Proposed Guidanceon Climate-related
Metrics, Targets,
and Transition Plans

June 2021

Contents
A. Background and Purpose

3

B. Introduction

8

C. Climate-Related Metrics and Financial Impacts
1. Principles for Selecting Climate-Related Metrics

1215

2. Communicating and Disclosing Climate-Related Metrics and Financial Impacts

15

3. Proposed Updates to All Sector Guidance and Supplemental Guidance

16

D. Climate-Related Targets
1. Principles for Setting Climate-Related Targets

3940

2. Communicating and Disclosing Climate-Related Targets

44

3. Proposed Updates to Guidance for All Sectors

46

E. Climate-Related Transition Plans
1. Principles for Disclosing Transition Plans

47
50

2. Communicating and Disclosing Transition Aspects of Strategy

51

3. Proposed Updates to Guidance for All Sectors

54

Appendix 1: Proposed Changes to Guidance and Supplemental Guidance
Proposed Changes to 2017 TCFD Annex Section C. Guidance for All Sectors

55
55

Proposed Changes to 2017 TCFD Annex Section D. Supplemental Guidance for the Financial Sector

63

Proposed Changes to 2017 TCFD Annex Section E. Supplemental Guidance for Non-Financial Groups

76

Additional Proposed Changes to 2017 TCFD Annex

77

Appendix 2: Further Rationale for Proposed Revisions
Inclusion of Cross-Industry, Climate-Related Metrics and Financial Impacts

79
79

Inclusion of Scope 3 and Financed Emissions

86

Appendix 3: Glossary and Abbreviations
Abbreviations

93
96

Appendix 4: References

98

Appendix 5: Acknowledgments

107

A.
Background and Purpose

The Task Force on Climate-related Financial Disclosures

A. Background and Purpose
In 2017, the Financial Stability Board’s (FSB’s) Task Forceon Climate-related Financial Disclosures (the Task Forceor TCFD) provided three recommended disclosures
regarding climate-related metrics and targets (Figure
A1) as well as guidance for all sectors and supplemental
guidance for specific sectors supporting implementationof these recommended disclosures.1
When the Task Force issued its Final Recommendations(2017 TCFD final report), it was aware of the limitationsof reporting certain metrics as well as the nascency ofclimate-related reporting at the time, and anticipated thatmetric disclosure would evolve as climate-related financial
reporting matured.2
Disclosure practices and the use of disclosures byfinancial and non-financial organizations have continued
to progress since 2017 through new research andthe development of new tools and resources, as wellas in response to the growing magnitude of climaterelated impacts (see summary of market and industry
developments in Box A1).

In response to the developments described below,
the TCFD has developed this document to serve
two purposes:• Provides general guidance for organizations seeking
to establish relevant metrics, targets, and transition
plans around their climate-related risks andopportunities, similar to the TCFD’s 2020 guidance
documents on scenario analysis and risk management• Proposes specific changes to the Guidance for All
Sectors and Supplemental Guidance in the 2017 TCFD
Final Report and Implementing the Recommendations of
the Task Force on Climate-related Financial Disclosures(2017 TCFD annex)
The TCFD has developed a set of questions for public
consultation to solicit feedback on whether this proposedguidance, including the proposed changes to the
Guidance for All Sectors and Supplemental Guidancefor certain sectors, is responsive to market participants’needs. The Task Force will take the consultation
responses into consideration when releasing final
guidance in the fall of 2021.

Figure A1

Task Force Recommendation
Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks
and opportunities where such information is material.

a) D isclose the metrics used by theorganization to assess climaterelated risks and opportunities
in line with its strategy and risk
management process.

b) D isclose Scope 1, Scope 2,
and, if appropriate, Scope
3 greenhouse gas (GHG)
emissions, and the related risksc) D escribe the targets usedby the organization to manage
climate-related risks andopportunities and performanceagainst targets.

1

See 2017 TCFD Final Report, June 15, 2017, pp. 13–23 and 2017 TCFD Annex, June 29, 2017, pp. 17–20, Sections D and E.

2

 ee 2017 TCFD Final Report, which states “as understanding, data analytics, and modeling of climate-related issues becomes more widespread, disclosures can matureS
accordingly” (pp. 41) and notes as an area of future work that the Task Force will “improve data quality and further develop standardized metrics for the financial
sector, including better defining carbon-related assets and developing metrics that address a broader range of climate-related risks and opportunities” (p. 32).

