C3 shows ametals and mining company’s disclosure of its
production output from high-carbon businesslines, which could be helpful in considering
concentrations of risks in assets affected by
the transition to a low-carbon economy.
(3) Physical Risks: Amount and Extent
of Assets or Business Activities Vulnerable
to Physical Risks50
The 2017 report also describes the types ofclimate-related physical risks that organizations
might be vulnerable to, distinguishing betweena) acute risks, such as hurricanes, floods, andwildfires, that are event-driven and b) chronicrisks, such as higher temperatures andsea-level rise, that refer to longer-term shifts
in climate patterns.51 In determining vulnerability
to physical risks, organizations should consider
their climate-related hazards, exposures to thosehazards, and their vulnerability.52
Disclosure of the amount or extent of anorganization’s assets or business activities
vulnerable to material climate-related physicalrisks allows users to better understand potential
financial vulnerability regarding such issues as
impairment or stranding of assets, effects on
the value of assets and liabilities, and cost of
business interruptions. Organizations that are
not yet able to disclose physical risk vulnerability
could begin by describing the types of tools they
are using to assess such risks.

E.
Transition Plans
F.
Financial Impacts

Figure C3

Example Disclosure: BHP Production

Appendices

Source: BHP, Climate Change Report 2020, p. 4

49

TCFD, 2017 report, pp. 5–6.

50

 onsultation language included that organizations should disclose the proportion of assets “materially exposed” to recognize
Cthat under forward-looking scenarios with high emissions pathways, all an organization’s physical assets could be exposed
to physical risk to some extent. However, several respondents noted that the use of the phrase “materially exposed” wasconfusing given that the TCFD’s Metrics and Targets recommendation is subject to materiality. Given that this materiality
threshold applies to the cross-industry metric categories, except for Scope 1 and Scope 2 GHG emissions, the Task Forcehas removed “materially exposed” from the transition risk and physical risk categories.

51

TCFD, 2017 report, p. 6.

52

 urther guidance on reporting physical risks can be found in European Bank for Reconstruction and Development and Global
F
Centre of Excellence on Climate Adaptation’s Advancing TCFD Guidance on Physical Climate Risks and Opportunities, May 2018,
and IPCC, Emergent Risks and Key Vulnerabilities, October 15, 2014.

21

The Task Force on Climate-related Financial Disclosuressea-level rise, or drought. Some disclosures focus
on the risk type by business activity or asset
category, such as the disclosure by the insurancecompany in Figure C4, while other organizations
may choose to disclose their aggregate assets
based on a severity characterization, such as theasset owner disclosure in Figure C5.

Physical risks will be specific to the geography
where the assets or activities are located andtheir likely exposure or vulnerability to therisk. For example, certain assets may be mostvulnerable to acute risks from hurricanes
or wildfires, while others are more at risk fromchronic changes in average temperature,

Figure C4

Example Disclosure: Ilmarinen
Proportional shares of physical risk

Composite Sensitivity-Adjusted Risk Score by Type

Equity portfolio 2020

A.
Overview and Background

Corporate bond portfolio 2020

B.
Scope and Approach00%

WildfireC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Coldwave0.2
20%

Heatwave

0.4
40%

Water Stress

0.6
60%

Coastal Flood

0.8
80%

Flood

1
100%

Hurricane

Source: Ilmarinen, Annual and Sustainability Report 2020, p. 50
Note: Some content was reformatted in order to fit the page.

Figure C5

Example Disclosure: ERAFPEXPOSURE TO PHYSICAL RISKS (% OF ASSETS)
Source — Trucost, 30 November 2020

90%

83.2%

+ The risk score is lessthan or equal to 20(low risk) for 83.2% of
the value of the global
aggregate portfolio.
This is higher than the
low-risk proportion of
the benchmark (81.6%).

81.6%

80%
70%
60%
50%
40%
30%

15.9%

20%

17.0%

10%

1.0%
0

Low risk (0-20)

Moderate risk (21-40)

Globalaggregate portfolio

1.5%High risk (41-100)+ The risk score is lessthan or equal to 40(high risk) for 1.0% of
the value of the global
aggregate portfolio. Thisis lower than the highrisk proportion of thebenchmark (1.5%).

Benchmarkindex

Source: ERAFP, Public Report 2020, p. 89
Note: Some content was reformatted in order to fit the page.

22

The Task Force on Climate-related Financial Disclosures(4) Climate-Related Opportunities: Proportionof Revenue, Assets, or Other Business Activities
Aligned with Climate-Related Opportunities
The 2017 report also describes several
categories of climate-related opportunities thatorganizations can capture. Examples includea) improved resource efficiency from reducing
energy, water, and waste; b) use of energy
sources that emit low or no GHG emissions; c)development of new products and services; d)access to new markets; and e) improved adaptive
capacity and resilience.
Disclosure of the proportion of revenue, assets,or business activities aligned with climaterelated opportunities provides insight into theposition of organizations relative to their peers
and allows users to understand likely transition
pathways and potential changes in revenue andprofitability over time.
A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

The operationalization of this metric category willbe specific to each industry’s or organization’s
climate-related opportunities, as well as to theopportunities within specific business lines orasset classes. For example, auto manufacturers
might report sales of electric vehicles relative tototal vehicle sales, while utilities companies could

report renewable generation as a fraction of
their total electricity generation. An agriculturalcompany might report revenues received fromthe sale of drought-resilient seeds, while an asset
manager could disclose the percent of resilient
infrastructure in its portfolio. The example
disclosure provided in Figure C6 shows how one
chemicals company characterizes its sales bysustainability indicator.
Existing frameworks already provide some
sector-specific guidance to help preparers disclose
information on climate-related opportunities. For
example, SASB’s Construction Materials Standard(SASB EM-CM-410a.1) asks companies to report
the percentage of products that qualify for credits
in sustainable building design and construction
certifications; its Iron and Steel Producers
Standard (SASB EM-IS-000.A) refers to percent
raw steel production from basic oxygen furnace
processes and electric arc furnace processes.
In addition, the EU Technical Expert Group’s
recommendations for the EU Taxonomy proposes
technical screening criteria for economic activities
that contributed substantially to climate change
mitigation, while the International Capital Market
Association (ICMA) provides voluntary guidance
for issuers of green bonds.53

Figure C6

Example Disclosure: BASF

F.
Financial Impacts
Appendices

Source: BASF, BASF 2020 Report, p. 45

53

 U Technical Expert Group on Sustainable Finance, Technical Report, March 9, 2020; EU Technical Expert GroupE
on Sustainable Finance, Taxonomy Report: Technical Annex, March 9, 2020; ICMA, Green Bond Principles: Voluntary
Process Guidelines for Issuing Green Bonds, June 2021.

23

The Task Force on Climate-related Financial Disclosures(5) Capital Deployment: Amount of Capital
Expenditure, Financing, or Investment
Deployed toward Climate-Related Risks
and Opportunities
In addition to having different climate-relatedrisks and opportunities, organizations differ
in the extent to which they are deploying
capital to manage their risks and increase theiropportunities. Capital investment disclosure
by non-financial organizations and financing byfinancial organizations gives an indication of theextent to which long-term enterprise value might
be affected.
Deployment of capital in low-carbon
technologies, business lines, or products may
demonstrate that an organization is investing
to make their businesses resilient to transition

A.
Overview and Background
B.
Scope and Approachrisk or to capture climate-related opportunities.
For example, organizations that are hardening
infrastructure in response to increased incidenceof physical risks can signal that short-term debt
might increase as the organizations upgrade theirassets but long-term costs may be lower.
Capital expenditures, capital investments, orthe amount of financing for new technologies,
infrastructure, or products can be reported in linewith financial reporting standards and commonlyused taxonomies for delineating climate-relatedrisks and opportunities. It can be helpful fororganizations to present traditional disclosures
alongside climate-related disclosures to allow
users to understand the scale of investment indifferent types of activities, such as the example
provided by one insurance company in Figure C7.

Figure C7

Example Disclosure: Liberty MutualC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Source: Liberty Mutual, 2020 Task Force on Climate-Related Financial Disclosures Report, p. 14

24

The Task Force on Climate-related Financial Disclosures(6) Internal Carbon Prices: Price on EachTon of GHG Emissions Used Internallyby an Organization
Internal carbon pricing is a mechanism by whichorganizations can put a value on their GHG
emissions to facilitate analysis of the actualand potential impacts of climate-related risks
and opportunities. For example, non-financialorganizations may use an internal carbon
price to understand the potential future costs
associated with developing new carbon-related
assets. Financial organizations may use internalcarbon prices to inform their decision-making;for example, by considering the impact of a given
carbon price on an organization’s profitability
as part of the investing, lending, or insurance
underwriting process.54

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
AppendicesInternal carbon prices also provide users withan understanding of the reasonableness of anorganization’s risk and opportunity assessment
and strategy resilience.55 The disclosure of internalcarbon prices can help users identify whichorganizations have business models that arevulnerable to future policy responses to climatechange and which are adapting their businessmodels to ensure resilience to transition risks.
While internal carbon prices can take a variety
of forms and amounts, an increasing numberof companies are setting an internal notionalor actual price on the amount of CO2 emitted
from assets and investment projects so they cansee how, where, and when their GHG emissions
could affect their strategy, profit-and-loss (P&L)
statements, and investment choices.56
There is no definitive source on what anorganization’s carbon price should be, and there
are a variety of ways that the cost of carbon
can be integrated into business practices.
Appendix 1.2. Internal Carbon Prices provides
additional considerations and resources to helporganizations set an internal carbon price.

The Task Force acknowledges that internal carbon
prices may not be relevant to all organizations,such as those without material physical ortransition risks or those already subject toexternal carbon prices. Disclosure of how
internal carbon prices relate to prices used inexternal sources, such as those used in publicly
available scenarios, can help to provide furthertransparency into the alignment of internal
prices with carbon prices that are consistent withvarious public climate scenarios. For example,
the energy company shown in Figure C8 (p. 26)
provides its internal planning assumptions alongwith prices from two IEA scenarios.57(7) Remuneration: Proportion of Executive
Management Remuneration Linked
to Climate Considerations
Remuneration policies are important incentives forachieving an organization’s goals and objectives
and may provide insight on an organization’s
governance, oversight, and accountability for
managing climate-related issues. The ways inwhich organizations link executive compensation
to performance on issues related to climate change
will be specific to their company and governancestructure. Some organizations choose to report thepercentage of the executive’s pay linked to climate
considerations, while others discuss weighting
factors or total amount of compensation that could
be impacted. For example, one bank’s disclosure
notes the percentage weighting given to climate
consideration within the scorecards of its executive
and managing directors (Figure C9, p. 26).
Several respondents to the public consultation
noted that remuneration might be bestreported with qualitative language. While theTask Force encourages quantitative disclosure,organizations may include descriptive language
on remuneration policies and practices, suchas how climate change issues are included inbalanced scorecards for executive remuneration.

54

 everal organizations offer additional information on the use of carbon pricing within financial organizations, including
S
Mikolajczjk, et. al., Internal Carbon Pricing and Climate Finance Tracking for Banks, September 2017, and Carbon Pricing
Unlocked Partnership, Internal Carbon Pricing for Low-Carbon Finance, July 2019.

55

 or example, the CDP report Putting a Price on Carbon notes, “Despite 1,830 companies disclosing that they currently faceFor expect carbon pricing regulation, 60% (over 1,100) of these companies did not identify this regulation as a substantive
risk to their stakeholders in their CDP disclosure — highlighting a potential gap in information that investors should explore”(April 2021, p. 5).

56

 DP, Putting A Price on Carbon: The state of internal carbon pricing by corporates globally, April 2021; The Conference Board,
CInternal Carbon Pricing: A Key Element of Climate Strategy, January 2021; Carbon Pricing Unlocked, Internal Carbon Pricing for
Low-Carbon Finance, July 2019; Yale University, Internal Carbon Pricing: Policy Framework and Case Studies; Aldy and Gianfrate,
Future-Proof Your Climate Strategy, May–June 2019.

57

 or instance, depending on the baseline scenario, there are different carbon prices that are consistent with a 2°C pathway.
F
For more information, see Riahi, et al., The shared socioeconomic pathways and their energy, land use, and greenhouse gas
emissions implications: an overview, July 2017, pp. 153–168, and CDP, Carbon Pricing Corridors, May 2017.

25

200

The Task Force on Climate-related Financial Disclosures

150

150

143

100

Figure C8

Example Disclosure: Aker BP

64
50

USD (2020)
per tonne CO2

53
35

0

250

2025

235

2040

IEA - SDS200

IEA - STEPS
150

150

143

100
64

53

50

A.
Overview and Background

35

0
2025

B.
Scope and Approach

2040

Source: Aker BP, Sustainability Report 2020, p. 25

IEA - SDSC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

IEA - STEPS

Figure C9

Example Disclosure: HSBC
Metrics and targets
Disclose the metrics usedby the organisation to assessclimate-related risk andopportunities in line with
its strategy and risk
management process– We use several metrics to measure and track our progress against key targets, and we will
be refining our approach to financed emissions (scope 3), including carbon intensity, for
specific portfolios.

Describe the targets usedby the organisation to manage
climate-related risks andopportunities and performanceagainst targets– We continue to disclose our wholesale loan exposure to the six high transition risk sectors, anduse our corporate customer transition risk questionnaire to help inform our risk management.

Disclose scope 1, scope 2
and, if appropriate, scope 3
greenhouse gas emissions
and the related risks– We continue to disclose business travel, energy-related emissions and renewable energy use,
and aim to disclose further details on our own scope 3 emissions in future reporting.

– We set a new sustainable finance and investment target of $750bn to $1tn by 2030, after
reaching $93.0bn of our $100bn by 2025 target. The $40.6bn achieved in 2020 counts
towards both the existing 2025 target and the new target.

– We include an environment measure in the scorecards of our executive Directors and GroupManaging Directors. The long-term incentive scorecards of our executive Directors (three-year
performance period to the end of December 2023) have a 25% weighting for targets aligned
to our climate ambitions.

Read more on our climate metrics and targets on pages 25 to 26, and our ESG review
pages 45 to 50 within our Annual Report and Accounts 2020.

Source: HSBC, TCFD Update 2020, p. 4
Note: Some content was reformatted in order to fit the page.

26

The Task Force on Climate-related Financial Disclosures

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

4. P
 ORTFOLIO ALIGNMENT METRICS
FOR THE FINANCIAL SECTOR
A few organizations within the financial sector
have begun to disclose forward-looking
climate-related metrics, including metrics on
the alignment of their business activities with atemperature pathway well below 2°C (“portfolioalignment”).58 In October 2020, an independentgroup of expert analysts from the financial
sector, the Portfolio Alignment Team (PAT),
released a report assessing the strengths andtrade-offs of the options available to measure
portfolio alignment and on methodologies for
implementing implied temperature rise (ITR)
metrics for those institutions wishing to do so.59, 60
The Task Force conducted a public consultationfrom October 29, 2020–January 28, 2021, togather feedback on developments, usefulness,and challenges of forward-looking metrics for thefinancial sector.61 Responses to the consultationsuggested that some organizations are disclosing
forward-looking metrics, with more planningto do so, but that many were looking for moreclarity on methodologies and standardization.62

Considering the findings of the consultation
on forward-looking metrics, the Task Forcerequested that the PAT develop a technicalreport outlining their views on implementing
portfolio and financial activity alignment metrics
and identifying areas of further work. This
sub-section provides a summary of the team’s
report, Measuring Portfolio Alignment: Technical
Considerations (PAT technical report), as aresource for financial organizations interested inunderstanding different portfolio alignment tools
or approaches.63
The purpose of the PAT technical report is to
identify emerging thinking in portfolio alignment
tool construction and use to promote morewidespread adoption of consistent, robust, anddecision-useful approaches. Attaining somedegree of common practice related to portfolioalignment is important to facilitate comparability
and transparency within and across financialorganizations and to provide further clarity to
non-financial preparers on how their transition
plans may impact their interactions withinvestors and lenders.

58 rticle two of the 2015 Paris Agreement commits parties to “holding the increasing in the global average temperature to wellA
below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”59 he PAT was established by Mark Carney in his capacity as UN Special Envoy for Climate and Finance and is led by David BloodTof Generation Investment Management. The team comprises participants from the following institutions: Bank of America, BBVA,Blackrock Investment Management, Generation Investment Management, Goldman Sachs, HSBC, McKinsey & Company, andthe COP26 Private Finance Hub.

60

 ortfolio Alignment Team, Measuring Portfolio Alignment: Assessing the Position of Companies and Portfolios on the Path to Net Zero,P
October 2020.

61

TCFD, Forward-Looking Financial Sector Metrics Consultation, October 29, 2020.

62

TCFD, Forward-Looking Financial Sector Metrics Consultation: Summary of Responses, March 2021.

63

Portfolio Alignment Team, Measuring Portfolio Alignment: Technical Considerations, October 2021.

27

The Task Force on Climate-related Financial Disclosures

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

The PAT technical report focuses on measuring
the extent to which portfolios are aligned with a
net-zero GHG emissions reduction ambition thatwould limit average temperature rise to 1.5°C by
2050. It notes that to achieve the goals of the Paris
Agreement, financial organizations would haveto decrease the total GHG emissions financedby their lending and investment portfolios towithin a defined amount or budget. The budget
allocated to individual financial portfolios
depends on the composition of that portfolio, asdifferent sectors and geographies will need todecarbonize at different rates. Portfolio alignment
tools can inform portfolio-level target-setting
frameworks and help financial organizations
measure and manage toward the achievementof climate-related targets, given their uniqueportfolio composition. Portfolio alignment tools
also allow investors, lenders, and insurance
underwriters to evaluate organizations based on
information included in their transition plans aswell as demonstrated progress on reducing GHG
emissions. This allows financial organizations
to achieve their own GHG emissions reduction
targets and facilitate GHG emissions reductionsin the real economy through engagement rather
than through divestment.
Financial organizations can measure portfolioalignment using a variety of methods (Figure C10).
Some may choose to assess a binary
categorization of the number of organizations
with and without GHG emissions reduction
targets. Others may choose to use benchmark
divergence models or ITR models, whichmeasure organizational alignment against
industry- and geography-level benchmarks

and translate the alignment or misalignmentof each organization to a temperature score.
Each type has benefits and drawbacks, as wellas important end uses; financial organizations
should use the tool that best suits theirindividual context and capabilities.
The PAT technical report finds that, buildingon the more established and commonly usedbenchmark-divergence models, ITR tools
allow financial organizations to translate thedegree of alignment or misalignment of agiven organization with a benchmark into
consequences for a desired climate goal. Thismay be important information for some financialorganizations as they manage their portfolios
to become aligned with the goals of the Paris
Agreement. However, the PAT technical report
also notes that ITR tools currently face challenges
including complexity and opaqueness regarding
key assumptions, variation in approach, andlimited data and scenario fidelity and availability,
which may limit widespread adoption.
The PAT technical report outlines several
considerations organized around nine key design
judgments that financial organizations interested
in measuring portfolio alignment should consider
in order to drive convergence and improvefidelity of portfolio alignment approaches.
Finally, the PAT technical report details someof the data and implementation challenges withportfolio alignment tools in order to support
implementation by financial organizations
considering these tools and highlights areasof future work to support implementation.