4

The Task Force on Climate-related Financial Disclosures

The Task Force envisions the fall 2021 guidance to include
two distinct publications: (1) a standalone Metrics,
Targets, and Transition Planning document (comprising
the final language from Sections A, B, C, D, and E of thisreport) and (2) a separate document updating TCFD’s
Implementation Guidelines (comprising the changes
found in Appendix 1: Proposed Changes to Guidance andSupplemental Guidance).
A number of developments around climate-related
metrics (Box A1) and areas warranting further guidance
motivated the proposed guidance laid out in thisdocument, including:• Progress around certain metrics. Since the TCFD
issued its Final Report in 2017, there has beensignificant progress in several areas of disclosure,particularly related to transition risks.

– Financed emissions. Disclosure of Scope 3 emissions
also supports and advances the calculation offinanced emissions by financial institutions. The
Global Carbon Accounting Standard, developed by
the Partnership for Carbon Accounting Financials(PCAF), has proposed a set of financed emissions
metrics, by asset class, in line with the GHG Protocol.3– Definition of carbon-related assets. While the Task
Force identified a number of non-financial groups as
being more likely to face increasing financial risk fromclimate-related issues, it initially defined carbonrelated assets as only those in the energy sector
group.4 A number of important developments haveidentified a wider group of sectors subject to material
climate-related risks.5– Scope 3 emissions. Interest in Scope 3 emissions
and the risks they pose to the value chains ofcompanies and for investors has increased, including
developments that inform the circumstances in which
Scope 3 emissions disclosures are appropriate.

3 ee PCAF, The Global Carbon Accounting Standard for The Financial Industry, November 2020. This industry-led initiative seeks to address theS“Areas for Further Work” identified in the 2017 TCFD final report.

4

See 2017 TCFD Final Report, June 15, 2017, pp. 2 and 15.

5See Climate Action 100+, EU Taxonomy.

5The Task Force on Climate-related Financial Disclosures• Areas warranting additional guidance.
– Clarity and comparability. In the survey conductedby the Task Force in 2019, 75% of organizations
surveyed indicated that the Metrics and Targets
recommendation is somewhat or very difficult toimplement. The top implementation issue for the
Metrics and Targets recommendation identified by
preparers was the lack of standardized industry
metrics; and one of the top disclosure improvements
requested by users was the disclosure of standard,industry-specific, climate-related metrics. In its
February 2021 Board meeting, the International
Organization of Securities Commissions (IOSCO)
reiterated the “urgent need to improve theconsistency, comparability, and reliability ofsustainability reporting, with an initial focus on climatechange-related risks and opportunities, which would
subsequently be broadened to other sustainability
issues.” In that press release, IOSCO specifically calledout the need for comparable metrics and narratives asa priority improvement area.6– Estimation of financial impact. Given continued
low levels of disclosure of climate-related financial
impacts, the Task Force believes it is important toprovide additional guidance on estimating these
impacts, including use of climate-related metrics as
key inputs to estimation.7 This proposed guidanceis intended to encourage better alignment between
climate-related metrics and targets and the elementsof financial reporting specified in the 2017 TCFD final
report (revenues, expenditures, assets, liabilities,
capital, and financing).8– Transition planning and portfolio alignment.
As many countries, jurisdictions, and companies set
GHG reduction targets, including those around netzero emissions, both users and preparers are looking
for more clarity on how to measure the impact ofpotential decarbonization pathways, assess portfolioalignment, and track progress over time.9

The TCFD believes additional guidance on climate-related
metrics and targets will encourage a more systematic
approach to their selection and disclosure and furtheralign the Metrics and Targets pillar with the other TCFD
pillars of Governance, Strategy, and Risk Management.
Additionally, many organizations are making emissions
reduction commitments, are domiciled in jurisdictions
that have done so, or are increasingly subject to investorand stakeholder pressure that materially impacts theircost of and access to capital. In this environment, the
TCFD believes guidance around transition planning and
its relation to metrics and targets would be helpful.
The Task Force also conducted a public consultationfrom October 29, 2020–January 28, 2021, to gather
feedback on potential forward-looking metrics forfinancial institutions. The Task Force solicited views on
decision-useful, forward-looking metrics to be disclosed
by financial institutions, both requesting feedback on a
specific set of metrics that have gained interest from thefinancial sector in recent years and on the usefulness of
forward-looking financial metrics more broadly.
A summary of the consultation responses was publishedin March 2021. While most respondents indicatedthey use some form of metrics that they consider tobe forward-looking, fewer respondents said that they
disclose the forward-looking financial metrics specificallyconsidered in the consultation. In addition, respondents
generally agreed that forward-looking metrics could be
useful with improvements in methodology. They pointed
to transparency, comparability, standardization, andimproved emissions data as the highest priority changes
needed to improve methodologies.
The Task Force is also engaging with a number of ongoing
initiatives focused on climate-related metrics, including
efforts of the European Commission, the Group of Five,10
IOSCO, and the IFRS Foundation, in order to develop
guidance that would be supportive of, and aligned with,these efforts.

6 ee IOSCO, “IOSCO sees an urgent need for globally consistent, comparable, and reliable sustainability disclosure standards and announces its priorities andS
vision for a Sustainability Standards Board under the IFRS Foundation,” February 2021.

7

See TCFD 2020 Status Report, September 22, 2020, pp. 4, 8, and 12.

8T CFD Final Report, June 15, 2017, Figures 1 and 2, pp. 8–9; International Financial Reporting Standards (IFRS), Conceptual Framework for Financial Reporting(issued September 2010 and revised March 2018), paragraph 4.1 and Chapter 4.

9See Climate Action 100+.

10

 he Group of Five refers to a group of sustainability reporting organizations (CDP, CDSB, GRI, IIRC, and SASB) who collectively developed a prototype forTclimate-related financial disclosures. See CDP, CDSB, GRI, IIRC, and SASB, Reporting on enterprise value: Illustrated with a prototype climate-related financial
disclosure standard, December 2020.

6

The Task Force on Climate-related Financial Disclosures

Box A1Market and Industry Developments
Global Standard Convergence

Other Notable Developments

A coalition of global standard setters have made headway
in the development of a comprehensive reporting systemfor climate-related financial disclosures. In December 2020,a group of sustainability reporting organizations—the
Carbon Disclosure Project (CDP), the Climate DisclosureStandards Board (CDSB), the Global Reporting Initiative(GRI), the International Integrated Reporting Council (IIRC),
and the Sustainability Accounting Standards Board (SASB),
also known as the “Group of Five”—published a prototype
climate-related financial disclosure standard. The prototype
outlines a shared vision that integrates both financial
accounting and sustainability disclosure and builds on the
TCFD recommendations.

• FSB’s 2021 Work Programme, which includes reporting to the“G20 Finance Ministers and Central Bank Governors meetingon progress in the area of the financial implications of climatechange and sustainable finance in July 2021”

As part of the work on global standards convergence, the
IFRS Foundation Trustees announced plans in February 2021
to establish an International Sustainability Standards Board(ISSB) that will work next to the International AccountingStandards Board (IASB) to clarify sustainability accounting
standards, building on the “well-established work” of boththe TCFD and the Group of Five. In February 2021, IOSCO, aninternational body recognized as the global standard setterfor the securities sector, welcomed the announcement fromthe IFRS Foundation and further welcomed the Group of
Five prototype “as a potential basis for the [ISSB] to develop
climate-related reporting standards.” IOSCO announcedplans to work with the IFRS Foundation in developing the
ISSB framework and noted “strong support” for this work
coming out of its stakeholder roundtable sessions in May.
In March 2021, the Trustees announced their strategic
direction and established a working group to drive these
proposals forward to accelerate convergence in global
sustainability reporting standards. The working group ischaired by the IFRS Foundation and includes participationfrom CDSB, IIRC, SASB, TCFD, and the World Economic
Forum (WEF).

• The EU Taxonomy and Corporate Sustainability Reporting
Directive• Network for Greening the Financial System’s (NGFS’s) technicaldocument on Sustainable Finance Market Dynamics, which
recognizes a “need for financial authorities to support:(i) global disclosures frameworks and efforts to establish
a comprehensive corporate disclosure standard alignedwith the TCFD recommendations; (ii) the development of a
global set of sustainability reporting standards” (Section 2.2,
Takeaway 1)• Launch of the UN-convened Glasgow Financial Alliance for
Net Zero (GFANZ) to bring together industry-led alliances on
net-zero banks, asset owners, and asset managers. GFANZ will
also include an insurers alliance to be launched this year
• Work by the Corporate Reporting Dialogue to align metrics• PCAF’s Global Carbon Accounting Standard for the Financial
Industry• The Science Based Targets initiative (SBTi) Approach to
Financed Emissions• The CRO Forum’s Carbon Footprinting Methodology for
Underwriting Portfolios• The United Nations Environment Programme FinanceInitiative (UNEP-FI) and Institute of International Finance’s(IIF’s) TCFD Report Playbook• U.S. Securities and Exchange Commission public consultation
on climate change disclosures