Figure C10

Types of Portfolio Alignment Tools
Example Types of Portfolio Alignment Tools

Binary Target
Measurement

Benchmark Divergence
Models

Implied Temperature
Rise Models (ITR)• Percent of investments
or counterparties withdeclared net-zero targets• Measures forward-looking
performance against
normative benchmarks• Primary issue: incentivizes
target setting, but does
not provide temperaturealignment assessment• Primary issue: poorly
constructed methods
can lead to additional
unintended consequences• Translates degree ofalignment into impact
in the form of atemperature score• Primary issue: complex andopaque regarding influenceof key assumptions

28

D.
Climate-Related
Targets

The Task Force on Climate-related Financial Disclosures

D. Climate-Related Targets
This section provides an overview of the types of
information the Task Force believes are useful to
include in disclosures of climate-related targets aswell as examples of quantified targets that alignwith the cross-industry, climate-related metriccategories. Additionally, it outlines the importanceof disclosing progress against climate-related
targets and provides an example template formaking such disclosures on GHG targets.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

A climate-related target refers to a specific level,
threshold, quantity, or qualitative goal that theorganization wishes to meet over a defined time
horizon in order to address its climate-relatedrisks and opportunities. An organization’s
climate-related targets should inform, and be
informed by, its strategy and risk management
and be linked to its climate-related metrics.64
Some organizations select climate-related
metrics and then define climate-related targets
that allow them to operationalize their high-levelclimate strategy. Others set targets and thenselect climate-related metrics to measure andtrack progress related to their targets.65
A common target organizations set is aroundtheir commitments to reduce GHG emissions.
Targets related to GHG emissions reductions
may vary between organizations and may be

determined in part, or in whole, by regulatory
or industry requirements. These targets should
specify which emissions scopes are included.
For instance, some organizations, such as thosein high-emitting sectors, may choose to focus
their reductions on Scope 1 and Scope 2 GHG
emissions; others, such as financial organizations
or auto manufacturers, may focus on reducing
Scope 3 GHG emissions. In addition to efforts tomeet emissions reduction targets, organizations
can articulate how they aim to reduce their nonemissions risks and increase their opportunities
in a low-carbon world.
Several initiatives emphasize the importance ofsetting GHG emissions reduction targets andprovide more guidance on publicly reporting
progress toward these commitments. For
example, the United Nations Framework
Convention on Climate Change (UNFCCC)
launched the Race to Zero campaign, a global
effort to aggregate net-zero commitments froma range of leading networks and initiatives acrossthe real economy.66 Race to Zero Partners include
more than 20 networks and initiatives, including
Business Ambition for 1.5°C, Fashion Charterfor Climate Action, Paris Aligned Investment
Initiative, and Glasgow Financial Alliance for Net
Zero (GFANZ) member initiatives.

E.
Transition Plans
F.
Financial Impacts
Appendices64 hile this guidance uses the term “target” throughout, it is important to note that organizations may use a variety of terms suchW
as “aim,” “goal,” or “objective” to refer to the same concept.

65

Note that while all targets typically have a metric associated with them, not all metrics correspond to a target.

66

A s of August 30, 2021, the UNFCCC Race to Zero covers nearly 25% of global CO2 emissions and over 50% of GDP and includes initiatives
representing 733 cities, 31 regions, 120 countries, 3,067 businesses, 173 of the largest investors, and 622 Higher Education Institutions.
For more information, see “Race to Zero Campaign.”

30

The Task Force on Climate-related Financial Disclosures

1. C HARACTERISTICS OF EFFECTIVE
CLIMATE-RELATED TARGETS
Disclosure of climate-related targets should
include several characteristics in order to ensure
the targets are “specific and complete” in linewith the Task Force’s fundamental principles for
effective disclosure.67
Aligned with Strategy and Risk Management
Goals. Climate-related targets should bedesigned in consideration of an organization’s
strategy and risk management processes,
informed by scenario analysis and climate science(Box D1), and supported by appropriate metrics.
Organizations should set targets at the level(e.g., aggregate, sector, portfolio) that best suits
their business activities and strategy. As part oftheir disclosures, organizations should consider
providing a description of how climate scenario
analysis influenced the determination of targets
and broader strategy and risk management goals.

Box D1
Role of Scenario Analysis in Setting Achievable Climate-Related Targets“The two main types of scenarios are (1) exploratory
scenarios used to explore a range of different
possible futures and (2) normative scenarios
used to plan for a preferred future. For normative
scenarios, scenario analysis starts with a preferredor desired future outcome and then back-casts
plausible pathways from the preferred future to
the present in order to inform decisions on what isneeded to achieve that preferred future. Examplesof normative climate-related scenarios are thosetargeting net-zero emissions in 2050. Normative
scenarios are typically used for assessment andsetting of specific targets and implementationplans, rather than assessment of climate-relatedrisks and uncertainties.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

Exploratory scenarios describe a diverse set ofplausible future states. These scenarios are thenused to assess potential climate-related risks anduncertainties and test the resiliency of various
strategies to a wide range of future conditions.

E.
Transition Plans
F.
Financial Impacts

Exploratory versus Normative Scenarios
Exploratory Scenarios
Future 1

Present

Future 3

Different pathways leading
to different plausible futures

Normative Scenarios

Some companies use both approaches — theexploratory approach when testing their strategies
for resilience, and the normative approach forsetting specific targets such as net-zero emission.”

Appendices

Future 2

Preferred
FuturePresent

Future 2

Future 3

Reaching a targeted future by back-casting
to understand the pathway

Source: TCFD, 2020 TCFD Guidance on Scenario Analysis for Non-Financial Companies, pp. 15–16

67

TCFD, 2017 report, pp. 51–53.

31

The Task Force on Climate-related Financial Disclosures

Linked to Relevant Metrics. Climate-related
targets should be linked to defined metrics inorder to measure and track progress against
targets and assist with periodic reviews todetermine whether updates to the targets
may be necessary (Figure D1). For example,
if an organization sets a target to reduce theproportion of asset value exposed to acute
flooding risk by 50% by 2050, it should define
metrics related to the physical risk of acute
flooding in order to monitor progress against thetarget. Such metrics might be the proportion ofassets located within a designated flood zone
without flood-protection measures, the amountof capital deployed to harden assets or restore

natural flood protection, or other appropriate
metrics related to the firm’s exposure to acute
flood risks.
Quantified and Measurable. Climate-related
targets should be quantified and measurable,
where possible, especially for processes that are
fully in the organization’s control, such as theamount of investment in reducing vulnerability
to transition or physical risks.
In its 2021 annex, the Task Force recommends
that organizations disclose climate-related
targets related to the seven cross-industry,
climate-related metric categories, where relevant(recommended disclosure Metrics and Targets c).

Figure D1
A.
Overview and Background

Example Relationship between Metrics and Targets

B.
Scope and Approach

The figure below shows the relationship between GHG emissions and targets for a hypothetical firm.
The illustrative GHG emissions pathways were adapted from Network for Greening the Financial System(NGFS) scenario data.

C.
Climate-Related Metrics

Target: Our firm commits to reducing net Scope 1 and 2 GHG emissions — as defined by the GHG Protocol — to zeroby 2050, with an interim target to cut Scope 1 and 2 GHG emissions by 50% relative to a 2015 baseline by 2030.
We are working with suppliers to reduce Scope 3 GHG emissions.

D.
Climate-Related Targets

Current Metrics
Historical Metrics

Forward-Looking Information

F.
Financial Impacts
AppendicesCO2-Equivalent Emissions (Tonnes)

E.
Transition Plans

-20%
-100%
-50%

-70%

-90%

2000

2005

2010

2015

2020

2025

2030

2035

2040

2050

Historical data

GHG emissions under delayed 2°C scenario

Company target GHG emissions path

GHG emissions under immediate 2°C scenario

GHG emissions under current
policies scenario

GHG emissions under 1.5°C scenario

Note: GHG emissions pathways were adapted from NGFS scenario data. Illustrative GHG emissions pathways for immediate anddelayed 2°C scenarios and 1.5°C scenarios are aligned with economy-wide GHG emissions reductions for Kyoto gases under the
REMIND limited Carbon Dioxide Removal (CDR) scenarios. The illustrative current policies scenario extends the short-term trend.

32

The Task Force on Climate-related Financial Disclosures

In support of such disclosure, Table D1 provides
examples of quantified targets that align withthe cross-industry, climate-related metriccategories.68 The Task Force recognizes that theability of organizations to set, track, and disclose
climate-related targets aligned to the metriccategories may vary across jurisdictions, sectors,

and business models. Accordingly, the Task Forceacknowledges that not all illustrative targets will
be relevant or applicable for all organizations,and that other targets may be more applicable.
The Task Force encourages organizations toreference existing target-setting frameworks
for sector-specific guidance.69

Table D1

Examples of Quantified Targets

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics

Cross-Industry Metric Category

Example Climate-Related Target

GHG Emissions
Absolute Scope 1, Scope 2, and Scope 3;
emissions intensity• Reduce net Scope 1, Scope 2, and Scope 3 GHG
emissions to zero by 2050, with an interim target
to cut emissions by 70% relative to a 2015 baselineby 2035

Transition Risks
Amount and extent of assets or business activities
vulnerable to transition risks• Reduce percentage of asset value exposedto transition risks by 30% by 2030, relative
to a 2019 baseline

Physical Risks
Amount and extent of assets or business activities
vulnerable to physical risks• Reduce percentage of asset value exposed to acuteand chronic physical climate-related risks by 50%
by 2050• Ensure at least 60% of flood-exposed assets
have risk mitigation in place in line with the 2060
projected 100-year floodplainD.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Climate-Related Opportunities
Proportion of revenue, assets, or other businessactivities aligned with climate-related opportunities• Increase net installed renewable capacity so thatit comprises 85% of total capacity by 2035

Capital Deployment
Amount of capital expenditure, financing, orinvestment deployed toward climate-related risks
and opportunities• Invest at least 25% of annual capital expenditure
into electric vehicle manufacturing

Internal Carbon Prices
Price on each ton of GHG emissions used internallyby an organization• Increase internal carbon price to $150 by 2030
to reflect potential changes in policy

Remuneration
Proportion of executive management remuneration
linked to climate considerations• Increase amount of executive management
remuneration impacted by climate considerations
to 10% by 2025

• Lend at least 10% of portfolio to projects focused
primarily on physical climate-related risk mitigation68

T he example quantified targets shown in Table D1 are for illustrative purposes only.

69

 espondents to the Task Force’s consultation on metrics, targets, and transition plans cited various climateR
related target-setting and disclosure frameworks. Commonly referenced frameworks included the London Stock
Exchange Group’s Target Setting Framework (described in this section), UN-Convened Net-Zero Asset Owner Alliance
Inaugural 2025 Target Setting Protocol, CA100+, Net Zero Company Benchmark, Paris Aligned Investment Initiative(PAII), Net-Zero Investment Framework: Implementation Guide, and SBTi’s Financial Sector Science-Based Targets
Guidance.

33

The Task Force on Climate-related Financial Disclosures

Clearly Specified over Time.70 Climate-related
targets should be defined clearly over timeand specify the following:• Baseline: Clear definition of baseline time
period against which progress will be tracked,
with a consistent base year across GHG
emissions targets;71• Time horizon: Defined time horizon bywhich targets are intended to be achieved.

Short-, medium-, and long-term time horizons
should be consistent across an organization’s
targets and, if feasible, consistent withkey dates tracked by key internationalorganizations, such as the Intergovernmental
Panel on Climate Change (IPCC), or regulators(Figure D2); and• Interim targets: An interim target is acheckpoint between the current period andthe target end date in which an organization

Figure D2

Disclosing Business-Relevant Time HorizonsA.
Overview and Background
B.
Scope and Approach

As stated in the 2017 report, “[B]ecause the timing of climate-related impacts on organizations will vary, theTask Force believes specifying time frames across sectors for short, medium, and long term could hinderorganizations’ consideration of climate-related risks and opportunities specific to their businesses. The Task
Force is, therefore, not defining time frames and encourages preparers to decide how to define their own
time frames according to the life of their assets, the profile of the climate-related risks they face, and thesectors and geographies in which they operate.” 72
The TCFD 2020 Scenario Guidance provides the following diagram for the types of financial implications
across various time horizons to assist organizations in thinking about time horizons. Organizations should
think about their climate-related targets in the same manner.

C.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
AppendicesFinancial Implications
Broad conceptualizationof possible financial
pathways>10 Years

Strategic Thinking
Informed by Scenarios

Financial Implications
Broad estimates of relative
shifts in capital expendituresdue to climate change

5–10 Years

Strategic Planning Informed by
Scenarios Capital Planning

Financial Implications
Projections/estimates of potential
returns on specific planned responses
to climate-related risks and opportunities

2–5 Years

Financial Implications
Estimates/actual climate change impacts
on current revenues and costs, budgets& value of assets and liabilities

Project Planning, Financial Analysesof Strategic Projects & Initiatives
Formulating Financial Strategy

0–2 Years
Formulating Operating Plans & Budgets

Present

Source: TCFD, 2020 TCFD Guidance on Scenario Analysis for Non-Financial Companies, Figure E2, p. 49

70

 his information is adapted from SBTi’s Criteria and Recommendations for Financial Institutions and SBTi’s Science-Based Target Setting
T
Manual, Version 4.1. In its target-setting manual, SBTi recommends that “[c]ompanies should set a target that covers a minimum of 5
years and a maximum of 15 years from the date the target is submitted for approval. It is also recommended to set long-term targets
beyond this interval and set interim milestones at five-year intervals” (p. 30).

71

 he 2020 Science-Based Target Setting Manual recommends that for GHG emissions targets, organizations “use the same base year andTtarget year for all targets within the mid-term timeframe and all targets within the long-term timeframe,” maintaining that “a common
target period will simplify data tracking and communication around the target. Where value chain data are difficult to obtain, however,
it is acceptable if scope 1 and 2 targets use a different base year from scope 3 targets” (p.30).

72

TCFD, 2017 report, p. 38.

34

The Task Force on Climate-related Financial Disclosuresassesses its progress and makes any
adjustments to its plans and targets. Any
medium- and long-term targets should haveinterim targets set at appropriate intervals(e.g., 5–10 years) covering the full mediumor long-term target time horizon.
Organizations may find it useful to disclose
medium-term or long-term targets for 2030
and 2050, which have become key target dates
following the publication of the IPCC’s Special
Report on Global Warming of 1.5°C. This report
noted that in order to limit global warming to
1.5°C “global net human-caused emissions ofcarbon dioxide (CO2) would need to fall by about
45 percent from 2010 levels by 2030, reaching‘net zero’ around 2050.” 73

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Understandable and Contextualized. Climaterelated targets should be presented in a mannerthat aids understanding (e.g., clear language,
labeling) and includes descriptions of any
limitations and cautions. Disclosures of targets
should be supported by contextual, narrative
information on items such as organizationalboundaries, methodologies, and underlying data
and assumptions, including those around the useof offsets.
Periodically Reviewed and Updated.
Organizations should have a clear process
for reviewing climate-related targets, at least
every five years, and updating if necessary.
Because targets can become outdated, a process
to periodically refresh and update them isnecessary to ensure continued relevancy andefficacy to a company’s overall strategy planning
process. Considerations when determining
whether or not to adjust targets may include
changes to an organization’s climate strategy
or goals as well as any developments related toprogress against targets (e.g., either outpacing
previously set targets or providing transparency
on underperformance).

2. D ISCLOSING CLIMATE-RELATEDTARGETS
Similar to the disclosure of climate-related
metrics, effective disclosure of climate-related
targets includes grounding disclosures innarrative or qualitative information to help
users understand their context. Organizations
should describe the qualitative informationthat encompasses climate-related targets
and reflects longer-term changes to anorganization’s business or expected strategic
direction. Such qualitative information may
include describing what the management ofclimate-related risks and pursuit of climaterelated opportunities might mean for thebusiness and provide important context for
specific targets.
In addition to providing contextual
information about their climate-related
targets, organizations should also consider
disclosing in formats that would lead to better
standardization and comparability. As morecountries, non-financial companies, andfinancial organizations set GHG emissions
reduction targets, including those alignedwith net-zero, it is particularly important fordisclosures of GHG emissions targets to becomparable across organizations and overtime to allow users to assess the achievability
and credibility of organizations’ goals.
Respondents to the consultation on metrics,
targets, and transition plans emphasized thatstandardization is key to driving effective,
decision-useful disclosure of climate-related
targets. Several recommended that preparers
use the template developed by FTSE Russell
to make such disclosures, which is included
here as an example of a type of template that
may be useful (Box D2, p. 36).

Reported Annually. Organizations shouldreport on climate-related targets on at least anannual basis, including any new targets as wellas progress against existing targets.

73

IPCC, “Summary for Policymakers of IPCC Special Report on Global Warming of 1.5°C approved by governments,” October 8, 2018.

35

The Task Force on Climate-related Financial Disclosures

Box D2
Case Study: Disclosure Template for GHG Emissions Reduction Targets
The following template was developed by FTSE Russell, part of the London Stock Exchange Group (LSEG),
to promote clear and concise disclosures on corporate GHG emissions reduction targets. The templateis “agnostic on the type, scope, or ambition level of the emissions reduction target and provides a standardized
format for companies to disclose information on their targets and the methodology.”74 The template — shown
here for a fictional target — was developed such that it could be completed for each of the organization’s
targets, including interim targets, separately.
GHG emissions reduction target disclosure template
Target ID

A.
Overview and Background

Overall number of active
GHG emissions targets:

4

Include interim targets in the count.

Target number:

1 (of 4)

Target type:

Absolute (interim target)

Indicate whether this is an interim target(e.g. a short-term milestone between theorganisation's mid- or long-term target andcurrent period).

Date the target was set:

08/02/2019

14/01/2021

Date that the target
was last revised:

Target Information

B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts

Scope(s) covered

Scope 1 & 2 (market-based) + 3 (cat 11:
use of sold product)

Percentage of in-scope
emissions covered by thetarget:99%

Base year:

2015

Base year
emissions:

75 000tCO2eTarget year:

2030

Target year
projected
emissions:

30 000tCO2eTargeted reduction frombase year (%)

60%

Targeted reduction fromcurrent year (%)

50%

Current
emissions:

60 000tCO2e(2020)For scope 2 emissions, indicate if
calculations are location- or market-based.
For scope 3 emissions, indicate the GHG
protocol categories that are covered.

For intensity targets, provide activity
measure (e.g. tCO2e/Mwh or tCO2e/tonneof cementitious product).

Please indicate the most current year forwhich emissions data is available.

Target Methodology

Verified by an independent third party.

Yes. SBTi

Please indicate the name of the
independent third party that verified thetarget.

Source that describes how the percentage of inscope emissions covered by the target has
been calculated.

Sustainability Report2020 (p.8, p.12)

Please indicate the title(s) of publicly
available documents and relevant page
numbers where information can be found.

Source that describes transition plan outlining
how this target will be met.

Roadmap to Net-zero
2050 (p.1 -10)

Please indicate the title(s) of publicly
available documents and relevant page
numbers where information can be found.

For Scope 3 targets, source that describes themethodology used to calculate the Scope 3
emissions covered by the target.

GHG Emissions
Methodology (p.15-16)

Indicate the % of the target to be achieved
through offsets and provide a source thatspecifies their type and the offset provider.

20% will be achieved
through CCS.
Roadmap to Net-zero
2050 (p. 8)

For intensity targets, source that describes themethodology used to calculate the carbon
intensity.

Sustainability Report2020 (p.89)

Appendices

Source: Kooroshy, et al., Towards investor-oriented carbon targets data, October 2021, p. 10
ftserussell.com

74

10

Kooroshy, et al., Towards investor-oriented carbon targets data, October 2021, p. 9.