7

B.
Introduction

The Task Force on Climate-related Financial Disclosures

B. Introduction
This section summarizes the relationship between
climate-related metrics, climate-related financial impacts,
climate-related targets, transition planning, and broader
climate-related decision-making associated with theGovernance, Strategy, and Risk Management pillars.
Metrics and targets are essential tools for tracking
progress on climate-related strategies, managing risks,and measuring the impact of opportunities. They are an
integral component in communicating an organization’s
climate-related transition plan. See Box B1 for thedefinitions of a climate-related metric, financial impact,target, and transition plan.

Figure B1

Illustrative
Implementation Journey
Understand climate-relatedrisks and opportunities

Set climate ambition

Box B1
Defining Key Terms• A climate-related financial impact is a historical or
current quantity or forward-looking quantitative outlook(estimate, projection, or forecast) regarding the financial
impact of climate-related risks and opportunities on anorganization’s financial performance or position.
• A climate-related target is a specific level, threshold,or quantity of a metric that the organization wishes tomeet over a defined time horizon in order to achieve theorganization’s overall climate-related ambition and strategy.
• A transition plan is an aspect of an organization’s overallbusiness strategy that lays out how an organization aims tominimize climate-related risks and increase opportunities
as the world transitions toward a low-carbon economy,
including by reducing emissions of its own balance sheet
and that of its value chain.

Organizations tend to undertake some common steps
when defining, monitoring, and disclosing climate-related
metrics, climate-related financial impacts, climaterelated targets, and transition plans. An illustrative
implementation journey is described below although
the precise order in which these steps are taken will
differ by industry and organization. This pathway is an
iterative process with each step providing a feedback
loop to others. Furthermore, organizations do not always
begin work at the first step of this pathway, but rather

Define high-level climate strategy

Define climate-related metrics

Estimate climate-related financial impacts(e.g., w/ scenario analysis)

Set targets aligned with climate ambition

Articulate transition planningas part of climate strategy

Focus of the proposed guidance• A climate-related metric is a quantity indicative of thelevel of historical, current, and forward-looking climaterelated risks and opportunities for a given organization.
These indicators are used to track climate-related risks andopportunities and can also be used to measure progressagainst climate-related targets over the duration of theperiod for which a target is set.

Report and disclose

start where there is enough organizational buy-in andexpertise. The remaining document sections are framedaround this implementation journey.
Organizations tend to start by seeking to understandand diagnose their climate-related risks andopportunities. Some because they are alreadyexperiencing physical or transition risks andopportunities, while others seek to understand potential
impacts. All organizations are encouraged to begin by

9The Task Force on Climate-related Financial Disclosures

reading the 2017 TCFD Final Report, which describes
common climate-related risks and opportunities in moredetail. Organizations can also find training programs andcase studies on TCFD’s Knowledge Hub.
Organizations next tend to set a climate ambition basedon specific climate risks a given organization seeks to
reduce or climate opportunities it wishes to pursue. This
ambition can also be driven by regulatory mandates,industry commitments, or shareholder actions. The
most common type of climate ambition undertaken
by organizations is to reduce GHG emissions. In orderto achieve practical results, this climate ambition mustbe accompanied by a high-level climate strategy.
This strategy provides direction for the execution of
mitigation, adaptation, and transition plans. Climate
ambition and climate strategy are expected to align withan organization’s broader business strategy.
Organizations then identify climate-related metrics
indicative of their level of climate risks and opportunities.
These metrics help inform aspects of the organizations’governance, strategy, and risk management (see Box
B2), and include those required by regulators, industry
bodies, or other external stakeholders as well as metrics
that support business decision-making specific toan organization’s particular risk profile and business
context. These climate-related metrics inform the
inputs through which organizations can estimate actualor potential climate-related financial impact. Given
their relationship to measuring and disclosing climaterelated risks and opportunities, climate-related metrics
and financial impacts are discussed together in Section
C. Climate-Related Metrics and Financial Impacts. That
section also provides guidance on metrics selection,
including a view on a set of metrics that all organizations
should disclose.
Once climate-related metrics have been selected,
organizations define climate-related targets that allow
them to operationalize their high-level climate strategy
to achieve their climate ambition. The process of setting
targets should be supported by climate-related scenario
analysis in order to understand the organization’s
performance under multiple potential futures.
Organizations can also use climate-related targets todefine and prioritize specific climate-related initiatives
in line with their existing operating and financial plans.
Section D. Climate-Related Targets provides guidance on
selecting climate-related targets as well as details on therole of scenario analysis.