36

The Task Force on Climate-related Financial Disclosures

Finally, the Task Force encourages organizations
not to assume their climate-related targets
contain confidential business information thatwould harm the organization if publicly disclosed.
When evaluating whether certain climaterelated targets contain confidential businessinformation, the organization should consider
the following:• whether the information provides theorganization with an economic benefit thattranslates into a competitive advantage
because the information is unknown to its
competitors and• whether making such information public
may cause a considerable economic loss
for the organization.75
If an organization determines that a particularclimate-related target is confidential, theorganization should provide relevant
information in broader terms to support
users’ decision-making.76

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices75

 uropean Innovation Council and SMEs Executive Agency (European Commission), Trade Secrets: Managing Confidential
E
Business Information, July 2021, pp. 2–4.

76

 ased on footnote 10 from the European Commission Guidelines on non-financial reporting: Supplement on reportingB
climate-related information.

37

E.
Transition Plans

The Task Force on Climate-related Financial Disclosures

E. Transition Plans
This section provides guidance on considerations
around the disclosure of transition plans,
including example disclosures. The Task Forcerecognizes that an organization’s transition planis one component of its strategy to address its
climate-related risks and opportunities andbelieves its recommendations implicitly cover the
key aspects of transition plans. However, given
the increasing focus on such plans, as described
below, the Task Force determined explicit
guidance may be useful. Another importantcomponent of an organization’s strategy toaddress climate-related risks and opportunities
is its adaptation plan, which is beyond the scopeof this guidance.77 Both transition and adaptationplans may be components of an organization’s
overall business strategy (Figure E1).
A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

A transition plan is an aspect of an organization’s
overall business strategy that lays out a set oftargets and actions supporting its transition
toward a low-carbon economy, including
actions such as reducing its GHG emissions.
Many organizations are making GHG emissions

reduction commitments or are domiciled injurisdictions that have done so. In fact, a recent
study found that over 60% of countries andnearly 10% of states and regions in the largest
emitting countries have committed to netzero.78 The study also found that of the 2,000
largest public companies, over 20% have netzero commitments, representing annual salesof nearly $14 trillion.79 These commitments
inherently, and in some cases explicitly, requirea plan; and many organizations are alreadypreparing such plans. From its consultation on
metrics, targets, and transition plans, the Task
Force found two-thirds of respondents had
either developed a transition plan or planned
to do so in the next year, with another 22%
reporting they planned to develop a transition
plan in the future.80
Organizations’ transition plans are of particularinterest to users, especially when they are
seeking to verify the credibility of organizations’commitments related to climate change. Users
are particularly interested in information on how

Figure E1

Relationship between Business Strategy,
Climate Strategy, and Transition PlanF.
Financial Impacts

Overall business strategy

AppendicesTransition
Plan

Adaptation
Plan

Climate strategy

Focus of thissectionTransition plan and adaptation plan77

 n adaptation plan lays out how an organization aims to minimize risks and capture opportunities associated with physical climateAchanges. Though guidance on adaptation planning is not included in this document, the Task Force encourages other frameworks
and standard setters to consider developing guidance on designing and disclosing adaptation plans.

78

T he Energy & Climate Intelligence Unit and Oxford Net Zero, Taking Stock: A global assessment of net zero targets, March 2021.

79

Ibid.

80

TCFD, Proposed Guidance on Metrics, Targets, and Transition Plans Consultation: Summary of Responses, October 14, 2021.

39

The Task Force on Climate-related Financial Disclosuresorganizations will adjust their strategies
or business models, including the specificactions they will take to reduce risks andincrease opportunities as they transition
to a low-carbon economy. As part of theconsultation, 96% of users responded thatorganizations’ disclosure of transition plans
would be “very useful” or “somewhat useful.” 81
As an example of users’ interest in transition
plans, Climate Action 100+ (CA100+) — aninvestor group focusing on the largest
corporate GHG emitters and theirprogress in transitioning to a low-carbon
economy — recently began assessing thosecompanies’ transition plans through its Net Zero
Company Benchmark Indicators.82, 83

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

A specific type of transition planning that has
gained attention recently focuses on achievinga “net-zero” target. Attention around net-zerotransition planning began primarily in responseto the IPCC’s Special Report on Global Warmingof 1.5°C, which found that GHG emissions needto decline by about 45% by 2030 and reachnet-zero around 2050 in order to achieve a 1.5°C
temperature target.84 The report also highlightsthat the impact of 2°C of warming would besignificantly worse than 1.5°C and brought
renewed urgency to the effort to limit the global
temperature increase to 1.5°C. The IPCC report
shifted the language used by the public andprivate sector on climate change from a focus
on limiting warming to 2°C to achieving net-zero
GHG emissions by 2050.

1. C
 HARACTERISTICS OF EFFECTIVE
TRANSITION PLANS
As part of determining key characteristics
of effective transition plans, the Task Forcereviewed publicly available materials publishedby various groups focused on the transition
to a low-carbon economy, including Climate
Action 100+, Transition Pathway Initiative, the
UNFCCC Race to Zero (including SBTi and GFANZ),
the Institutional Investors Group on Climate
Change, and the Investor Agenda.85 Some of
the materials describe criteria the groups use
to assess an organization’s transition to a lowcarbon economy while others provide guidanceor describe requirements for their members
on climate-related metrics and targets, which
are core aspects of transition plans. While thematerials may not provide explicit guidanceon developing a transition plan, they provide
information that organizations may find useful indeveloping and disclosing information from theirtransition plans. For example, Climate Action
100+’s Net Zero Company Benchmark Indicators
describes ten indicators and associated subindicators it uses to assess an organization’stransition to a low-carbon economy, suchas sub-indicators on the proportion of GHG
emissions to include in GHG emissions reduction
commitments and the actions or elements ofa decarbonization strategy. The Task Forcedrew from these materials to identify key
characteristics of effective transition plans thatare in line with its fundamental principles for
effective disclosure.86
Aligned with Strategy. A transition plan should
be a part of, and aligned with, an organization’s
broader activities for addressing climate-relatedrisks and opportunities, which in turn should bea part of, and aligned with, the organization’s
overall business strategy.

F.
Financial Impacts
Appendices

81

TCFD, Proposed Guidance on Metrics, Targets, and Transition Plans Consultation: Summary of Responses, October 14, 2021.

82

Climate Action 100+, Net-Zero Company Benchmark, accessed April 30, 2021.

83

C A100+, “Blog: Climate Action 100+ Zeroes In On Industry-Wide Decarbonization,” August 2021.

84

IPCC, Special Report on Global Warming of 1.5°C, October 2018.
Several organizations offer resources that may be useful to organizations in developing transition plans, including:
Climate Action 100+, Climate Action 100+ Net-Zero Company Benchmark Indicators, March 2021; SBTi, Science-Based Target
Setting Manual, Version 4.1, April 2020; SBTi, Foundations for Science-Based Net Zero Target Setting in the Corporate Sector,
Version 1.0, September 2020; SBTi, Financial Sector Science-Based Targets Guidance, Pilot Version 1.1, April 2021; and United
Nations Framework Convention on Climate Change (UNFCCC)’s Race to Zero Expert Peer Review Group, Interpretation
Guide, Version 1.0, April 2021. TCFD Knowledge Hub provides additional resources.

85 

86

TCFD, 2017 report, pp. 51–53.

40

The Task Force on Climate-related Financial Disclosures

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Anchored in Quantitative Elements, Including
Climate-Related Metrics and Targets. A
transition plan should be designed to consider andhelp achieve specific targets in an organization’splanned transition to a low-carbon economy.
Progress against the organization’s targets should
be regularly tracked using appropriate metrics.
The transition plan should be consistent withbroader economy- or sector-wide science-based
pathways to a low-carbon economy.87
Subject to Effective Governance Processes.
A transition plan should describe the approval
process and oversight and accountability
responsibilities within an organization, including
the role of the board and senior managementin overseeing the plan.
Actionable, Specific Initiatives. A transition
plan should articulate specific initiatives andactions the organization will undertake toeffectively execute the transition plan, including
regular milestones. For example, the transition
plan may articulate how an organization plansto reduce Scope 1 GHG emissions by investingin new technologies and processes or byencouraging suppliers to reduce GHG emissions
in their operations.
Credible. A transition plan should containsufficient information to enable users toassess its credibility. For example, the planshould describe the organization’s current
capabilities, technologies, transition pathways,
and financial plan. Organizations may also want
to describe significant limitations, constraints,
and uncertainties in the transition plan, such as
challenges regarding GHG emissions reductionsof hard-to-decarbonize sectors.

87

Periodically Reviewed and Updated.
A transition plan should be reviewed at least every
five years and updated if necessary. Organizations
should review their transition plans in line with
their review process for their climate-related
targets in order to ensure continued relevancy
and efficacy to an organization’s overall strategy
planning process.
Reported Annually to Stakeholders.
Organizations should report publicly or to
stakeholders their initial transition plans andsignificant updates to the plans. In addition,organizations should report progress against
their transition plans annually and include a
comparison of completed actions to planned
actions in the prior reporting period.

2. TRANSITION PLAN CONSIDERATIONS
The transition plan elements described in thissub-section are meant as high-level guidance tosupport organizations as they develop transition
plans. The guidance is meant to be applicable
to a wide range of organizations and, therefore,
describes general elements that organizations
should consider as part of their transition
planning. These elements are shown in Table E1(p. 42) and are grouped into the four categoriesof the TCFD recommendations.
Importantly, an organization’s transition planshould reflect its individual circumstances,including relevant industry-specific information.
The TCFD recognizes the transition to a lowcarbon economy will have industry-specificnuances and encourages industry associations
and others to develop industry-specific guidanceon transition plans as needed.

 hese pathways may be nonlinear depending on the specifics of an organization’s industry
T
and GHG emissions reduction opportunities.

41

The Task Force on Climate-related Financial Disclosures

Table E1

Transition Plan Elements

Governance

Elements to Consider

A.
Overview and Background
B.
Scope and ApproachD.
Climate-Related Targets•	Oversight: The board or appropriate committee ofthe board oversees execution of the transition plan.

•	Review: The organization periodically reviews andupdates its plans, activities, metrics, and targets.

•	Accountability: Senior management has
responsibility for execution of the transition
plan, and the responsible parties have adequate
authority and access to resources to ensure
effective execution.

•	Transparency: The organization reports on its
transition planning goals and performance toexternal stakeholders, including financial aspects,
performance against targets, and impacts on theorganization’s business.

•	Incentives: Remuneration and other incentives
are aligned with the organization’s climate goals,
as described in the transition plan.

•	A ssurance: The organization’s reporting is subject
to independent review or third-party assurance.

•	Alignment with strategy: The organization aligns
its transition plan with its overall strategy; and thetransition plan describes the following:•	Prioritized opportunities: The transition plan
describes how the organization intends to maximize
its prioritized climate opportunities as the worldtransitions to a low-carbon economy.

– Temperature goal – alignment to a global
temperature goal (e.g., 1.5°C), relevant
regulatory mandates, and/or sectoral
decarbonization strategies•	Plan assumptions: The transition plan describes
the organization’s assumptions, particularlyaround transition pathway uncertainties andimplementation challenges. The assumptions
should be consistent with those used by theorganization in its financial accounts, capital
expenditures, and investment decisions.

E.
Transition Plans

Metrics and Targets

RiskManagement

F.
Financial Impacts
Appendices•	Reporting: The board or appropriate committeeof the board and senior management receive
regular status reports.

– Activities – how the organization will achievetargets in defined time horizons

StrategyC.
Climate-Related Metrics•	Approval: The board or appropriate committeeof the board approves the transition plan andclimate-related targets.

88•	Action plans: The transition plan outlines shortterm and medium-term tactical and operational
plans and describes how related actions addressmaterial sources of GHG emissions. The plan
includes current and planned initiatives to reduceclimate-related risks and increase climate-related
opportunities.
•	Financial plans: The transition plan describes the
supporting financial plans, budgets, and related
financial targets (e.g., amount of capital and otherexpenditures supporting decarbonization strategy).
• Scenario analysis: The organization tests
achievability of the transition plan and associatedtargets using multiple climate-related scenarios.

•	Description of risks: The transition plan describes
the risks that the organization faces from atransition to a low-carbon economy.

•	Plan challenges and uncertainties: The transition
plan describes the assumptions, uncertainties, andchallenges the organization faces in successfully
executing its transition plan.

• Metrics: The transition plan describes metrics theorganization will monitor to track progress against
plans and targets, including related operationaland financial performance metrics, metrics alignedwith the cross-industry, climate-related metriccategories, and industry-specific or organizationspecific metrics.

•	Methodology: Metrics and targets in a transition
plan are based on widely recognized andtransparent methodologies.

•	Targets: The transition plan includes quantitativeand qualitative targets based on sound climate
science. For GHG emissions targets, the plan
indicates the type and scope of GHG emissions
included as well as the extent of GHG emissions
across territories, timeframes, or activities.

•	Dates:88 The transition plan specifies the dates
when targets are intended to be reached andincludes targets during the plan’s time horizon(e.g., a timetable for the plan’s roadmap).
•	GHG emissions reductions: The transition planaddresses the relative contribution of reductions,removals, and offsets for achieving GHG
emissions targets.

 rganizations may find it useful to disclose medium- or long-term targets for 2030 and 2050, which have become key
Otarget dates following the IPCC’s publication of the Special Report on Global Warming of 1.5°C.

42

The Task Force on Climate-related Financial Disclosures

3. D ISCLOSING TRANSITION
PLAN INFORMATIONThe Task Force believes organizations that havemade GHG emissions reduction commitments,
operate in jurisdictions that have made suchcommitments, or have agreed to meet investor
expectations regarding GHG emissions reductions
should describe their plans for transitioning to a
low-carbon economy. In addition, the Task Forcerecognizes organizations’ transition plans include
a wide range of information, all of which may not
be appropriate to include in financial filings orother annual corporate reports. As such, the Task
Force encourages organizations to disclose key
information from their transition plans as partof their disclosure of climate-related financial
information, including the following:

When describing their GHG emissions reduction
targets, organization should include the target
dates as well as the scope and coverage.
Organizations should also consider describing
the assumptions, uncertainties, and key
methodologies associated with their transition
plans. In addition, organizations should reporton their progress in executing the plans on anannual basis.
Provided here are two examples of how anorganization might disclose key informationfrom their transition plans. Figure E2 provides afood and beverages company’s description of its
initiatives to meet its net-zero commitment; andFigure E3 (p. 44) provides an energy company’s
description of its strategy for decarbonization of
its energy generation and operations.

• current GHG emissions performance;A.
Overview and Background• impact on businesses, strategy, and financial
planning from a low-carbon transition; andB.
Scope and Approach• actions and activities to support transition,
including GHG emissions reduction targets andplanned changes to businesses and strategy.

C.
Climate-Related Metrics
D.
Climate-Related Targets

Figure E2

Example Disclosure: Nestlé

E.
Transition Plans
F.
Financial Impacts
Appendices

Nestlé’s Net

Roadmap

Our path toregeneration
for future
generations

Moving faster

Scaling up

Delivering our promise

We’re excited to hit the soil running. We’re accelerating our work in manufacturing,packaging and carbon-neutral brands. We’re also investing CHF 1.2 billion to help
spark regenerative agriculture across our supply chain, as part of a total investmentof CHF 3.2 billion by 2025.

Further down the greener path, we will
invest in new technologies and fundamental
changes to our products and businesses
around the globe.

Advanced agricultural techniques will delivera regenerative food system at scale, supported byzero emission logistics and company operations.
We will balance any remaining emissions throughhigh-quality natural climate solutions that benefit
people and the planet.

Solving the problem means
identifying the problem. We foundNestlé emitted 92 million tonnes ofgreenhouse gas emissions in 2018*.
Now we know the extent, we know
the road ahead.

Our milestones*Total GHG emissions were 113 million
tonnes (CO2 equivalent) in 2018,
92 of which are in scope of our UN
1.5°C pledge.

Companies and their emissions
grow over time. That’s why we’re
promising to be net zero based on
our 2018 baseline, no matter how
much our company grows.

100%
deforestation
free for primary
supply chain
by 2022

Switch ourglobal car
fleet to lower
emission options
by 2022

100% of our
packagingrecyclable orreusable by2025

100% certified
sustainablecocoa andcoffee by 2025

Plant 20 million
trees a year

Nestlé Waters
becomescarbon neutral
by 2025

100% certified
sustainablepalm oil by
2023
Source20% of key
ingredients
throughregenerative
agricultural
methods by
2025

100%
renewable
electricity inall our sites
by 2025

Use morerenewable
thermalenergy in our
manufacturing

Cut virginplastic in our
packaging bya third by 2025

Plant 200
million trees
by 2030

Source 50% of
key ingredients
throughregenerative
agricultural
methods by
2030

Path to zero emissions by 2050
Business as usual

Emissions by operation(million tonnes of CO2e, 2018)65.6 Sourcing our ingredients
7.0

Manufacturing our products

11.0

Packaging our products

7.5Managing logistics

0.8

Travel and employee commuting

4

Nestlé’s Net Zero Roadmap

2018

net
zero
By 2050, we will reachBy 2025, we
will reduce ouremissions by 20%

2021

2025

By 2030, we
will reduce ouremissions by 50%

2030

2050

Source: Nestlé, Nestlé’s Net Zero Roadmap, Feb 2021, p. 4

43

The Task Force on Climate-related Financial Disclosures

Figure E3

Example Disclosure: Ørsted

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Source: Ørsted, 2020 Sustainability Report, p. 32
Note: Some content was reformatted in order to fit the page.

44

F.
Financial
Impacts

The Task Force on Climate-related Financial Disclosures

F. Financial Impacts
This section provides additional guidancefor organizations aiming to assess and disclose
the financial impacts of climate-related risks
and opportunities.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

To make informed financial decisions, investors,
lenders, and insurance underwriters need tounderstand (1) the actual and potential impactsof climate-related risks and opportunities onan organization’s financial performance andfinancial position (Box F1) and (2) how those
impacts may affect the organization’s enterprisevalue over the longer term. The financial impactsof climate-related issues on an organization
are driven by the specific climate-related risks
and opportunities to which the organization is
exposed, and its strategic and risk management
decisions on seizing those opportunities andmanaging those risks (Figure F1, p. 47).
The Task Force’s recommendations cover arange of disclosures that can inform users’
assessments of an organization’s financial
performance and position over time. Better
disclosure of actual and potential financial
impacts associated with climate change is a key
goal of the Task Force’s work as such information
enables more effective pricing of climate-relatedrisks and opportunities and allocation of capital.
The Task Force recognizes that disclosing thepotential financial impact of climate change
may not be consistent with financial filing
requirements and encourages organizations
to make financial disclosures in accordancewith such requirements. If certain elements of
the recommendations are incompatible withdisclosure requirements for financial filings, theTask Force encourages organizations to disclose
those elements in other official reports thatare issued at least annually, widely distributed
and available to users, and subject to internal
governance processes that are the same or
substantially similar to those used for financial
reporting.89 Whether an individual organization isor may be affected financially by climate-related
issues usually depends on the following:

Box F1
Actual and Potential Financial Impact
Actual impact refers to financial impact that has
already occurred as a result of climate-related risks
or opportunities.
Potential impact refers to financial impact that may
occur in the future due to climate-related risks oropportunities.

Financial Performance and Position
Financial performance refers to an organization’s
income and expenses as reflected on its income andcash flow statements (actual) or potential income
and expenses under different climate-related
scenarios.
Financial position refers to an organization’s assets,
liabilities, and equity as reflected on its balance
sheet (actual) or potential assets, liabilities, andequity under different climate-related scenarios.