Box B2
Climate-Related Metrics and Targets
in the Context of the TCFD Pillars
Climate-related metrics and targets should inform and be
informed by the organization’s governance, strategy,
and risk management processes and create a feedback
loop over time in the same way that other Key Performance
Indicators (KPIs) and Key Risk Indicators (KRIs) are used
to inform business management processes. As a result,climate-related metrics and targets provide the “connective
tissue” between the other TCFD recommendations andan organization’s disclosure of its climate-related plans,performance, and position.
• Governance. Climate-related metrics and targets enable anorganization’s board and management to effectively direct
the business by measuring and describing the impact ofclimate-related risks and opportunities on the organization,
and are essential to informing investors, lenders,
underwriters, and other market participants. Climaterelated metrics are an integral part of the information flows
and feedbacks that govern an organization’s processes
and operations (recommended disclosures Governance a)and b). Climate-related metrics and targets also show how
directors and managers are incentivized to achieve climaterelated objectives.
• Strategy. Climate-related metrics and targets are criticalto measuring and describing the impact of climate-relatedrisks and opportunities on the organization’s businesses,
strategy, and financial planning (recommended disclosure
Strategy b); and an organization’s strategic resiliencein different climate-related scenarios (recommended
disclosure Strategy c).
• Risk Management. In conjunction with the organization’srisk management processes, climate-related metrics
support the measurement of risk exposures and levels.
In conjunction with risk management targets, suchas risk tolerances, risk appetites, and risk thresholds,
climate-related metrics inform the degree of risk that theorganization is prepared to accept and its risk responses(e.g., accept, avoid, pursue, reduce, share) (recommended
disclosures Risk Management a) and b). Additional
information is provided in TCFD’s Guidance on Risk
Management Integration and Disclosure, published in 2020.

10

The Task Force on Climate-related Financial Disclosures

As part of its climate strategy, an organization may also
provide additional details on its transition plan in orderto outline its approach to achieving its goals in relation
to the transition to a low-carbon economy, such as GHG
emission reductions. Section E. Climate-Related Transition
Plan provides proposed guidance on integrating transition
planning into an organization’s existing climate strategy.
Organizations should disclose climate-related metrics,
climate-related financial impacts, climate-related
targets, and aspects of its transition plan. Though some
information may be most useful for internal decisionmaking, organizations should be mindful to not overly
restrict market access to information. A company shouldcarefully consider and support any reason for avoiding
disclosure. In determining where to draw the line,
organizations, as a matter of principle, should look todisclose more rather than less so that disclosures may
be clearly understood and sufficiently comprehensive forusers. Climate-related metrics and targets that are key tomeasuring and reporting material financial risk, such as
those noted as cross-industry, climate-related metrics in
Section C. Climate-Related Metrics and Financial Impacts,

11should be disclosed in annual reports or publicly available
investor meetings.11 Key aspects of communication anddisclosure of climate-related metrics, climate-related
financial impacts, climate-related targets, and transition
planning are included in their respective sections.
Qualitative and quantitative scenario analysis is crucial
to designing and testing many aspects of the steps
described above, in particular understanding how a rangeof plausible uncertainties might affect the resilienceof the company’s strategy (see Strategy recommended
disclosure c) in the 2017 TCFD Final Report). Scenario
analysis can also be used to develop climate ambitions
that are more flexible or robust to a range of futurestates; to estimate climate-related metrics and financial
impacts under different plausible scenarios; and to
identify key dependencies to hitting company targets.
The role of scenario analysis is discussed in Section D.
Climate-Related Targets as well as described in moredetail in TCFD’s Technical Supplement on Scenario Analysis,
published in 2017, and Guidance on Scenario Analysis for
Non-Financial Companies, published in 2020.

 s stated in the 2017 TCFD Final Report, “For disclosures related to the Strategy and Metrics and Targets recommendations, the Task Force believesA
organizations should provide such information in annual financial filings when the information is deemed material. Certain organization—those in the four
non-financial groups that have more than one billion U.S. dollar equivalent (USDE) in annual revenue—should consider disclosing such information in otherreports when the information is not deemed material and not included in financial filings” (p. 17).

11

C.
Climate-Related Metrics
and Financial Impacts

The Task Force on Climate-related Financial Disclosures

C. Climate-Related Metrics and Financial Impacts
Climate-related information comes in a variety ofdifferent forms and is used for different purposes
throughout an organization. This information can be both
qualitative and quantitative and encompass disclosuresacross all four of the TCFD pillars. This section focuseson the relationship between two types of quantitative
climate-related information: climate-related metrics andclimate-related financial impacts.
• Climate-related metrics. Quantities indicative of thelevel of historical, current, and forward-looking climaterelated risks and opportunities for a given organization.
These climate-related metrics—such as greenhousegas emissions, carbon price, and proportion of exposed
assets—are typically what comes to mind first when
thinking of climate-related information and form the
input data on which to base determinations of historical,
current, and forward-looking financial impacts.
• Climate-related financial impacts. Historical or
current quantity or forward-looking quantitative
outlook (estimate, projection, or forecast) regarding
the financial impact of climate-related risks andopportunities on an organization’s financial
performance or position.
It is also important for disclosures to clearly identify thetime horizon over which climate-related information ismeasured. Climate-related metrics and financial impacts
are most effective when the same item is reported acrossall time periods as shown in Figure C1. Measuring thesame metrics and impacts over time also provides a way
to track progress.

• Historical: Prior period data, covering at a minimum
the same period as in the organization’s comparative
financial statements.12• Current: Current period data, outlining most recent
reporting period (e.g., 12 months year to date ascompared to prior 12 months).
Historical and current period climate-related financial
impacts, such as write-downs of obsolete inventories,
are calculated and reported according to financial
reporting standards (e.g., FASB, IASB). Such standards,
and many regulatory regimes, also provide the ability for
an organization to disclose forward-looking information.
Organizations should aim to provide estimates, or
ranges, of the potential financial impacts of climaterelated developments likely to affect the organization(e.g., financial implications of an organization’s climaterelated plans).
Historical and current climate-related financial impacts
may be impacts that the organization incorporates intobusiness planning, such as increased revenues fromthe sale of a lower-emission product or impairment loss
considering forward-looking assumptions and estimates.
Or, historical and current climate-related financial
impacts may be impacts that occurred irrespective of
the organization’s business and financial plans and arereflected in the organization’s performance and position,such as the cost of business interruption from stormrelated damages.

Figure C1

Time Horizon

12

Historical

Current

Climate-relatedInformation

Climate-relatedInformation

Informed by:
Climate ambitionand high-levelclimate strategy

Forward-looking
Climate-relatedInformation
Targets
Scenario #1, 2, 3
Forecasts
Transition plan

 CFD recommends at least three years of historical data in order to provide a basis for tracking progress, but organizations are encouragedT
to provide a longer historical period for key climate-related metrics, if available.

13

The Task Force on Climate-related Financial Disclosures• Forward-looking: Future periods, covering short-,
medium-, and long-term time horizons. Forwardlooking information may be based on methodologies
such as scenario analysis, forecasts, trend analysis,
sensitivity analysis, and simulations, as well as
commitments and climate-related targets. Unlike
historical and current data, forward-looking
information is more appropriately reported as ranges
or numbers tied to specific assumptions about the
future state of the world, often tied to one or moreplausible climate scenarios (see Box C1 and Figure C2).13
Disclosure of GHG emissions, for example, would include
data on the organization’s previous GHG emission levels,
the amount of emissions in the organization’s current
reporting period—including an indication of progressagainst GHG-specific targets—and a forecasted range
for future emissions.
DRIVING A CIRCULAR AND
LOW-CARBON ECONOMYBox C1
Forward-Looking Information and Uncertainty
Even with perfect historical information and mature, widely
accepted, and transparent methodologies, assessing
potential future outcomes remains an uncertain exercise.
It is important to note that forward-looking disclosures
are intended to provide a view of an organization’s rangeof plausible risks and opportunities in a variety of futurebusiness contexts, not a prediction of outcomes. Hence,
to limit its exposure to litigation risk in disclosing forwardlooking information, an organization should take necessary
precautions in preparing their disclosures, such as
meaningful cautionary statements, ensuring information
is not misleading or inaccurate, no material omissions, andcompliance with any fiduciary requirements.14 A number ofjurisdictions also provide for safe-harbor protections forforward-looking disclosures made in good faith using thebest information reasonably available at the time.15, 16
INVESTING
IN PEOPLE

OPERATINGRESPONSIBLY

Figure C2

Example Disclosure of Forward-Looking Information

ducted its second TCFD
the recommendations set
Financial Stability Board’s
mate-Related Financial
D), which links climate-related
nities with the financial
ganization. Similar to lastmodelled two climate
ee time horizons—shortum (3-5 years), and long. Although we updated ourmore recent and accurate
ing again confirmed thatortunities from developing
ons to facilitate a low-carbon
weigh the risks.