• the organization’s planned responses tomanage (i.e., accept, avoid, pursue, reduce,or share/transfer) its risks or seize
opportunities; and• the implications of the organization’s planned
responses on its income statement, cash flow
statement, and balance sheet.
Financial impact analyses should focus on:• the exposure and potential financial impact
if no action is taken and• the financial implications of managing risks
and maximizing opportunities in the context
of an organization’s overall business strategy
and environment.
Often organizations will use climate-related
scenario analysis as a central tool forunderstanding potential financial impacts.

• the organization’s exposure to, and anticipatedeffects of, specific climate-related risks andopportunities;

89

TCFD, 2017 report, p. 17.

46

Better disclosure of the financial impacts of climate-related risks and opportunities on anorganization is a key goal of the Task Force’s work. In order to make more informed financial
decisions, investors, lenders, and insurance underwriters need to understand how climate-related
risks
and
opportunities
are likely
to impact
an organization’s future financial position as reflected
The Task
Force
on Climate-related
Financial
Disclosuresin its income statement, cash flow statement, and balance sheet as outlined in Figure 1. While
climate change affects nearly all economic sectors, the level and type of exposure and the impact
FigureF1of climate-relatedrisks differs by sector, industry, geography, and organization.30

Climate-Related Risks, Opportunities, and Financial Impact
Figure 1

Climate-Related Risks, Opportunities, and Financial Impact
Transition Risks
Policy and Legal

Opportunities
Resource Efficiency

Technology

Energy Source

MarketRisks

ReputationA
Introduction

Products/Services
Markets

Physical Risks
Acute

B
Climate-Related Risks,
Opportunities, andFinancial Impacts

Opportunities

Strategic Planning
Risk Management

Chronic

Resilience

Financial Impact

C

Revenues

Recommendations andA.
Guidance
Overview and Background

Expenditures

IncomeStatement

Cash Flow
Statement

Balance
Sheet

Assets & Liabilities
Capital & Financing

D
Scenario Analysis andB.
Scope and ApproachClimate-Related Issues

Fundamentally, the financial impacts of climate-related issues on an organization are driven by
the specific climate-related risks and opportunities to which the organization is exposed and its
EC.
strategic and risk management decisions on managing those risks (i.e., mitigate, transfer, accept,
Key Issues Considered andClimate-Related Metrics
Areas for Further Workor control) and seizing those opportunities. The Task Force has identified four major categories,
financialaccounts,
longer climate
The
Task Force’s
annualof the climate-related
described
in Figure2 (p.assessments
9), through whichrisks
and opportunities
mayhorizons
affect anasFD.
compared to business horizons, and securing
stateof disclosures
have
shown
some
progressorganization’s
current
andfuturefinancial
positions.
Conclusion
Climate-Related Targets
approval to publicly disclose the results.
in organizations disclosing potential financial
impacts,
but that
continues
to be one of the
The financial
impactsof climate-related
issues on organizations are not always clear or direct,
Appendices
E.
More than 90% of users responding to the2021 statuslowestareasof organizations,disclosure.90 The
and, formany
identifying
the issues, assessing potential impacts, and ensuring
Transition Plans
consultation on metrics, targets, and transition
report notes that “[d]isclosure of the resiliencematerial issues are reflected in financial filings may plans
be challenging.
reasons forthisimpact
are likely
noted thatKey
informationon theof companies’ strategies under different climatebecause of (1) limited knowledge of climate-related ofissueswithin organizations;(2)organization’s
the tendency
F.
climate-related
issues on an
related scenarios (Strategy c), although stilltofocus
mainlyon
near-term
risks
without
payingadequate
attention
to
risks
that
may
arise inFinancial Impacts
financialperformanceor
positionis usefulforthe least reported recommended disclosure,92
31
Additionally,users
interviewed
decision-making.
thelonger
term;
and
(3)
the
difficultyinquantifying
thefinancialeffectsofclimate-related
issues.
encouragingly increased from 5% of companies
forthe 2021
statusimpacts,
report highlighted
that they
Appendicesassistorganizations
in identifying climate-related
issuesand their
the Task Force
inTo
2018
to 13%
in 2020. ...[Nonetheless,the]areincreasingly
workingtoincorporate
findings
percentageofcompanies
disclosingtheresiliencedeveloped Table 1 (p. 10), which provides examples of climate-related risks and their potentialfrom preparer disclosures on financial impacts
offinancial
their strategies
continues
tobethelowestofimpacts, and Table 2 (p. 11), which provides examples of climate-related opportunities
91
into their financial decision-making. Several
Further
detailall
recommended
disclosures.”andtheir potential
financial impacts.
In addition,
Section A.4 in the Annex provides moreusers reported conducting their own financial
on challenges to, and solutions for, estimating
information on the major categories of financial impacts—revenues,
andimpact analysis onexpenditures,organizationsassets
and comparing
climate-related financial impact is included inliabilities, and capital and financing—that are likely tomost relevant
for specificindustries.
thebe
outcomes
with those
disclosedby theSection C. Disclosure of Financial Impact in theorganizations,frequently
fostering
constructive
2021 status report.
dialogue between users and preparers.
In the 2021 status report, the Task ForceThe remainder of this section provides additionaldescribes several challenges highlighted by
30
SASB research demonstrates that 72 out of 79 Sustainable Industry Classification System (SICS™) industries are significantly affected in some
guidance on how climate-related metrics andaroundeffectively assessing andway by preparers
climate-relatedrisk.
targets, and information from transition plans,
disclosing
thefinancial
impactoftheirclimate31
World Business Council for Sustainable Development, “Sustainability and enterprise risk management: The first step towards integration.”can be used as inputs for estimating financial
relatedrisks
andopportunities.
These
includeJanuary 18, 2017.
impact as well as considerations for disclosing
challenges around organizational alignment,
financial performance and position.
data, risk evaluation, attribution of impacts in
Source: TCFD, 2017 report, pp. 8–9

Recommendations of the Task Force on Climate-related Financial Disclosures

90

TCFD, 2018 status report, p. 13; TCFD, 2019 status report, pp. iv and 51; and 2020 status report, pp. 4, 8, and 12.

91

TCFD, 2021 status report, p. 31.

92

 CFD, Proposed Guidance on Metrics, Targets, and Transition Plans Consultation: SummaryTof Responses, October 14, 2021.

8

47

The Task Force on Climate-related Financial Disclosures

1. I NPUTS FOR ESTIMATING FINANCIAL
IMPACTS
Organizations’ disclosures of their climaterelated metrics — including ones consistent
with the cross-industry, climate-related metriccategories — and targets as well as informationfrom their transition plans are key inputs for
estimating actual or potential financial impacts
associated with climate change.93
Metrics. Figure F2 illustrates how metrics
consistent with the cross-industry, climaterelated metric categories inform estimationof financial impact. For example, estimating
forward-looking proportion of revenue, assets,or other business activities aligned with climaterelated opportunities can be applied to anorganization’s existing outlook on future revenue
to estimate the contribution to overall revenue
from climate-related opportunities. Calculating
GHG emissions and carbon prices can inform theorganization’s cost-benefit analysis of potential
investments, while scenario analysis on plausible
future emissions pathways and implied carbon
prices can allow for a range of estimates on
forward-looking carbon costs.
Targets. Targets may also form an input into
financial impact assessments. Organizations cananalyze the potential financial implications oftargets on their overall business. For example,

Figure F2
A.
Overview and Background

Relationship between Cross-Industry Metric
Categories and Financial Impacts

B.
Scope and ApproachD.
Climate-Related Targets

GovernanceC.
Climate-Related Metrics

Is the organization’s
governance enablingoversight, assessment,
and management ofclimate-related risks
and opportunities?

Strategy

Key Questions

Is the organizationaligning its businesses,
strategy, and financial
planning in light ofclimate-related risks
and opportunities?

E.
Transition Plans
F.
Financial Impacts
Appendices

Cross-Industry Metric Categories

Proportion of executive management
remuneration linked to climate
considerations

Proportion of revenue, assets, or otherbusiness activities aligned with climaterelated opportunities
Amount of capital expenditure, financing,or investment deployed toward climaterelated risks and opportunities

Risk Management

Absolute Scope 1, Scope 2, and Scope 3
GHG emissions and emissions intensity

What is theorganization’s
exposure toclimate-related risks?

Impact of climate-related risks
or opportunities on financial
performance, e.g.:•	increases in revenue fromnew products or services fromclimate opportunities•	increases in cost due to carbon
prices, business interruption,
contingency, or repairs•	changes to operating cash flowfrom changes in upstream costs•	impairment charges due toassets exposed to transition risks•	changes to total expected losses
due to physical risks

Price on each ton of GHG emissions usedinternally by an organization

Impact of climate-related risks
or opportunities on financial
position, e.g.:

Amount and extent of assets or businessactivities vulnerable to physical risks• changes to the carrying amountof assets due to exposure tophysical and transition risks

Amount and extent of assets or businessactivities vulnerable to transition risks• changes to the expected
portfolio value given climaterelated risks and opportunities

Example information flow between cross-industry metric categories and financial impacts

93

Financial Impacts• changes in liability and equity
due to increases or decreases
in assets

 dditional details on financial impact, including examples, are provided in the 2017 report,A
pp. 8–11, and the 2021 annex, pp. 75–76.

48

The Task Force on Climate-related Financial Disclosures

an auto manufacturer may want to set a target to
expand its electric vehicle sales to 50% of its total
sales by 2030. It could then leverage scenario
analysis to understand how various factors andfuture pathways could impact different elementsof its financial performance or position assuming
such a target. Similarly, users may explore how
a specific organization’s targets may impact its
financial performance and position. For example,
if an organization sets a target to upgrade 75%
of its transmission lines by 2030 to reduce
wildfire risk, then a user may be able to inferthat the organization’s future cost of businessinterruptions may decline.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

Transition Plans. Finally, financial impact
assessments can also be informed byinformation included in an organization’stransition plan. When an organization develops
a transition plan, it may estimate the potential
financial impact of planned actions and align its
financial plans accordingly. Similarly, users may
consider a specific organization’s disclosure of
key information from transition plans as well as
the user’s assessment of the plan’s viability as a
key input into its estimation of that organization’s
potential financial performance and position. A
description of planned initiatives as well as theprocess for monitoring, assuring, and achieving
GHG emissions reductions targets can provide
useful inputs for assessing an organization’s
potential financial impacts, such as expected
future revenue streams from renewable energy
or capital expenditures to upgrade assets withlower-carbon alternatives.94

2. DISCLOSING FINANCIAL IMPACTS
The Task Force views disclosures of financial
impact of climate-related risks and opportunities
as falling under two broad categories, as follows:
1) impact of climate-related risks oropportunities on financial performance and2) impact of climate-related risks oropportunities on financial position.
The remainder of this sub-section provides
additional details on disclosing these twocategories, including example disclosuresof financial impact.
(1) Performance: Impact of Climate-Related
Risks or Opportunities on Financial Performance
Actual or potential changes to income and cash
flow statements or other appropriate financial
performance measures as a result of climaterelated risks and opportunities provide insight
into management priorities and strategic efforts.
Impact on financial performance can include thefollowing:• increases in revenue from new products orservices from climate opportunities;• increases in cost due to carbon prices,business interruption, contingency, or repairs;• changes to operating cash flow from changes
in upstream costs;• impairment charges due to assets exposed totransition risks; andF.
Financial Impacts• changes to total expected losses due tophysical risks.

AppendicesFigure F3 (p. 50) shows an example disclosureof actual financial impact, including proportionof earnings before interest, taxes, depreciation,
and amortization (EBITDA) aligned to low-carbon
products, services, and technologies. Figure F4(p. 51) includes an example of potential impact
on financial performance — the long-term impact
of extreme rainfall.

94

IOSCO, Report on Sustainability-Related Issuer Disclosures, June 21, 2021, pp. 22–24.

49

SPECIFIC DIRECT GREENHOUSEGAS EMISSIONS - SCOPE 1-28.2% on 2019

TOTAL WATER CONSUMPTION

ZERO-EMISSION GENERATION-64.9% on 2019(% of total)

The Task Force on Climate-related Financial Disclosures€15,616

Figure F3€9,575

millionORDINARY EBITDA FOR

LOW-CARBON PRODUCTS,
Example Disclosure:Enel
SERVICES AND TECHNOLOGIES

millionCAPEX FOR LOW-CARBONPRODUCTS, SERVICES ANDTECHNOLOGIESMain climate change indicators
2020

2019

2020-2019

Direct greenhouse gas emissions - Scope 1 (1)(million/teq)

45.26

69.98

(24.72)-35.3%

Indirect greenhouse gas emissions - Scope 2 - Purchase ofelectricity from the grid (location based)(million/teq)

1.43

1.55

(0.12)-7.7%(million/teq)

2.28

2.30

(0.02)-0.9%(million/teq)

3.56

3.82

(0.26)-6.8%

Indirect greenhouse gas emissions - Scope 2 - Purchase ofelectricity from the grid (market based)
Indirect greenhouse gas emissions - Scope 2 - Distribution grid
losses (location based)
Indirect greenhouse gas emissions - Scope 2 - Distribution grid
losses (market based)(million/teq)

5.57

6.00

(0.43)-7.2%(million/teq)

47.70

56.92

(9.22)-16.2%- of which emissions connected with gas sales(million/teq)

21.48

23.92

(2.44)-10.2%

Specific direct greenhouse gas emissions - Scope 1(gCO2eq/kWh)

214

298

(84)

-28.2%

Indirect greenhouse gas emissions - Scope 3

Specific emissions of SO2(g/kWh)

0.10

0.59

(0.49)-83.1%A.
Overview and Background

Specific emissions of NOx(g/kWh)

0.36

0.60

(0.24)-40.0%-91.7%

B.
Scope and Approach

Total direct fuel consumption

C.
Climate-Related Metrics

Reference price of CO2

D.
Climate-Related Targets

Specific emissions of particulates(g/kWh)

0.01

0.12

(0.11)

Zero-emission generation(% of total)

63.4

54.9

8.5

15.5%

(Mtoe)

23.9

30.1

(6.2)

-20.6%

Average efficiency of thermal plants (2)

(%)

44.2

42.0

2.2

5.2%

Water withdrawals in water-stressed areas (3)

(%)

22.9

25.4

(2.5)

-9.8%

(l/kWh)

0.20

0.33

(0.13)-39.4%

(€)

24.72

24.8

(0.1)

-0.3%

Ordinary EBITDA for low-carbon products, services and technologies (5)(millions of €)15,616

16,241(625.0)-3.8%

Capex for low-carbon products, services and technologies(millions of €)

9,575

9,131

444.0

4.9%

(%)

94.0

92.0

2.0

2.2%

Specific water withdrawals for total generation (4)Ratio of capex for low-carbon products, services and technologies
to total(1)

E.
Transition Plans
F.
Financial Impacts
AppendicesSpecific emissions are calculated considering total emissions from thermal generation as a ratio of total renewable, nuclear and thermal generation (including
the contribution of heat).
The calculation does not consider Italian O&G plants being decommissioned or of marginal impact. In addition, the figures do not take account of consumption andgeneration for cogeneration relating to Russian thermal generation plants. Average efficiency is calculated on the basis of the plant fleet and is weighted by generation.
(3) The figure for 2019 has been recalculated on the basis of the change in scope of plants in water-stressed areas.
(4) Specific withdrawals consist of all water withdrawals from sources on the surface (including recovered rainwater), underground, third-party, the sea and wastewater(supplies from third parties) used for generation processes and for closed-cycle cooling, excluding sea water returned to the sea after the desalination process (brine).
(5) The comparative figure for 2019 has been adjusted to take account of the fact that in South America and Mexico the values relating to large customers managed
by the generation companies have been reallocated to the End-user Markets Business Line.
(2)

Integrated Annual Report 2020

113

Source: Enel, Integrated Annual Report 2020, p. 113

50

The Task Force on Climate-related Financial Disclosures

Figure F4

Example Disclosure: Meridian Energy
Table 1. Top climate-related
Table 1.financial
Top climate-relatedrisks for Meridian
financial
Energyrisks for Meridian Energy

Top RisksA.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

Appendices

Extreme rainfall inhydro catchments

Negative demand disruption
Negative- demand disruption
Increaemissions intensive industries
emissions intensive industries
spot p

Risk drivers

Risk drivers

Type

Type

PhysicalPhysicalTransition

Transition

Transition

Scale

Scale

MediumMediumMediumMediumMediumLikelihood

Likelihood

About as likely as not About as likely as not

About as likely as not About as likely as not

LikelyTimeframe

Timeframe

Long-term (30 years) Long-term (30 years)

Long-term (30 years) Long-term (30 years)

Medium-term

Impacts

Impacts

Increasing intensity of extreme
Increasing
rainfallintensity
eventsofin
extremeSudden
rainfall drop
eventsinin
electricity
Suddendemanddrop
asin
emissionselectricity demand
As New
as emiss
Zealahydro catchments.
hydro catchments.
intensive industries are disrupted
intensive industries
by ambitious
are disrupted
generation,by ambitioitclimate change legislation
climateor shiftingchangeconsumerlegislation or shifting
spot price
consu
vol
preferences for sustainable
preferences
goods and
forservices.
sustainable goods and servi

Financial implicationsFinancial implications

electricity demand
Reducedmay electricity
negativelydemand
impact may
negatively
Increase in intensity of extreme
Increaserainfall
in intensity
eventsof extremeReduced
rainfall events
Increasedcos
on waterMeridian’s
onexample
Meridian’s
if therevenue,dairy for example
if the da
may require the lowering
mayof damrequirewater
thelevels
lowering of dam
levelsrevenue, forto increasesiindustry and/or
was curtaileddue
industry
to climate
was curtailed
action policy.
due to climate
action(reducing assets’ generating(reducing
capacity)
assets’and/orgeneratingthecapacity)therenewableelstrengthening of dam structures.
strengthening of dam structures.

Quantification

Quantification-$11 million

Methodology

Estimated
Estimated
impactpotentialis an financial impact
is anpoEstimated potential financial
Estimated
impactpotentialis an financial impact
is anpotential financial
Estimatedannualized
figure30 year time
figurehorizon,over a 30 year
time horizo
annualised figure over aannualised
30 year time
figurehorizonoverofa 30 year
time horizonof over aannualized
estimate,ancalculated
by modellingcalculated
the impactby
ofmodellinga step- the impact
a steestimated civil construction
estimatedcosts andcivilnegative
construction costs
and negative
costs of currechange reduction in demandchangeandreductioncomparingin demand andcomparinrevenue impacts.
revenue impacts.
on magnitud
it to our Evolution scenario.
it toThere
our Evolution
is significant
scenario. Theresignifica
spotispricevoluncertainty to this calculation.
uncertainty to this calculation.

Methodology

E.
Transition Plans
F.
Financial Impacts

Extreme rainfall inhydro catchments

Top RisksManagement response
Management response-$11 million-$12 to -$17 million-$12 to -$17 million-$1 to -$40 m

Probable Maximum Flood
Probablevalues are
Maximum
reviewed
Flood
oncevaluesMeridianare reviewed
supports
onceof climate
Meridianactionsupports
policy thatof climate action
Meridianpolicyhast
every ten years to incorporate
every tenclimateyearschange.
to incorporate would
climateincreasechange.electricity
would
demandincreasein otherelectricity
sectors,demandthat inincludesother sin particular the use of electricity
in particularin thethetransport
use of electricity
to spotin theelectrtran
and industrial heat sectors
andofindustrial
the economy.
heat sectors of thetheeconomy.
cost of m
impact of acc

Source: Meridian Energy, Climate Change Disclosures Meridian Energy Limited FY20, p. 11(2) Position: Impact of Climate-Related Risks
or Opportunities on Financial Position
Changes to the balance sheet statement as aresult of climate-related risks and opportunities
can include the following:• changes to the carrying amount of assets due
to exposure to physical and transition risks;• changes to the expected portfolio value given
climate-related risks and opportunities; andFigure F5 (p. 52) shows an example disclosure
highlighting the potential impact of climate-related
CLIMATE CHANGE DISCLO
risks and opportunities on an organization’s
financial position in terms of fair value of assets
under the International Energy Agency’s (IEA’s)
Sustainable Development Scenario.
Figure F6 (p. 52) shows an example of a company
disclosing the potential impact of climate-relatedrisks and opportunities on financial position froma change in valuation under a 1.5°C scenario
compared to a 3°C scenario.

• changes in liability and equity due to increases
or decreases in assets (e.g., due to low-carbon
capital investments or to sale or write-offs of
stranded assets).
51

oil component. With the adoption of a model of operational excellence based on successful
also measured throughexploration at competitive costs, reduction of time-to-market of reserves, a phase-baseda monitoring process
approach to project development and continuous control of operating expenditure, Eni has built
aimed at identifying anda resilient
Oil Disclosures& Gas portfolio. Today, in fact, the main upstream projects in progress feature a
potential
risks
Theassessing
Task Forceon Climate-related
Financialbreak even price of 23 $/bl and an overall internal rate of return (IRR) of about 18% at the Eni pricederiving from the market
scenario. Projects remain competitive even under less favourable scenarios; specifically, at a
scenario and legislative
20% price reduction, the internal rate of return (IRR) drops by approximately 2 percentage points.
and technological
Resilience of the investments portfolio is also measured through a monitoring process aimed
evolution
FigureF5

Example Disclosure:
Enievolution. In this respect, profitability of the most important new investment
and technologicalat identifying and assessing potential risks deriving from the market scenario and legislative

projects is subject to a sensitivity to carbon pricing using two sets of assumptions:• hydrocarbon price and CO2 cost from Eni scenario;• hydrocarbon price and CO2 cost from IEA SDS scenario.
In particular, by adopting the IEA SDS scenario, which envisages the global application of astrongly increasing cost for direct CO2 emissions, the internal rate of return would decreaseby 1.3 percentage points assuming that the cost is not recoverable contractually and for tax
purposes. In order to verify the resilience of Eni’s asset portfolio, a sensitivity analysis was
also carried out on all CGUs (Cash Generating Units) in the upstream sector. The stress test,
performed under the IEA SDS scenario, showed that the overall book values of the assets werestable with a reduction in fair value of around 11%, or around 5% in the event of contractualand fiscal recoverability of the costs of direct CO2 emissions. Analyses carried out on the 3P10
reserves of the current upstream portfolio confirmed their resilience and flexibility.

A.
Overview and Background

Resilience

In terms of resilience, the average Brent break even price, meaning the price that guarantees a returnon investment equal to the cost of capital, is around 20 $/bl, with values ranging from around 10 $/bl
to 35 $/bl for the most costly reserve.

Flexibility

In terms of flexibility, adopting a sensitivity scenario with a constant Brent equal to 50 $/bl and aconstant gas price (PSV) equal to 5 $/mmbtu, the result is that 93% of the value and 81% of thevolumes of 3P reserves11 could be produced by 2035. This leaves broad freedom to plan explorationand development campaigns to support future production and to adapt to sudden market changes
without incurring in the stranded assets risk.

B.
Scope and ApproachC.
Climate-Related Metrics
D.

In this report,
we are presentingTargets
the results of the
Climate-Related
1.5 °C scenario analysis only. We think that this scenariooffers the best means of evaluating the changes needed
to align portfolios
to the Paris Agreement. In fact, aE.
4 °C scenario12 assumes there will be no intervention
Plans increase, meaning
to combatTransition
global temperaturethat emissions-intensive and fossil fuel sectors gain
considerable value, as they are no longer subject tothe risks ofF.climate action and the resulting limits on
their activities.
This result,however, reinforces an
Financial
Impacts
ecological disaster that threatens the existence ofhumanity and much other life on the planet.

Appendices

The results of the modelling take into account themacroeconomic costs of changes to restrict futureclimate change to ‘only’ +1.5 °C, and the model
assumes those measures are not taken in the +4 °C
scenario. To mitigate these long-term risks, climatetransition risk must take place in the short term, andthere is a cost to it.
Inaction may present possible gains. These gains canbe outweighed, however, by mitigating portfolio risks
from a 1.5 °C scenario to avoid potential losses. We
can’t afford not to exceed +1.5 °C; the cost that thisinvolves is one that must be borne for the sake ofour future. Our role as active managers is to engage
with our current holdings as well as search out andfind new investments in issuers that are investingin technologies and other adaptations to both limit
the temperature increase and create value for ourinvestors. This would be a long-term climate strategy
that would be true to our company values and be
worth pursuing for the benefit of our clients and ourshareholders at large.
The 1.5 °C scenario analysis pilot project reveals
the following findings, which we explore further
throughout this section:
1. Aggregate valuation impacts are negative inthe 1.5 °C scenario.
2. Transition risk impacts outweigh physical risk
impacts.
3. As with emissions intensity, the majority oftransition risk impacts are driven by a small

Source: Eni, Eni for 2020: Carbon neutrality
byROLE
2050, 2020,
p. 20
THE
OF GASAs the hydrocarbon production mix evolves, gas will play an increasingly important role with
Gas will play an
the aim of achieving a 60% share by 2030 and more than 90% by 2050. LNG also plays a crucial
increasingly importantrole in the growth of gas and Eni is developing a new model which guarantees a leading positionrole in the evolution
in the market. Over the next few years, the portfolio is expected to grow with a forecast forof Eni's hydrocarbons
Finding
1 mix
traded volumes of 14 MTPA12 by 2024, a significant increase (+45%) with respect to 2020
productive
Aggregate valuation impacts aretradednegativein the 1.5
volumes.
This°C
growth will mainly come from new projects in Indonesia, Nigeria, Angola,
FigureF6
and positive in the 4 °C scenario
Analysis of the 1.5 °C versus a 3 °C baseline scenario reveals
ExampleInvescothat the GIVZ EquityDisclosure:portfolio is exposed
to climate
risk.theUnder
contributetomakeGroup’s portfolio more sustainable and enhance the value of natural

Mozambique and Egypt, where the Damietta start-up has been completed. These actions

the 1.5 °C scenario, this could reduce
4%.lower GHG emissions. The use of technological solutions such as
gas investment
as a fossilvalue
fuel bywithThis lines up with results for the MSCI ACWI.
Carbon, Capture, Utilization and Storage applied to power generation plants, LNG plants andIn this report, we are presenting the results of theFinding 1

to align portfolios to the Paris Agreement. In fact, a
4 °C scenario12 assumes there will be no intervention
tocombattemperature
Changein global
valuation
relative increase, meaningthatemissions-intensive
to baseline(in %) (INDCs)and fossil fuel sectors gain
considerable value, as they are no longer subject totherisks of climate action and the resulting limits on-4.30
their activities. This result, however, reinforces an
ecological disaster that threatens the existence ofhumanity and much other life on the planet.

Analysis of the 1.5 °C versus a 3 °C baseline scenario reveals
that the GIVZ Equity portfolio is exposed to climate risk. Under
the 1.5 °C scenario, this could reduce investment value by 4%.
This lines up with results for the MSCI ACWI.

Figure13 include:
GIVZ
Equity reseves (P3).
Aggregate valuation impacts are negative in the 1.5 °C
1.5scenario
analysisWe(P1),
thinkthat this
scenario
10)
3P °C
reserves
proven only.
reserves
probable
reserves(P2), possible
Changeinbestvaluation
relativebaseline
MSCI ACWI
11)
Properly
considered
70%(P2)toand
30%changes(P3).
and positive in the 4 °C scenarioofferstherisked,
means ofevaluatingtheneeded12)
MillionTonnesper
year.
for GIVZ Equity and the MSCI ACWI

-4.35
The results of the modelling take into account themacroeconomic costs of changes to restrict futureclimate change to ‘only’ +1.5 °C, and the model
assumes those measures are not taken in the +4 °C-4.40
scenario.
To mitigate these long-term risks, climatetransition risk must take place in the short term, andthere is a cost to it.
-4.45 may present possible gains. These gains can
Inactionbe outweighed, however, by mitigating portfolio risks
from a 1.5 °C scenario to avoid potential losses. We
can’t afford not to exceed +1.5 °C; the cost that thisinvolves-4.50 is one that must be borne for the sake ofour future. Our role as active managers
1.5 °C is to engage
with our current holdings as well as search out andfindnewVivid
investments
in issuers
thatDecember
are investing
Source:Economics,
as of 312019.
in technologies and other adaptations to both limit
the temperature increase and create value for ourinvestors. This would be a long-term climate strategy
thatwould2019
be trueto ourcompany
valuesandp.beSource:Invesco,InvescoClimateChangeReport,31
worth pursuing for the benefit of our clients and ourshareholders at large.
The 1.5 °C scenario analysis pilot project reveals

Figure 13
Change in valuation relative to baseline
for GIVZ Equity and the MSCI ACWIGIVZ Equity
MSCI ACWI

Change in valuation relative
to baseline (in %) (INDCs)
-4.30

-4.35

-4.40

-4.45

52

-4.50
1.5 °CAppendices

The Task Force on Climate-related Financial Disclosures

Appendix 1: Further Information
on Select Cross-Industry, Climate-Related
Metric Categories

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics

This appendix provides additional information
on select cross-industry, climate-related metriccategories. The first sub-section provides an
overview of the importance and challengesof Scope 3 GHG emissions disclosure as well
as a summary of developments related to
Scope 3 GHG emissions reporting for financial
institutions. This sub-section focuses on
Scope 3 GHG emissions in order to highlightdevelopments on the research and disclosureof these emissions since 2017. It is important
to emphasize that organizations should
disclose Scope 1 and Scope 2 GHG emissions
independent of a materiality assessment, given
their importance as an input to calculating
Scope 3 GHG emissions and as a critical aspectof understanding climate-related risks andopportunities. The second sub-section provides
information to support disclosure of internalcarbon prices.

D.
Climate-Related Targets
E.
Transition Plans

1. SCOPE 3 GHG EMISSIONS
The most well-known and widely referenced
classification of greenhouse gases is the GHG
Protocol Corporate Standard, which defines
the three scopes of GHG emissions fromthe perspective of the reporting company
as follows:95, 96• Scope 1 GHG emissions are direct emissions
from owned or controlled sources. Note that
one company’s Scope 1 (direct) emissions are
Scope 3 (indirect) emissions for a company
or consumer who is in the first company’svalue chain.
• Scope 2 GHG emissions are indirect emissions
from the generation of purchased energy.
• Scope 3 GHG emissions are all indirectemissions (not included in Scope 2) that occur
in the value chain of the reporting company,
including both upstream and downstream
emissions. The GHG Protocol’s Scope 3
schema contains 15 stages, eight of which are
upstream, seven downstream.
The GHG Protocol Scope 3 Standard notesthat “while a company has control over its
direct emissions, it has influence over its
indirect emissions.” 97

F.
Financial Impacts
Appendices95

T he GHG Protocol Corporate Standard, commonly referred to simply as the Corporate Standard, is a methodology
developed by the GHG Protocol Initiative and is the methodology recommended by the Task Force for calculating andreporting GHG emissions (2017 TCFD Final Report, Section C3, p. 22, footnote 40). It covers the accounting and reportingof the six greenhouse gases covered by the Kyoto Protocol — carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),
hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF 6). The first edition of the Corporate
Standard was published in 2001 and then updated in 2004 with additional guidance clarifying how companies can measure
GHG emissions from electricity and other energy purchases, and account for GHG emissions from throughout their value
chains. Building on the Corporate Standard, the GHG Protocol then developed a more detailed approach to Scope 3 GHG
emissions, and in 2011 published the Corporate Value Chain (Scope 3) Accounting and Reporting Standard, commonly referred
to as the Scope 3 Standard. A supplement to the Scope 3 Standard was published in 2013 providing additional details on
calculating Scope 3 GHG emissions, namely the Technical Guidance for Calculating Scope 3 Emissions.

96

F or more information, see GHG Protocol, Frequently Asked Questions.

97

GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, September 2011, p. 27.

54

The Task Force on Climate-related Financial Disclosures

Since 2017, Scope 3 GHG emissions, including
the Scope 3 investment category, have received
increasing attention in both the public and private
sectors. Scope 3 GHG emissions are becoming
an essential component of climate-related risk
analysis in commercial and financial markets.
As companies’ and jurisdictions’ commitments
to reduce GHG emissions — both direct andindirect — to net-zero continue to grow, investors,
lenders, and insurance underwriters want insight
into value chain GHG emissions and how they
could be affected by such commitments. In
response to widespread interest, an increasing
number of companies are reporting GHG
emissions, including Scope 3 GHG emissions.
A. I mportance of Disclosure of Scope 3
GHG Emissions

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Scope 3 GHG emissions are an importantcomponent of overall GHG emissions forseveral reasons.
Scope 3 GHG emissions are increasingly
understood as an important indicator ofrisk, as risk is embedded in buying inputs or
selling products that are carbon intensive.
A 2017 study by CDP found that of the three
GHG emissions scopes, “approximately 40% of
global GHG emissions are driven or influenced
by organizations through their purchases (i.e.,purchased goods and services) and through the
products they sell” (in other words, through their
Scope 3 GHG emissions).98
Scope 3 GHG emissions are a criticalcomponent of overall GHG emissions.
A growing body of research shows that incertain sectors, Scope 3 GHG emissions canaccount for several times the impact of acompany’s Scope 1 and Scope 2 GHG emissions.
For example, a 2015 report by the sell-side
investment research house Kepler-Cheuvreux
analyzed the GHG emissions for 24 industry
groups under the Global Industry Classification
Standard (GICS) (Figure A1-1, p. 56). It foundthat 21 industry groups had indirect GHG
emissions (Scope 3 GHG emissions upstream
and downstream and Scope 2 upstream
GHG emissions) greater than 50% of theiroverall carbon emissions.99 For eight of these
21 industries — Banks, Insurance, Real Estate,
Energy, Capital Goods, Automobiles andComponents, Consumer Durables and Apparel,
and Technology — downstream Scope 3 GHG
emissions were predominant. For 13 industries,
upstream GHG emissions were predominant.
Only three of the 24 industry groups had indirectemissions less than 50%: Utilities, Transportation,and Materials.
In addition, CDP’s 2020 Supply Chain Report,
evaluating the state of environmental risks insupply chains for 8,098 suppliers, found that
upstream Scope 3 GHG emissions are on average
11.4 times higher than operational emissions
across sectors (Figure A1-2, p. 56).
An increasing number of companies arereporting Scope 3 GHG emissions. Task Forceanalysis of 2,500 organizations within the MSCIAll Country World Index (ACWI Index) found thatfrom 2017–2019, organizations disclosing Scope 3
GHG emissions grew from 28% to 34%.100
Industry and investor initiatives are calling
for the disclosure of Scope 3 GHG emissions.
For example, Climate Action 100+ (CA100+), an
investor initiative of 615 investors representing$55 trillion in assets under management,
engages with companies to “reduce greenhousegas emissions across the value chain” in linewith the Paris Agreement.101 Necessarily, thisengagement includes Scope 3 GHG emissions
within its focus. CA100+ also asks companies toenhance their climate-related disclosures in linewith the TCFD recommendations.
There is increasing urgency on reducing GHG
emissions — both direct and indirect — tozero, which stems from a shift in international
dialogue from a focus on carbon budgets
consistent with the Paris Agreement to a focus
on achieving net-zero GHG emissions by 2050,
with governments and investors increasingly
focusing on the full value chain of emissions.
As an increasing number of jurisdictions formally
move to net-zero targets, they may require morecomprehensive GHG reporting from companies
within their borders.
Financial organizations require effective
disclosure of GHG emissions data, including
Scope 3 GHG emissions, to track their GHG
emissions reduction commitments and meettheir disclosure obligations. Banks, insurancecompanies, asset managers, and asset owners
will need better disclosure of GHG emissions98

 BTi, Gold Standard, and Navigant, Value Change in the Value Chain: Best Practices in Scope 3 GHG Management,
S
citing CDP’s 2017/2018 Global Supply Chain report Closing the Gap: Scaling Up Sustainable Supply Chains,
November 2018, p. 9.

99

 or more information, see Kepler Cheuvreux, Carbon Compass: Investor Guide to Carbon FootprintingF
and the section titled “Fasten your seat belt,” pp. 19–23.

100

Task Force analysis of MSCI ACWI Index data.

101

F or more information, see Climate Action 100+.

55

Scope 3 emissions are also indirect and refer to both upstream supply-chain
emissions such as upstream logistics and purchased goods and services, aswell as downstream activities, notably emissions from the use and disposal
The Task
Forceproducts,
on Climate-related
Financial
Disclosuresof sold
as well as
emissionsfrom franchises. The GHG emissions
from investments (‘financed emissions’) also fall into this category.
One could argue that a company has more influence on its Scope 1 and 2 emissions
Figure A1-1
compared
to its Scope 3 emissions. Note that this varies across Scope 3 categories(e.g. an automobile company has a large influence on the emissions of its cars).