1.5°C SCENARIOOPPORTU N ITIE S

RI SKSPOLICY & LEGAL$1B–$800M

TECHNOLOGY$1B–$800M

MARKET$1B–$500M

REPUTATION

No discernable impact No discernable impact

ACUTE
CHRONIC$20M

RESOURCE EFFICIENCY$5B–$9B

PRODUCTS/SERVICES$9B–$18B

MARKETSRESILIENCE$200M
No discernable impact

missioned BSR to expandby leveraging additional
Source: HPE, 2019 Living Progress Report, p. 94
scenarios with input from
LIMITED MITIGATION SCENARIO (>2°C)
rojections. We plan to publish
e coming year and will
RI SKSe our reporting on an annual
ts will help to:
No discernable impact $5M
POLICY & LEGAL

Short term—0 to 3 yrs
Medium term—3 to 5 yrs
Long term—5 to 15 yrs

OPPORTU N ITIE SRESOURCE EFFICIENCY

ht and a more holistic
13
F orward-looking disclosurerefers to current$50M–$1M
plans and future forecasts thatenable investors and other users
to assess a company’s future financial
TECHNOLOGYPRODUCTS/SERVICES$4.5B–$5B
of emerging issues performance.
that
Forward-looking disclosure involves both financial and non-financial information.
14
sinessSee TCFD, Guidanceon Scenario Analysis for Non-Financial Companies, October 2020, Section E.3.5, for more details.
MARKET
MARKETS$6.5M–$1M$9B–$10B
15

Staker, Garton and Barker, Commonwealth Climate and Law Institute, Concerns misplaced: Will compliance with the TCFD recommendations really expose

ve on key risks, opportunities,
companies and directors
to liability risk?, September
10–11.
No discernable2017,
impact pp.
REPUTATIONRESILIENCE$200M
enhance resilience16 A s noted in the 2017
TCFD Final Report, “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not

be seen as superseding national disclosure requirements. Importantly, organizations should make financial disclosures in accordance with their national
ACUTE
rs with a clear explanation$800M
disclosure requirements. If certain elements of
the recommendations are incompatible with national disclosure requirements for financial filings, the Task
ario analysis alignsForcewith encourages
theorganizations to disclose those elements in other official company reports that are issued at least annually, widely distributed and available
term—0used
to 3 yrs
CHRONIC
to investors and others,
and subject to internal governanceto thosefor financial reporting” (p. 17).
$0.5M processes that are the same or substantially similarShortndationssiliency strategy and risk
ocesses

Medium term—3 to 5 yrs
Long term—5 to 15 yrs

14The Task Force on Climate-related Financial Disclosures

1. P
 RINCIPLES FOR SELECTING
CLIMATE-RELATED METRICS
Many sources offer guidance on how to select metrics
more generally.17 In addition to considerations that arecommon across all metrics, there are six fundamental
principles that are particularly important for climaterelated metrics:
Decision-useful. Climate-related metrics helporganizations understand potential impacts of climate
risks and opportunities over a specified time period,
including financial impacts and the operational
consequences. To be decision-useful, these metrics must
be relevant to the organization’s risks and opportunities.
Understandable. Climate-related metrics should bepresented in a manner that aids understanding (e.g.,both aggregated and disaggregated, where useful, clear
labeling), and any limitations and cautions should be
explicitly stated. Climate-related metrics should provide
important context around such points as management’s
thinking in terms of goal setting, internal process
management, and communication objectives, and should
be supported by contextual and supporting narrative
information on items such as organizational boundaries,
governance, methodologies, and basis of preparation.
Verifiable.18 Climate-related metrics are capable ofsupporting effective internal controls for the purposes ofdata verification and assurance.
Objective.18 Metrics are free from bias and value
judgement so that they yield an objective disclosure of
performance that users can leverage regardless of theirworldview or outlook.
Trackable over time and consistent. Climate-related
metrics should be calculated and disclosed consistently
from year to year in order to facilitate comparative
analysis and analysis of trends.
Aligned to the other TCFD pillars. Climate-related
metrics should be linked to organization processes
such as governance, strategy, and risk management,
and support effective disclosure aligned with the TCFD
recommendations. In particular, such metrics should
show how an organization’s climate-related risks andopportunities are being assessed, managed, and linked toan organization’s strategy and risk management processes.