Importance of Scope 3 GHG Emissions
in Certain Sectors
Chart 5: Scope 3 – it matters!
CDP GLOBAL SUPPLY CHAIN REPORT 2020

14

100
CDP 90
GLOBAL SUPPLY CHAIN REPORT 2020
CDP 80
GLOBALSUPPLY CHAINREPORT 2020
Suppliers
are turning
the spotlight

Percentage of emissions

14

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

14
These figures underline that real70
on their own supply chains.
climate leadership cannot be achieved
60
without tackling scope 3 impacts.
In 2020,
suppliers
reported
upstream50
Suppliers
are turning the spotlight
These figures underline that realemissionswere,onchains.
average,
11.4 Supplierengagement
continues
Suppliers
areturning
the spotlight
These
figures
underlinethat
40 thaton theirown
supplyclimateleadership
cannotberealachievedtimes
thanthosechains.
produced
to remain
exceptionratheron greater
theirsupplyclimatetheleadership
cannotbe achieved
30 ownwithout
tackling
scope
3 impacts.
In 2020,reported upstream than
throughtheirsuppliers
direct operations.
the norm.
without
tackling scope 3 impacts.
20
In 2020,
suppliers
reported
upstream
emissionsthat were,on average,
11.4 Supplier engagement continues
10
Thisemissions
is a big
jump
from
2019,
when 11.4 Measuring
scope
3 emissions
isthatthanwere,on average,
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engagement
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times
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produced
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toaremain
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GLOBALSUPPLYCHAIN
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throughtheirdirectoperations.
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are 11.4 times higher thanThis
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thanoperationalemissions.
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and
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climatefrom
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are 11.4 times
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and
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are taking
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tackling scope
3 impacts.
suppliers
measuringin
Inindication
2020, suppliers
reported
upstream
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not
an
of
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increase
inofsuppliersaretakingactionandsupplychain
emissions.
Rather,this
engaging
with
their
own
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their supply
chainthat(knownasaverage,
scope 11.4
3
emissionswere, on
Supplier engagement continues
supplychain
emissions.
Rather,this
engaging
with
own suppliers,
statistic
promisingly
shows
that
more to remain
down thefrom
39%theirinrather2019.
emissions),
andaccounting
for
those
times
greaterthan those
produced
exception
Scope 2thatand 3more
Upstream(supply
chain)
Scope
1
Scope 3 downstream (Product Use)statistic
promisingly
shows
down
from
39%
in
2019.
throughtheirdirectoperations.
than
the
norm.
suppliers
aremeasuringemissionsinemissions over the full lifecycle ofsuppliers
arechainmeasuringemissionsintheirsupply(knownas scope
theirproducts
servicesin2019,line
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the
GHGKepler-Cheuvreux,
protocol.
suppliers
Source:CarbonCompass:
Investor Guide to Carbon Footprinting, 360 Report, ofNovember23, are2015taking supply
Supply chain emissions
were fiveandthea halfgreaterthe quantification of risk exposure
emissions),
andaccounting
for thoseemissionsoverfulltimes
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actionthemselves,down
are 11.4 times higher than
than operationalemissions.
This isand upstream emissions, only 37%
emissionsoverorthefull lifecycle
theirproducts
servicesin lineof
withoperationalemissionsfrom
39% in 2019not an indication of an increase inof suppliers are taking action andtheirproducts
orservices
in
line
with
GHG
protocol.
Yet, themostcompanies
do notdisclose
Scope with
3 emissions,beyond categories
as are taking supplyof suchsuppliers
supplychain emissions.
Rather,this
engaging
their own suppliers,
the GHG protocol.
suppliers
taking supply
promisinglythat more down
2019.world’s 800 largest ofchain
action arethemselves,
down‘businessstatistic
travel’.
Only shows
approximately
10fromout39%
ofinthepubliclysuppliers are measuring emissions in
chain39%
actionthemselves, down
fromin 2019
listedcompanies
information
on each of the 15 Scope 3 categories ona basistheirsupplyprovide
chain (known
as scope 3
FigureA1-2
from
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emissions), and accounting for thoseemissions: scope
emissions areisongiven
averagetimesahigher
operationalisemissionsofUpstream‘comply-or-explain’(i.e.3explanation
as11.4
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3 category
not

11.4x
higher11.4x
11.4x
higherhigher11.4x
37%higher37%
37%

Upstream GHG Emissions by CDP Sector
37%
emissions over the full lifecycle ofE.
Transition Plans

productsor servicesitinisline
withrelevant to the sector or business model) (link).
reported,theirusually
becausenot
the GHG protocol.

F.
Financial Impacts
Appendicesof suppliers are taking supply

RetailUpstream
emissions: scope 3 emissions are on average 11.4 times higher
thanoperational
chain
actionthemselves,emissions
down
Upstream emissions: scope 3 emissions are on average 11.4 times higher
thanemissionsfrom
39%operationalin 201920

28.3

Apparel
25.2
Retail
28.3
Retail28.3
21.2
Services
Apparelemissions: scope 3 emissions are on average 11.4 times higher than operational emissions
Upstream
25.2
Apparel
25.2
Food, beverage & agriculture
11.2
keplercheuvreux.com
Retail28.3
21.2
Services
21.2
Services
Biotech, healthcare&pharma7.9
Apparel
25.2
Food, beverage & agriculture
11.2
Food, beverage & agriculture
11.2
21.2
Services
Manufacturing
7.7
Biotech, health care & pharma
7.9
Fashion Charter signatories recognize
Biotech,care& pharma
7.9
Food,healthbeverage& agriculture
11.2
that the biggest impact in terms of GHG
Hospitality
6.8
emissions lies in the supply chain. At
Manufacturing
7.7
Biotech, health care & pharma
7.9
the same time, there is a recognition
Manufacturing
7.7
Fashion Charter signatories recognize
Materials
4.3
that Fashion
Scope 3Charteremissionsin the supply
signatories
recognizethat the biggest
impactin termsof GHG
Hospitality
6.8 7.7
Manufacturing
chain
arethea bigchallenge
forintheapparelthatbiggestimpact
terms
of At
GHG
emissions
lies
in
the
supplychain.
Fashion Chartersignatories
recognize
Hospitality
6.8
sector.
We
began
working
with
CDP,
also
emissionslies
inthe supply
chain. At
Infrastructure
4.0
the
same
time,
there
is a recognition
that the biggest impact
in termsof GHG
Hospitality
6.8
at
the
requestofmanysignatories,
toMaterials
4.3
emissions lies in the
chain.
Atthere is ainrecognition
thesupply
same
time,
that
Scope
3 emissions
the supply
demonstratethat
existing andincoming
the same time,
there
a are
recognition
Materials
4.3
thatis Scopeemissionsthesupplychain
a 3bigchallengeinfor
theapparelTransportation
services
1.5
Materials
4.3
that Scope 3companies
emissions in the
supplyto atheare formeasuring
chain arebigCharter
challenge
theCDP,apparelsector.
We
began
workingwith
also
chain are a big
challengefortheapparelInfrastructure
4.0
and sector.
ultimately
emissionsin also
We managing
began
workingwith CDP,
the requestofmany
signatories,
tosector. We began atworking
with
CDP,
also
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4.0
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order
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theysignatories,
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theandFashionCharter. and incoming
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demonstrate
tothatthe existing
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Transportation services 1.5
companies to the Charter are measuring
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companies
to theCharteremissions
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andultimately
managing
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and ultimately managing emissions in
LinditaXhaferi-Salihu,
andmanaging
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to meetthegoals they
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order to meet the order
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have setPower
generationPowergeneration 1.1
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order
to themeet
theLead,goals
they have set
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through the Fashion
Charter.
Power generation 1.1
UN Climate
throughChange
the Fashion Charter.
AverageFossil
ofFossil
final
ratio
Fuels
0.7(Scope 3 [supply chain emissions] : Scope 1
Fuels 0.7
Lindita Xhaferi-Salihu,
Lindita Xhaferi-Salihu,+2 [operationalemissionsand direct emissions])
Sectors Engagement Lead,
Fossil Fuels
0.7
Lindita Xhaferi-Salihu,
Sectors
Engagement Lead,
UN Climate Change
Average of final ratio (Scope 3 [supply chain emissions] : Scope 1
Sectors
Engagement
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Averageof final ratio(Scope[supply
chain emissions] : Scope 1+2 [operationalemissionsand 3
directemissions])
UN Climate Change

Averageof finalemissions
ratio (Scope
3 [supply
chain emissions] : Scope 1+2 [operational
anddirect emissions])+2 [operational emissions and direct emissions])

Source: CDP, Transparency to Transformation: A Chain Reaction, CDP Global Supply Chain Report 2020, February 2021, p. 14
Note: Some content was reformatted in order to fit the page.

56

The Task Force on Climate-related Financial Disclosuresfrom preparers to understand GHG emissions
from their lending, investing, and insurance
underwriting activities and evaluate how these
activities may expose them to carbon-related
assets and their associated risks.
B. C
 hallenges in Determining Scope 3
GHG Emissions
Despite increased demand and reporting,the disclosure of Scope 3 GHG emissions faces
a number of challenges, including:A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Data Challenges. Organizations struggle tocollect relevant and sufficiently granular primarydata and to manage the amount of data needed
to determine Scope 3 GHG emissions; this often
requires formal data management plans andresources. Using secondary data or industryaverage GHG emissions factors also presents
issues, such as how to account for uncertainties
in industry-average GHG emissions factors
around data collection or quality and an uneven
distribution of GHG emissions within an industry.
In feedback to the Task Force’s consultation on
metrics, targets, and transition plans, several
financial sector respondents expressed concern
about reporting on GHG emissions related totheir own or their clients’ investments, given thecurrent data challenges and existing accounting
guidance on how to measure and report GHG
emissions associated with investments. In
particular, they voiced concerns about theaccuracy and completeness of the reported data.
Methodology Challenges. Accurately capturing
Scope 3 GHG emissions also has methodologicalchallenges, including estimating GHG
emissions for suppliers that do not calculate
their own emissions, defining an appropriate
calculation approach for each Scope 3 category,and recognizing double counting that may
occur when GHG emissions are aggregatedacross multiple organizations. Even when
an appropriate methodology is determined,
users of an organization’s disclosures must
understand sources of uncertainty regardingwhether a value accurately represents theactivity in the organization’s value chain, whether
variation in calculated GHG emissions are due
to methodological choices, and whether there
are any limitations as a result of the modelingapproaches used to reflect the real world.

Boundary Challenges. Establishing clear value
chain boundaries when calculating Scope 3 GHG
emissions presents another challenge.102 Whilein principle the fifteen GHG emissions categories
defined by the Scope 3 Standard are designed
to be mutually exclusive, applying the Scope
3 Standard in practice can cause an overlap inreporting boundaries due to an organization’s
involvement at multiple points in the life cycleof products and can result in double countingof Scope 3 GHG emissions.
Organizational Challenges. The calculationof Scope 3 GHG emissions requires personnel,
resources, expertise, and data management andquality processes.
C. S
 cope 3 GHG Emissions for Financial
Organizations
Category 15 of the GHG Protocol’s Scope 3
Standard relates to investments, which the
GHG Protocol notes are a form of Scope 3
GHG emissions “applicable to investors andcompanies that provide financial services.
Investments are categorized as a downstream
Scope 3 category because the provision of capitalor financing is a service provided by the reporting
company.”103, 104 For financial organizations, Scope
3 GHG emissions, especially category 15, areby far the largest component of their total GHG
emissions.105 However, assessing and pricing
exposure to climate-related risks within thefinancial system depends on the effectivenessof the climate-related disclosures of thecompanies that are financed by banks, asset
owners, and asset managers and underwritten
by insurance companies. If the disclosures madeby organizations with significant direct andindirect GHG emissions do not include sufficient
information on Scope 1, Scope 2, and Scope 3
GHG emissions, then the banking and insurance
industries’ understanding of the concentrationof carbon-related assets on their balance sheets
may be incomplete and asset owner and asset
managers will have limited visibility into risk
associated with carbon-intensive issuers.
Since the TCFD published its final report in June
2017, a number of initiatives have emerged to
improve the disclosure and reporting of financialorganizations’ GHG emissions. Two of thesedevelopments are of particular relevance for
the Task Force’s guidance on this topic: (1) the102

 he GHG Protocol Corporate Standard allows companies flexibility in choosing which, if any, scope 3 activities to include
Tin the GHG inventory when the company defines its operational boundaries.

103

GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, September 2011, p. 51.

104

 he GHG Protocol’s Category 15: Investments was designed primarily for financial institutions and includes Scope 3 emissionsTassociated with the reporting company’s investments, not already included in Scope 1 or Scope 2. For more information, see
GHG Protocol, Technical Guidance for Calculating Scope 3 Emissions, p. 136.

105

F or more information, see CDP, The Time to Green Finance, April 2021, p. 33.

57

The Task Force on Climate-related Financial Disclosures

Partnership for Carbon Accounting Financials(PCAF) and (2) the Climate Risk Officer (CRO)
Forum methodology on carbon footprinting
for the insurance industry.
The PCAF Global GHG Accounting and ReportingStandard
In November 2020, PCAF issued the first editionof the Global GHG Accounting and ReportingStandard for the Financial Industry (the PCAF
Standard).106 The PCAF Standard builds on
the GHG Protocol Scope 3 accounting rules,
providing methodological guidance to assist
in the measurement and disclosure of GHG
emissions associated with six asset classes:(1) listed equity and corporate bonds,(2) business loans and unlisted equity,(3) project finance, (4) commercial real estate,(5) mortgages, and (6) motor vehicle loans.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

The PCAF Standard provides guidance foreach asset class to aid calculation of the GHG
emissions resulting from activities in the real
economy that are financed through lending
and investment portfolios. GHG emissions are
attributed to financial organizations based on
accounting rules that are specific for each asset
class. This approach is used by the SBTi as partof their guidance for financial organizations on
setting targets on their GHG emissions.107
The PCAF Standard currently does not provide
explicit guidance on calculating GHG emissions
for certain financial products including private
equity that refers to investment funds, green
bonds, sovereign bonds, loans for securitization,exchange traded funds, derivatives, and initialpublic offering (IPO) underwriting and notes“guidance on such financial products will beconsidered and published in later editions of
the Standard.”108 In addition, PCAF is working

in collaboration with members of the Net-ZeroInsurance Alliance as well as other insurancecompanies to develop a methodology formeasuring GHG emissions associated with
underwriting activities.109
PCAF recognizes the difficulties inherent in thecomparability, coverage, transparency, andreliability of Scope 3 GHG emissions data, butnotes that “by requiring Scope 3 reporting for
selected sectors, PCAF seeks to make Scope 3 GHG
emissions reporting more common practice byimproving data availability and quality over time.”
To support Scope 3 GHG emissions data challenges,
the PCAF Standard provides recommendations
and requirements for disclosures, as well as
guidance on data quality scoring per asset classto facilitate data transparency and quality in themedium and long term.
The CRO Forum’s Carbon Footprinting
Methodology for Underwriting Portfolios
In April 2020, the CRO Forum published Carbon
Footprinting Methodology for Underwriting
Portfolios, a report summarizing “a range ofoptions, methodologies, and barriers for the
carbon-footprinting of insurance companies’
underwriting portfolios” (p. 5).110, 111, 112
The CRO report states that the weighted averagecarbon intensity (WACI) metric for asset owners
and asset managers recommended by the TCFD
in its 2017 final report is also applicable — withappropriate changes — to underwriting
portfolios. The CRO Forum’s report recommends
using WACI as a first step in gauging the financial
risks posed to underwriting portfolios by climatechange. The CRO Forum’s WACI metrics arecalculated on the basis of the insured entities’
Scope 1 and Scope 2 GHG emissions only,with the Scope 3 GHG emissions of entities
underwritten excluded from the calculation.

106

PCAF, Global GHG Accounting and Reporting Standard for the Financial Industry, November 18, 2020.

107

SBTi, Financial Sector Science-Based Targets Guidance, Pilot Version 1.1, April 2021.

108

PCAF, Global GHG Accounting and Reporting Standard for the Financial Industry, November 18, 2020, p. 44.

109

 CAF, “Partnership for Carbon Accounting Financials collaborates with UN-convened Net-Zero Insurance Alliance to developPstandard to measure insured emissions,” September 6, 2021.

110

F or more information, see Carbon Footprinting Methodology for Underwriting Portfolios, April 29, 2020.

111

 he CRO Forum is an initiative established in 2004 bringing together the Chief Risk Officers of leading insurance companies
Tto advance risk management practices in the insurance industry.

112

 he Net-Zero Insurance Alliance (NZIA), convened by the UN Environment Programme’s Principles for Sustainable InsuranceT
Initiative (PSI) and contributing to the UNFCCC Race to Zero Campaign and the Glasgow Financial Alliance for Net Zero (GFANZ),
provides additional guidance and/or requirements for insurance and reinsurance signatory companies. For more information,
see the NZIA “Statement of commitment by signatory companies.”

58

The Task Force on Climate-related Financial Disclosures

2. INTERNAL CARBON PRICESThis sub-section describes key considerations for
how organizations can use and disclose internalcarbon prices.
A. Using Internal Carbon Prices
Organizations can use carbon prices toassess the financial implications of changes
to investment, production, and consumption
patterns, as well as potential technologicalprogress and future emissions abatement costs.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Organizations’ internal carbon prices can comein several forms and be used for a range ofbusiness applications.113 There are two typesof internal carbon prices commonly used byorganizations. The first type is a shadow price,which is a theoretical cost or notional amountthat the organization does not charge butthat can be used in assessing the economic
implications or trade-offs for such things as risk
impacts, new investments, net present valueof projects, and the cost-benefit of various
initiatives. The second type is an internal tax
or fee, which is a carbon price charged to abusiness activity, product line, or other business
unit based on its GHG emissions (these internal
taxes or fees are similar to intracompany transfer
pricing). Internal revenues from these feesor taxes are often used by an organization to
incentivize emissions mitigation and investment
in various low-carbon opportunities.
Common uses of internal carbon pricing include:• Performance measurement – For example,
determining carbon-adjusted earnings per
share, estimating expected profitability,
incentivizing energy saving, identifying
revenue opportunities and risks, managing
procurement and supply chains114• Position management – For example,
valuation of assets• Investment decisions – For example,
identifying low-carbon, high-return investment
opportunities, planning capital investments,
determining cost-benefit and net present valueof projects

113• Strategy – For example, assessing future
policy responses to climate change such as
the potential imposition of explicit or implicit
carbon pricing, effects on overall economic
growth and sector demand, and technology
cost-benefit hurdles• Risk Management – For example, to measure,model, and manage GHG emissions-relatedtransition risks and opportunities and adjust
strategy accordingly
To set an internal carbon price(s), an organization
should understand how it plans to use theinternal carbon price, the appropriate form
for different applications of internal carbon
pricing, and approaches to determining a pricelevel. Effective carbon prices typically have thefollowing characteristics:• Prices or methodologies for prices should
be based on credible, reputable scientificresearch on reasonable carbon prices in lightof societal climate goals.115 At a minimum,organizations should consider a carbon pricethat is aligned to a temperature pathway well
below 2°C.116• An organization’s internal carbon price(s)should be consistent with prices implied by
the organization’s climate-related targets(e.g., net-zero by 2050, Paris-aligned).
• Internal carbon prices should increase overtime to reflect diminishing carbon budget.
• Organizations should recalculate theirinternal carbon prices, as warranted,
to account for climate policy or regulation,or lack thereof, that may signal sharper priceincreases that will be needed to maintain thegiven carbon budget implied by the chosentemperature pathway.
• Internal carbon prices may need to reflect
geographic or sectoral differences inwhich the organization determines that suchdifferences will have a significant impact on
the carbon price level and a credible sourcefor differentiated pricing can be found.

 or more information, see Center for Climate and Energy Solutions, The Business of Pricing Carbon: How Companies are
F
Pricing Carbon to Mitigate Risks and Prepare for a Low-Carbon Future.

114

Carbon Pricing Unlocked, Internal Carbon Pricing for Future-Proof Supply Chains, January 2020.

115

 or more information, see CDP, We Mean Business, and Carbon Pricing Leadership Coalition, “Carbon Pricing Corridors:
F
The Market View,” May 2017, “Carbon Pricing Corridors, 2018,” July 2018, and Report of the High-Level Commission on Carbon
Prices, May 29, 2017.

116

A rticle two of the 2015 Paris Agreement commits parties to “holding the increasing in the global average temperature
to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above
pre-industrial levels.”

59

The Task Force on Climate-related Financial Disclosures

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans

Several sources provide more information
on setting internal carbon prices, including(1) Carbon Pricing Leadership Coalition’sConstruction Industry Value Chain: How
Companies Are Using Carbon Pricing to Address
Climate Risk and Find New Opportunities,(2) Carbon Pricing Unlocked Partnership’s How-To
Guide to Corporate Internal Carbon Pricing,(3) Carbon Pricing Unlocked Partnership’s
Internal Carbon Pricing for Low-Carbon Finance,(4) Yale University’s Internal Carbon Pricing: Policy
Framework and Case Studies, and (5) WBCSD’s
Emerging Practices in Internal Carbon Pricing:
A Practical Guide.117

interested in why and how a firm uses internalcarbon pricing. Accordingly, organizations should
consider providing the following details related tointernal carbon price:

B. Disclosure of Internal Carbon Prices• type and proportion of the organization’s
GHG emissions covered by carbon pricing(e.g., Scope 1, Scope 2, Scope 3 GHG emissions;which greenhouse gases);

The Task Force encourages organizations forwhich disclosure of internal carbon prices
is relevant to disclose the actual internalcarbon price(s) used within the organization,for example, when making investment or
strategic planning decisions. Organizations
should disclose internal carbon prices thatare consistent with those used in determining
values of items disclosed publicly, such as asset
valuations and retirement obligations.
Organizations may also consider disclosing
information about how they use an internalcarbon price(s) in their decision-making and towhat extent it affects their decisions. To more fully
understand an organization’s risk management
and strategy decisions, many investors are• methodology used to develop internalcarbon price(s);• whether the organization’s internal carbon
price reflects a proxy of the all-in implicit costof various climate policies (e.g., performancestandards, renewable portfolio standards,
efficiency standards, etc.) or an explicit costof GHG emissions (e.g., market-based price,cap-and-trade, carbon tax);• assumptions about how the organization’s
internal carbon price might change over time inresponse to declining carbon budgets, changing
policy, and changing emissions projections;• the scope of implementation of internal carbon
prices (e.g., geographic, business lines);• whether the carbon price would apply onlyat the margin or as a base cost; and• whether the organization uses a common
carbon price or differentiated carbon prices.

F.
Financial Impacts
Appendices117

 arbon Pricing Leadership Coalition, Construction Industry Value Chain: How Companies Are Using Carbon Pricing to AddressC
Climate Risk and Find New Opportunities, 2018; Carbon Pricing Unlocked, How-To Guide to Corporate Internal Carbon Pricing,
December 2017; Carbon Pricing Unlocked, Internal Carbon Pricing for Low-Carbon Finance, July 2019; Yale University,
Internal Carbon Pricing: Policy Framework and Case Studies, February 2019; WBCSD, Emerging Practices in Internal Carbon
Pricing: A Practical Guide, December 4, 2015.

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The Task Force on Climate-related Financial Disclosures

Appendix 2: Example Disclosures
Table A2-1 provides additional information on the cross-industry, climate-related metric categories and financial impacts, including non-exhaustive alignment
with other frameworks, example metrics, and example disclosures from financial and non-financial organizations.

Table A2-1
Information

Alignment (Non-Exhaustive)

Example Metrics

Financial Organization Examples

Non-Financial Organization Examples• Absolute Scope 1, Scope 2, Scope 3 GHG emissions

Temasek:118 “We have committed to carbon
neutrality in our own operations by 2020 andachieved this target by 31 March 2020 through thepurchase and retirement of carbon credits fromthe voluntary carbon markets.”

Dow:120 “Dow confirmed today it has enteredinto new renewable power agreements for its
manufacturing facilities in Argentina, Brazil, Texas,
and Kentucky, securing 338 more megawattsof power capacity from renewable sources,
representing an expected reduction of more than
225,000 metric tons of CO2e.”

Cross-Industry, Climate-Related Metric Categories
GHG Emissions
Absolute Scope 1,
Scope 2, and Scope 3;
emissions intensity

Appendices• Weighted average carbon intensity• GHG emissions per MWh of electricity produced• Gross global Scope 1 GHG emissions covered underemissions-limiting regulations

CPP Investments:119 Disclosure notes 20.9 million
tonnes of CO2e in Long-Term Capital Ownership,
39.8 in Equity Ownership, and 37.7 in GovernmentIssued Securities.

• Volume of real estate collaterals highly exposed totransition risk

ING:122 “Outstanding– upstream oil and gas€4.0 billion.”• Concentration of credit exposure to carbon-related
assets

BBVA:123 “BBVA’s Transition Sensitive and CarbonRelated wholesale exposures represent below
less than 20% of total wholesale EAD (exposure atdefault), or well below 10% of the Group’s EAD.”

European Commission Guidelines: Section 3.5

Transition Risks

CDP: C2.3a;

Amount and extent
of assets or businessactivities vulnerable
to transition risks

European Commission Guidelines: Annex 1.4;
European Commission Guidelines: Annex 1.5;
EBC Supervisory Expectation: 9.2, 13.5;
EBA Guidelines (EBA/GL/11/2017)

E.
Transition Plans
F.
Financial Impacts

GRI: 102-29, 201-2, 305-4; CDP: C4.1, C6.1, C6.3, C6.5,
C6.10; PCAF: Global Standard Table 2-1;

• Financed emissions by asset class

ECB Supervisory Expectation: 13.5;

B.
Scope and ApproachD.
Climate-Related Targets

SASB: various sector frameworks;

SASB: SASB provides industry-specific guidance.
Metrics that fall under the SASB disclosure
topics “Greenhouse Gas Emissions” or “Energy
Management” align with GHG Emissions;”A.
Overview and BackgroundC.
Climate-Related Metrics

GRI: 102-29, 102-30, 305-1, 305-2, 305-3; CDP: C4.1a,C5.1, C5.2, C6.1, C6.3, C6.5; CDSB: REQ-04, REQ-05;

Physical Risks

SASB: IF0402-13 (Real Estate Standard);

Amount and extent
of assets or businessactivities vulnerable
to physical risks

SASB: FN-MF-450a.1 (Mortgage Finance Standards);
European Commission Guidelines: Section 3.5;
ECB Supervisory Expectation: 1.1, 9.1;
EBA Guidelines (EBA/GL/2019/02)• Percent of revenue from coal mining• Percent of revenue passenger kilometers notcovered by Carbon Offsetting and Reduction
Scheme for International Aviation (CORSIA)• Number and value of mortgage loans in 100-year
flood zones• Wastewater treatment capacity located in 100-year
flood zones• Revenue associated with water withdrawn andconsumed in regions of high or extremely highbaseline water stress

HSBC:125 [Describing pilot test of 97 most criticalproperties and sites] “By 2050, 15 of the 97 mostcritical properties will potentially face increased
risk from physical hazards under the most severe
Hot house climate change scenario of 3°C increase
in climate temperature.”• Proportion of property, infrastructure, or otheralternative asset portfolios in an area subject toflooding, heat stress, or water stress

EDF:121 “(EDF group’s current trajectory)
represents an absolute reduction of direct
greenhouse-gas emissions amounting to 25 Mt
CO2 by 2030, equivalent to a carbon intensityof approximately 35 g CO2/kWh in 2030.”

United Airlines:124 “Approximately 33% of United’s
2019 capacity (including regional partners)
was flown between country-pairs that havevolunteered for the first phase of the Carbon
Offsetting and Reduction Scheme for International
Aviation (CORSIA) (2021-23). If additional countries
join in subsequent years, this number is expected
to increase.” (CDP 2020 Report)

ConEdison:126 “To assess future asset vulnerability
to sea level rise and storm surge, the Study teamanalyzed the exposure of Con Edison’s assets to
3 feet of sea level rise. Of the 324 substations 75
would be vulnerable to flooding during a 100-year
storm if sea level rose 3 feet. In addition, 32 gas
regulators and five steam generation stations
would be exposed. Hardening all of these assets
would cost approximately $680 million.”• Proportion of real assets exposed to 1:100 or 1:200
climate-related hazards

118

Temasek, “Focusing on Climate Change,” Accessed May 6, 2021.

119

CPP Investments, Report on Sustainable Investing 2020, November 2020.

120

Dow, “Dow signs four renewable power agreements to achieve 2025 Goal and lead petrochemical industry,” June 17, 2020.

121

EDF, “Corporate social responsibility: Carbon neutrality by 2050,” Accessed May 6, 2021.

122

ING, Terra progress report, November 16, 2020, p. 22.

123

BBVA, BBVA Report on TCFD 2020, October 2020, p. 27.

124

CDP, United Airlines Holdings Climate Change 2020 report, 2020, p. 8.

125

HSBC, TCFD Update 2020, Feb 24, 2021, p. 20.

126

ConEdison, “Climate Change Vulnerability Study,” December 2019, p. 5. Note: ConEdison utilizes data from its 2019 Climate Change Vulnerability Study to inform its 2020 Climate Change Resilience and Adaptation report.

61

The Task Force on Climate-related Financial Disclosures
Information

Alignment (Non-Exhaustive)

Example Metrics

Financial Organization Examples

Non-Financial Organization Examples

Climate-Related
Opportunities

CDP: C4.2b;• Net premiums written related to energy efficiency
and low-carbon technology

UBS:127 “The year 2020 saw very strong momentum
in sustainable finance activities, indicated by
growth in Core Sustainable Investments (CoreSI), which rose by 62% to become 19% of all client
invested assets.”

BMW:129 Investor presentation includes electricvehicle sales and road map targets “at least 25
electrified models by 2023 including at least
13 fully electric cars” and “25% electrified” newvehicle fleet by 2021.

Nordea:128 Investor presentation includes (1)percentage breakdown of Green Bond Assets
by category, including energy efficiency, cleantransportation, pollution prevention and control,
green buildings, and renewable energy, and(2) percentage breakdown by sub-category(e.g., renewable energy type).

Enel:130 “53.6% net efficient installed renewablecapacity” as a percent of total capacity.”

Proportion ofrevenue, assets,or other businessactivities alignedwith climate-related
opportunities

SASB: EM-CM-410a.1 (Construction Materials Standard);
SASB: EM-SV-000.A, EM-SV-000.B (Oil and Gas Services
Standard);
European Commission Guidelines: Section 3.5,
Annex 1.5;
EU Taxonomy: Article 8;
EBA Guidelines (EBA/GL/11/2017)

A.
Overview and Background

Capital Deployment

CDP: C2.3a, C2.4a, C3.3, C3.4, C4.2b; CDSB: REQ-02;

Amount of capital
expenditure,
financing, orinvestment deployed
toward climaterelated risks andopportunities

European Commission Guidelines: Section 3.5;

Internal Carbon
Prices

CDP: CC2.2; SASB: NR0101-22, NR0201-16

SASB: EM-EP-420a.4 (Oil and Gas Exploration
Standard)• Number of (1) zero-emissions vehicles (ZEV), (2)hybrid vehicles, and (3) plug-in hybrid vehicles sold• Revenues from products or services that support
the transition to a low-carbon economy• Proportion of homes delivered certified to a thirdparty, multiattribute green building standard• Percentage of annual revenue invested in R&D
of low-carbon products/services• Investment in climate adaptation measures(e.g., soil health, irrigation, technology)

Goldman Sachs:133 “Goldman Sachs entered2020 with a new target to deploy $750 billion insustainable financing, investing and advisory
activity by the beginning of 2030. Over the courseof the year, we exceeded our expectations bycontributing $156 billion in such activity.”

B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets

Wells Fargo:132 Has invested a total of $8.9M
to “help communities build capacity to better
prepare for and respond to extreme weather andclimate-related events.”• Internal carbon price• Shadow carbon price, by geography

Price on each tonof GHG emissions
used internally by anorganization

DBS Bank:136 “Covering over 60% of companies
in our five sectors, the bottom-up assessment
assumed carbon price increase to USD 75/t CO2e,
holding the financials of our customers constant.”

BASF:131 “Accelerator products (products
considered to make a ‘substantial sustainability
contribution in the value chain’) account for 30.9%of the evaluated relevant portfolio.”

BHP:134 “Our operational expenditures for FY2020
for Low Emissions Technologies (LET) projects,
including Research and Development (R&D), isestimated to be US$28.2M. Part of our estimate
was calculated using FY2019 R&D spend data due
to differences in reporting time-frames.”
Equinor:135 “Our low-carbon and energy efficiency
R&D expenditure was around 25% in 2020, which
is a large increase from 2019.“

Aker BP:137 “Assumed carbon price reaches USD
235/t CO2 in 2030, assumed flat thereafter,
we calculate the NPV of the total future carbon
costs under different carbon price assumptions,shown as a percentage share of the NPV of Aker
BP’s portfolio.”
SunCor:138 ”Our 2020 carbon price outlook applies
provincial and federal carbon regimes within
Canada and a price of $30 per tonne of CO2e,
assuming a steady increase to approximately $100
per tonne on an increasing percentage of ouremissions by 2040.”

E.
Transition Plans
F.
Financial Impacts
Appendices127

UBS, “UBS extends sustainability leadership with rapid rise in 2020 invested assets and advances in ambitious climate strategy,” March 11, 2021.

128

Nordea, Green bond investor presentation, February 2021, p. 15.

129

BMW Group, Investor Presentation, December 2020, pp. 9 and 25.

130Enel, Sustainability Report 2020, May 2021, p. 11.

131

BASF, BASF Report 2020, February 26, 2021, p. 45.

132

National Fish and Wildlife Foundation, “Wells Fargo Foundation and NFWF Announce Release of the Resilient Communities Program 2020 Request for Proposals,” January 23, 2020.

133

Goldman Sachs, 2020 Sustainability Report, April 23, 2021, p. 9.

134

BHP, BHP Sustainability and ESG Navigators Databook 2020, September 15, 2020, n.p.

135

Equinor, 2020 Sustainability Report, March 19, 2021, p. 30.

136

DBS Bank, Sustainability Report 2020, March 2, 2021, p. 23.

137

A ker BP, Sustainability Report 2020, March 12, 2021, p. 25.

138

SunCor, Climate Risk and Resilience Report 2020, July 15, 2020, p. 22.

62

The Task Force on Climate-related Financial Disclosures
Information

Alignment (Non-Exhaustive)

Example Metrics

Financial Organization Examples

Non-Financial Organization Examples

Remuneration

CDP: C1.1a, C1.3a; CDSB: REQ-01; EU Taxonomy: 3.2;
IR: 4.9;• Portion of employee’s annual discretionary bonus
linked to investments in climate-related products

ECB Supervisory Expectation: 4.3;

• Weighting of climate goals on long-term incentivescorecards for Executive Directors

Barclays:139 “The Committee also considered
how our ambition to be net zero by 2050 should
be reflected in pay for the Executive Directors.
The decision was to include a standalone Climate
measure within the [Long-Term Incentive Plan
(LTIP)], providing clear alignment between the LTIP
outcome, up to a maximum of 10%, and progress
towards our targets which will help us to become
net zero by 2050. To accommodate the additionof the Climate measure, the weighting for the Risk
Scorecard and Strategic non-financial measures(excluding Climate) will be reduced to 10% each.”

Daimler:140 “Sustainability oriented targets canraise or lower the annual bonus by up to +/-25%
and +/-10%, respectively.”

Citi:143 “The adjusted probability of default (PD)and credit rating impacts of a global carbon pricevaried significantly across companies, ranging
from a downgrade of 0 to 9 notches at $50/t CO2,
with an average of 3.5 notches.”

Canadian Railway:145 “In 2019, Davenport, Iowa
experienced major flooding from the Mississippi
River, and in response, CP raised approximately
three miles of track by three feet to keep thetrains operational during flooding, which costaround $11M.”

Proportionof executive
management
remuneration
linked to climate
considerations

EBA Guidelines under Articles 74(3) and 75(2) ofDirective 2013/36/EU and Article 450 of Regulation(EU) No 575/201• Weighting of performance against operationalemissions’ targets for remuneration scorecard

Unilever:141 “With the introduction of the
Sustainability Progress Index as a 25%
performance metric in our MCIP in 2017, we havefurther strengthened the linkage between our
remuneration policy and Unilever’s identity, values
and mission.”
Siemens:142 “Since fiscal year 2020, the numberof Siemens shares (Stock Awards) that are actuallytransferred depends 20% on the non-financial
performance criterion ‘sustainability.’ This isassessed on the basis of Siemens internal ESG/
sustainability index, determined annually.”

Financial Impact

A.
Overview and Background
B.
Scope and Approach

Performance
Impact of climaterelated risks oropportunities on
financial performanceC.
Climate-Related Metrics

CDP: C2.2a, C2.4a, CC3.2, 3.3, CC6.1; SASB: NR010314; CDSB: REQ-03;• Increases in revenue from new products
or services from climate opportunities

CDP: C2.3a, C2.4a;• Increases in cost due to carbon prices, businessinterruption, contingency, or repairs

CDP: C2.4a, C3.4; CDSB: REQ-03; SASB: TR0101-10;
GRI: 307-1;
CDP: C2.4a; SASB: RT-AE-410a.1 (Aerospace, Defense
Standard);
SASB: FN-IN-450a.1;

D.
Climate-Related Targets

European Commission Guidelines: Section 3.5, Annex 1;
ECB Supervisory Expectation: 7.2;

E.
Transition Plans

EU Taxonomy: Article 8• Changes to operating cash flow from changes
in upstream costs• Impairment charges due to assets exposedto transition risks• Changes to total expected losses dueto physical risks• Probable Maximum Loss (PML) of insured
products from natural catastrophes

Hannon Armstrong:144 “Under a scenario wherea carbon tax drives the price of power up by
10%, our wind equity investments may generate
approximately 6% in additional cashflows
over their life as compared to the cashflow theinvestments are expected to generate under
the current baseline scenario.”

NextEra Energy:146 “Our generation fleet
is now one of the cleanest and most efficientin the country, saving customers $11.3 billion
in fuel costs.”
HPE:147 “The company took a $93 million charge
in 2017 to pay for (Hurricane Harvey) storm
damages not covered by insurance claims.”
Meridian Energy:148 “The potential annualised
financial impact is $12 million. This is calculatedusing the difference between the modelled‘no climate change’ scenario and the Evolution
scenario and is based on modelling the potential
impact on Meridian generation revenues over
30 years and then annualised over the 2020
to 2050 timeframe.”F.
Financial Impacts
Appendices139

Barclays PLC, Annual Report 2020, February 17, 2021, p. 132.

140

Daimler, Annual Report 2020, February 18, 2021, p. 92.

141

Unilever, “Statement on the implementation of Unilever’s remuneration policy,” February 11, 2020, p. 5.

142

Siemens, Annual Report 2020, November 27, 2020, p. 54.

143

Citi, Finance for a Climate-Resilient Future II: Citi’s 2020 TCFD Report, December 17, 2020, p. 23.

144

Hannon Armstrong, United States Securities and Exchange Commission Form 10-K, February 22, 2021, p. 57.

145

Canadian Pacific, 2020 CDP Climate Change Questionnaire: CP Response, July 23, 2020, p. 18.

146

NextEra Energy, Environmental, Social and Governance 2021 Report, May 20, 2021, p. 21.

147

Gold, “Companies’ Climate Risks Are Often Unknown. Here’s How One Opened Up,” Wall Street Journal, March 14, 2021.

148

Meridian Energy, Climate Change Disclosures Meridian Energy Limited FY20, August 2020, p. 8.

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The Task Force on Climate-related Financial Disclosures
Information

Alignment (Non-Exhaustive)

Example Metrics

Financial Organization Examples

Non-Financial Organization Examples

Position

CDP: C2.4a, C2.3a, C3.4, C2.2a; CDSB: REQ-03,
REQ-06; SASB: EM-EP-420a.1, FN-CB-410a.1;• Changes to the carrying amount of assets due
to exposure to physical and transition risks

CDP: C2.2a; CDSB: REQ-03;• Changes to the expected portfolio given
climate-related risks and opportunities

Aberdeen Standard:149 “Our MultiAsset Climate
Solutions fund, for example, comprises ofcompanies that derive over 50% of their revenues
from climate solutions. For this fund we saw thatfor most scenarios and in our scenario mean, thevaluation implication was strongly positive under
our mean scenario as well as the tailends of Parisalignment and a continuation of current policy,
at least 64% of equity portfolios show an uplift invalue in comparison to the baseline.”

BP:151 “These lower long-term price assumptions
are broadly in line with a range of transition
paths consistent with the Paris climate goals.
The aggregate second-quarter 2020 noncash, post-tax PP&E impairment charges andexploration intangible write-offs will be in therange of $13B to $17.5B.”

Impact of climaterelated risks oropportunities on
financial position

CDP: 2.3a, C3.4;
CDP: C2.2a; CDSB: REQ-03;
SASB: EM-EP-420a.1 (Oil and Gas Exploration
Standard)
European Commission Guidelines: Annex 1;
ECB Supervisory Expectation: 7.5, 8.3, 8.6, 10, 12;
ECB ILAAP Principle: IV• Changes in liability and equity due to increases
or decreases in assets (e.g., due to low-carbon
capital investments or to sale or write-offs of
stranded assets)

Invesco:150 “The carbon-managed portfolio
significantly reduces the negative impact of the
1.5°C scenario compared to the former strategy,
while keeping the risk characteristics of the
UK benchmark.” Figure shows a –5% change invaluation under a 1.5°C scenario in the baseline
strategy relative to a roughly –3.4% change in the
carbon-managed strategy.

Eni:152 “The stress test, performed under the IEA
SDS scenario, showed that the overall book valuesof the assets were stable with a reduction in fairvalue of around 11%, or around 5% in the eventof contractual and fiscal recoverability of the costsof direct CO2 emissions. Analyses carried out on
the 3P reserves of the current upstream portfolio
confirmed their resilience and flexibility.”A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices149

A berdeen Standard, TCFD and Environment Report, June 3, 2021, p. 23.

150

Invesco, 2019 Invesco Climate Change Report, July 27, 2020, p. 31.

151

BP, “Progressing strategy development, bp revises long-term price assumptions, reviews intangible assets, and, as a result, expects non-cash impairments and write-offs,” June 15, 2020.

152

Eni, Eni for 2020: Carbon Neutrality by 2050, May 12, 2021, p. 20.

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The Task Force on Climate-related Financial Disclosures

Appendix 3: Glossary and Abbreviations
ANNUAL OR INTEGRATED REPORTS refers
to reports that describe companies’ activities
for the preceding year (annual reports) or thebroader range of measures that contribute tocompanies’ long-term value and the role theyplay in society (integrated reports).
BOARD OF DIRECTORS (OR BOARD) refers
to a body of elected or appointed members
who jointly oversee the activities of a company
or organization. Some countries use a twotiered system in which “board” refers to the“supervisory board” and “key executives” refers
to the “management board.”153

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

CARBON FOOTPRINTING refers to thecalculation of the total greenhouse gas emissions
caused by an individual, event, organization,
service, or product expressed as a carbon
dioxide equivalent.
CLIMATE-RELATED OPPORTUNITY refers to
the potential positive impacts related to climatechange on a company or organization. Efforts
to mitigate and adapt to climate change canproduce opportunities for companies, such as
through resource efficiency and cost savings, theadoption and utilization of low-emissions energy
sources, the development of new products andservices, and building resilience along the supply
chain. Climate-related opportunities will varydepending on the region, market, and industry
where an organization operates.
CLIMATE-RELATED RISK refers to thepotential negative impacts of climate change
on a company or organization. Physical risks
emanating from climate change can be eventdriven (acute) such as increased severityof extreme weather events (e.g., cyclones,
droughts, floods, fires). They can also relate tolonger-term shifts (chronic) in precipitation andtemperature and increased variability in weather
patterns (e.g., sea level rise). Climate-related risks
can also be associated with the transition to alower-carbon global economy, the most commonof which relates to policy and legal actions,
technology changes, market responses, andreputational considerations.

FINANCIAL FILINGS refers to the annual
reporting packages in which companies are
required to deliver their audited financial
results under the corporate, compliance,or securities laws of the jurisdictions where
they operate. While reporting requirements
differ internationally, financial filings generally
contain financial statements and otherinformation such as governance statements
and management commentary.154
FINANCIAL PERFORMANCE refers to anorganization’s income and expenses as reflected
on its income and cash flow statements (actual)or potential income and expenses under
different climate-related scenarios.
FINANCIAL PLANNING refers to a company’s
consideration of how it will achieve and fund its
objectives and strategic goals. The process offinancial planning allows companies to assess
future financial positions and determine how
resources can be utilized in pursuit of shortand long-term objectives. As part of financial
planning, companies often create “financial plans”
that outline the specific actions, assets, andresources (including capital) necessary to achievethese objectives over a one-to-five-year period.
However, financial planning is broader than thedevelopment of a financial plan as it includes longterm capital allocation and other considerations
that may extend beyond the typical three-to-fiveyear financial plan (e.g., investment, research anddevelopment, manufacturing, markets).
FINANCIAL POSITION refers to an organization’s
assets, liabilities, and equity as reflected on
its balance sheet (actual) or potential assets,
liabilities, and equity under different climaterelated scenarios.
GOVERNANCE refers to “the system by which
an organization is directed and controlled
in the interests of shareholders and otherstakeholders.”155 “Governance involves a setof relationships between an organization’s
management, its board, its shareholders, andother stakeholders. Governance provides the
structure and processes through which theobjectives of the organization are set, progressagainst performance is monitored, and results
are evaluated.”156

153

 rganisation for Economic Co-operation and Development (OECD), G20/OECD Principles
Oof Corporate Governance, November 30, 2015.

154

 ased on Climate Disclosure Standards Board, CDSB Framework for Reporting Environmental
B
and Climate Change Information, December 2019.

155

Cadbury, Report of the Committee on the Financial Aspects of Corporate Governance, December 1992.

156

OECD, G20/OECD Principles of Corporate Governance, November 30, 2015.

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The Task Force on Climate-related Financial Disclosures

GREENHOUSE GAS (GHG) EMISSIONSSCOPE LEVELS157• Scope 1 refers to all direct GHG emissions.
• Scope 2 refers to indirect GHG emissions fromconsumption of purchased electricity, heat,or steam.
• 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. Scope
3 GHG emissions could include the extraction
and production of purchased materials andfuels, 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.158
A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

IMPLIED TEMPERATURE RISE (ITR) refers to an
estimate of a global temperature rise associatedwith the greenhouse gas emissions of a single
entity (e.g., a company) or a selection of entities(e.g., those in a given investment portfolio, fund,or investment strategy). Expressed as a numericdegree rating, ITR metrics incorporate current
GHG emissions or other data and assumptions
to estimate expected future emissions
associated with the selected entity or entities.
Then the estimate is translated into a projected
increase in global average temperature (in °C)
above pre-industrial levels that would occur if
all companies in corresponding sectors had thesame carbon intensity as the selected asset(s).
INTERIM TARGET refers to a short-termmilestone between the organization’s mediumor long-term target and current period.
INTERNAL CARBON PRICE refers to a monetary
value on GHG emissions an organization uses
internally to guide its decision-making process
in relation to climate change impacts, risks, andopportunities.159
MANAGEMENT refers to those positions
a company or organization views as executive
or senior management positions.

RISK refers to the possibility or likelihood that
actual results (operational or financial) deviate
from expected results in a manner that has aneffect on objectives at different levels (such as
strategic, organization-wide, project, product,
and process). Risk can be defined in many
ways but is often characterized by reference
to potential events and consequences, or a
combination of these, and expressed in terms ofa combination of the consequences of an event(including changes in circumstances) and theassociated likelihood of occurrence. Uncertainty
is the state, even partial, of deficiency of
information related to understanding or
knowledge of an event and its consequence,or likelihood. Risk conceptually equals theprobability or likelihood of hazardous eventsoccurring multiplied by the company’s exposureand vulnerability to the event.
RISK ASSESSMENT refers to a process consistingof risk identification, risk analysis, and risk
evaluation. The essential building blocks forcomprehensively assessing risk (and establishing
metrics) are hazards, exposure, vulnerability, risk,
and impacts.
RISK MANAGEMENT refers to a set ofprocesses that are carried out by a company
or organization’s board and management tosupport the achievement of its objectives byaddressing its risks and managing the combined
potential impact of those risks.
SCENARIO ANALYSIS refers to a process for
identifying and assessing a potential range ofoutcomes of future events under conditionsof uncertainty. In the case of climate change,for example, scenarios allow an organization
to explore and develop an understanding of
how the physical and transition risks of climatechange may impact its businesses, strategies,
and financial performance over time.
SECTOR refers to a segment of companies
performing similar business activities in an
economy. A sector generally refers to a large
segment of the economy or grouping of businesstypes, while “industry” is used to describe more
specific groupings of companies within a sector.

NET-ZERO refers to achieving an equal balance
between GHG emissions produced and GHG
emissions removed from the atmosphere.

157

 orld Resources Institute and World Business Council for Sustainable Development, The Greenhouse Gas
W
Protocol: A Corporate Accounting and Reporting Standard (Revised Edition), March 2004.

158

 orld Resources Institute and World Business Council for Sustainable Development, The Corporate ValueW
Chain (Scope 3) Accounting and Reporting Standard, April 16, 2014.

159

Based on World Bank, “What is Carbon Pricing?” Accessed September 20, 2021.

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The Task Force on Climate-related Financial Disclosures

STRATEGY refers to an organization’s desired
future state. An organization’s strategy
establishes a foundation against which it canmonitor and measure its progress in reachingthat desired state. Strategy formulation generally
involves establishing the purpose and scopeof the organization’s activities and the natureof its businesses, taking into account the risks
and opportunities it faces and the environment
where it operates.
SUSTAINABILITY REPORT refers to a report that
describes a company’s or organization’s impact
on society, often addressing environmental,social, and governance issues.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

TRANSITION PLAN refers to an aspectof an organization’s overall business strategy
that lays out a set of targets and actions
supporting its transition toward a low-carbon
economy, including actions such as reducing
its GHG emissions.

ABBREVIATIONS
1.5°C — 1.5° Celsius
2°C — 2° Celsius
CA100+ — Climate Action 100+
CDSB — Climate Disclosure Standards Board
CO2e — Carbon dioxide equivalent
ESG — Environmental, social, and governance
FSB — Financial Stability Board
G20 — Group of 20

GHG — Greenhouse gas
GICS — Global Industry Classification Standard
GRI — Global Reporting Initiative
IFRS — International Financial ReportingStandards
IIRC — International Integrated Reporting Council
IOSCO — International Organization of Securities
Commissions
IPCC — Intergovernmental Panel on Climate
ChangeISSB — International Sustainability Standards
Board
NGFS — Network for Greening the Financial
SystemNZIA — Net-Zero Insurance Alliance
PCAF — Partnership for Carbon Accounting
Financials
SASB — Sustainability Accounting Standards
Board
SBTi — Science Based Targets initiative
TCFD — Task Force on Climate-related Financial
Disclosures
UNFCCC — United Nations Framework
Convention on Climate Change
WACI — Weighted average carbon intensity
WBCSD — World Business Council for
Sustainable Development

GFANZ — Glasgow Financial Alliance for Net Zero

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The Task Force on Climate-related Financial Disclosures

Appendix 4: References
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docs?editionId=8add93e9-5b15-42da-a6f3-bee24b615677.
Aker BP. Sustainability Report 2020. March 12, 2021. https://mb.cision.com/Public/1629/3313545/
bdef52ed4fde0572.pdf.
Aldy, J. and G. Gianfrate. Future-Proof Your Climate Strategy. Harvard Business Review. May–June 2019.
https://hbr.org/2019/05/future-proof-your-climate-strategy.
The Alliance. Reporting on enterprise value: Illustrated with a prototype climate-related financial disclosure
standard. December 2020. https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wpcontent/uploads/Reporting-on-enterprise-value_climate-prototype_Dec20.pdf.
Barclays PLC. Annual Report 2020. February 17, 2021. https://home.barclays/content/dam/homebarclays/documents/investor-relations/reports-and-events/annual-reports/2020/Barclays-PLCAnnual-Report-2020.pdf.

A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

Barclays PLC. ESG Report 2020. February 18, 2021. https://home.barclays/content/dam/home-barclays/
documents/investor-relations/reports-and-events/annual-reports/2020/Barclays-PLC-2020-ESGReport-2020.pdf.
BASF. BASF Report 2020 (BASF Group). February 26, 2021. https://report.basf.com/2020/en/
servicepages/downloads/files/basf-report-2020-basf-ar20.pdf.
BBVA. BBVA Report on TCFD 2020. October 2020. https://shareholdersandinvestors.bbva.com/wpcontent/uploads/2020/10/BBVA-report-on-TCFD_Eng.pdf.
BHP. Addressing greenhouse gas emissions beyond our operations: Understanding the ‘scope 3’ footprintof our value chain. August 2018. https://www.bhp.com/-/media/documents/media/
prospects/180824_prospects_understandingscope3footprintofourvaluechain.
pdf?la=en#:~:text=Double%20counting%20between%20companies%20is,the%20
simultaneous%20action%20of%20multiple.
BHP. BHP Sustainability and ESG Navigators Databook 2020. September 15, 2020. https://www.bhp.
com/-/media/documents/investors/annual-reports/2020/200914_sustainability-and-esgnavigators-and-databook-2020.xlsx?la=en.
BHP. Climate Change Report 2020. September 10, 2020. https://www.bhp.com/-/media/documents/
investors/annual-reports/2020/200910_bhpclimatechangereport2020.pdf.
Blanco, Christian, Felipe Caro, and Charles J. Corbett. The State of Supply Chain Carbon Footprinting:Analysis of CDP Disclosures by US Firms. May 17, 2016. http://manuscript.elsevier.com/
S0959652616308095/pdf/S0959652616308095.pdf.
BMW Group. Investor Presentation. December 2020. https://www.bmwgroup.com/content/dam/
grpw/websites/bmwgroup_com/ir/downloads/en/2020/Investor_Presentation/BMW_Investor_
Presentation_2020.pdf.
BP. “Progressing strategy development, bp revises long-term price assumptions, reviews intangible
assets, and, as a result, expects non-cash impairments and write-offs.” June 15, 2020.
https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-revises-longterm-price-assumptions.html.
Cadbury, A. Report of the Committee on the Financial Aspects of Corporate Governance (The Cadbury
Report). 1992. http://cadbury.cjbs.archios.info/report.
Canadian Pacific. 2020 CDP Climate Change Questionnaire: CP Response. July 23, 2020.
https://sustainability.cpr.ca/downloads/cdp-program-submission-2020.pdf.

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Carbon Disclosure Project (CDP). Carbon Pricing Corridors: The Market View 2017. May 2017. https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/
documents/000/002/112/original/Carbon-Pricing-Corridors-the-market-view.pdf?1495638527.
CDP. Closing the Gap: Scaling Up Sustainable Supply Chains. November 2018. https://www.cdp.net/en/
research/global-reports/global-supply-chain-report-2018.
CDP. Carbon Pricing Corridors: The Market View 2018. July 2018. https://6fefcbb86e61af1b2fc4c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/
documents/000/003/326/original/Carbon-Pricing-Corridors-2018.pdf?1526464647.
CDP. Putting A Price on Carbon: The state of internal carbon pricing by corporates globally. April 2021.
https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/
cms/reports/documents/000/005/651/original/CDP_Global_Carbon_Price_report_2021.
pdf?1618938446.
CDP. The Time to Green Finance: CDP Financial Services Disclosure Report 2020. April 2020.
https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/
cms/reports/documents/000/005/741/original/CDP-Financial-Services-Disclosure-Report-2020.
pdf?1619537981.
A.
Overview and Background
B.
Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

CDP. Transparency to Transformation: A Chain Reaction. February 2021. https://6fefcbb86e61af1b2fc4c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/
documents/000/005/554/original/CDP_SC_Report_2020.pdf?1614160765.
CDP. United Airlines Holdings Climate Change 2020 Report. 2020. https://www.cdp.net/en/
responses/19569?.
Carbon Pricing Leadership Coalition. Construction Industry Value Chain: How Companies Are Using
Carbon Pricing to Address Climate Risk and Find New Opportunities. 2018. https://openknowledge.
worldbank.org/bitstream/handle/10986/31055/132770-WP-Construction-Industry-Value-ChainPUBLIC.pdf?sequence=1&isAllowed=y.
Carbon Pricing Leadership Coalition. Report of the High-Level Commission on Carbon Prices. May
29, 2017. https://static1.squarespace.com/static/54ff9c5ce4b0a53decccfb4c/t/59b7f2409f8d
ce5316811916/1505227332748/CarbonPricing_FullReport.pdf.
Carbon Pricing Unlocked. How-To Guide to Corporate Internal Carbon Pricing. December 2017. http://
b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.r81.cf3.rackcdn.com/cms/
reports/documents/000/002/740/original/cpu-2017-how-to-guide-to-internal-carbon-pricing.
pdf?1521554897.
Carbon Pricing Unlocked. Internal Carbon Pricing for Future-Proof Supply Chains. January 2020.
https://guidehouse.com/-/media/www/site/insights/energy/2020/carbon-pricing-unlocked-2020icp-supply-chains.pdf.
Carbon Pricing Unlocked. Internal Carbon Pricing for Low-Carbon Finance. July 2019.
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reports/documents/000/004/655/original/carbon_pricing_unlocked_internal_carbon_pricing_
low-carbon_finance.pdf?1563353352.
Center for Climate and Energy Solutions. The Business of Pricing Carbon: How Companies are Pricing
Carbon to Mitigate Risks and Prepare for a Low-Carbon Future. September 2017.
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Citi. Finance for a Climate-Resilient Future II: Citi’s 2020 TCFD Report. December 17, 2020. https://www.
citigroup.com/citi/sustainability/data/finance-for-a-climate-resilient-future-2.pdf?ieNocache=90.
Climate Action 100+. “Blog: Climate Action 100+ Zeroes In On Industry-Wide Decarbonization”.
August 2021. https://www.climateaction100.org/news/blog-climate-action-100-zeroes-in-onindustry-wide-decarbonisation/.

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Climate Action 100+. “Climate Action 100+.” https://www.climateaction100.org/.
Climate Action 100+. “Climate Action 100+ Net Zero Company Benchmark.” March 2021.
https://www.climateaction100.org/wp-content/uploads/2021/03/Climate-Action-100-BenchmarkIndicators-FINAL-3.12.pdf.
Climate Action 100+. “Net-Zero Company Benchmark.” Accessed April 30, 2021. https://www.
climateaction100.org/progress/net-zero-company-benchmark/.
Climate Disclosure Standards Board. CDSB Framework for Reporting Environmental and Climate Change
Information. December 2019. https://www.cdsb.net/sites/default/files/cdsb_framework_2019_v2.2.pdf.
ConEdison. Climate Change Vulnerability Study. December 2019. https://www.coned.com/-/media/
files/coned/documents/our-energy-future/our-energy-projects/climate-change-resiliency-plan/
climate-change-vulnerability-study.pdf?la=en.
ConEdison. 2020 Climate Change Resilience and Adaptation. January 2021. https://www.coned.com/-/
media/files/coned/documents/our-energy-future/our-energy-projects/climate-change-resiliencyplan/climate-change-resilience-adaptation-2020.pdf.

A.
Overview and Background
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Scope and ApproachC.
Climate-Related Metrics
D.
Climate-Related Targets
E.
Transition Plans
F.
Financial Impacts
Appendices

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Climate-Related Targets
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Transition Plans
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Financial Impacts
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GHG Protocol. Technical Guidance for Calculating Scope 3 Emissions (Version 1). 2013.
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Appendices76

For more information, please visit fsb-tcfd.org

Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell a security or financial instrument or investment advice or recommendationof a security or financial instrument. The Task Force on Climate-related Financial Disclosures believes the information herein was obtained from reliable sources
but does not guarantee its accuracy. Copyright 2021 The Task Force on Climate-related Financial Disclosures.