17

2. COMMUNICATING AND DISCLOSING
CLIMATE-RELATED METRICS AND
FINANCIAL IMPACTS
As noted previously, climate-related metrics andfinancial impacts should be presented in a clear andunderstandable manner. Effective presentation andcommunication of such quantitative climate-related
information is not limited to a table of numbers.
Contextual and supporting narrative is essential andhelps users understand the meaning and purpose ofclimate-related metrics, the basis on which they havebeen prepared, and how they link to climate-related
financial impacts.
In presenting climate-related metrics and financial
impacts and associated contextual information in
their disclosures,19 an organization should provide
the following:• Types of measurements used, including whether
information comes from direct measurements,
estimates, proxy indicators, or financial andmanagement accounting processes and standards.
• Methodologies used, such as the GHG Protocol forgreenhouse gas emissions. Methodology discussion
for GHG emissions should include emissions factors,
scope, and boundary. Methodology discussions should
also provide key business assumptions and which
qualitative or quantitative climate scenarios were used(see Box C2).
• Changes in absolute and relative amounts overtime, including whether acquisitions, divestments,
or policies have affected results.
• How results are connected with business units,company strategy, and financial results. Where it
aids understanding, organizations should consider
disaggregating information by such categories asgeographic area, business unit, asset, type, upstream
and downstream activities, source, and vulnerabilityof area.
• The criteria and indicators used to assess both thelevel and impact of actual and potential climatechange risks and opportunities on operationaland financial performance and position in thereporting period and beyond (where the impact may
affect planning, risk management, and opportunity
optimization in future reporting periods). Climate- or example: SASB, Conceptual Framework, February 2017, p. 19; van Oudenhoven, A. P. E., et al., Key criteria for developing ecosystem service indicators to informF
decision making, August 14, 2018; Dharmesh, S., “Measuring What Matters: How to Pick A Good Metric,” March 29, 2013; Eckerson, W., “12 Characteristics ofEffective Metrics,” April 19, 2010; Weber, C., et al., Exploring Metrics to Measure the Climate Progress of Banks, 2018; and Hoffmann, V. H. and T. Busch, “Corporate
Carbon Performance Indicators: Carbon Intensity, Dependency, Exposure, and Risk,” November 11, 2008.

18

Adapted from SASB, Conceptual Framework, February 2017, p. 19.

19

See 2017 TCFD Annex, Section A, for location of recommended disclosures.

15

The Task Force on Climate-related Financial Disclosures

Box C2
Importance of Disclosing Details on Climate
Scenario Analysis
As noted in the 2020 TCFD Scenario Analysis Guidance,
investors desire greater transparency into the types ofscenarios preparers are using and their impact on theorganization’s strategy. In particular, preparers should“describe processes used for scenario analysis; the range
and assumptions of scenarios used; key findings; whether
it is a standalone analysis or integrated with company’s risk
management and strategy processes” (p. 45, Table E1).
Using a common set of scenarios and inputs (e.g., parameters,
timelines, industry-specific metrics, methodologies) increases
comparability across companies, provides greater reliability
and relevance, and can help reduce the resources required by
preparers to develop scenarios in-house. On the other hand,using a common set of scenarios across organizations may
reduce their ability to assess their individual situations andhow climate-related risks may uniquely affect them, and thus
could increase concentration of risk.
The World Business Council for Sustainable Development(WBCSD) has organized a forum on climate reference
scenarios, focusing on scenarios relevant for the energy
system. This forum aims to increase the usability of climate
scenarios and access to a common set of scenarios fromwhich non-financial companies can build on and tailor for
their scenario analysis.

related risk metrics should be integrated into anorganization’s overall risk management approach,connecting with existing risk classification, risk factor,
and severity measures.20• How supply chains will be affected over time,
including life cycle GHG emissions reporting.
• How climate-related transition and physical risks
might affect the organization’s inputs and outputs
over time, including sensitivity to particular variables
affecting availability, quality, or cost of inputs andoutputs over time.

company’s other disclosures to provide a coherent setof information on the company’s risks, financial effects,
and outlook. 21 Companies should also consider which
information is best expressed as a point estimate or
result and which is best expressed as ranges and, inthe case of estimates, whether to include a level ofconfidence indicator.

3. PROPOSED UPDATES TO ALL SECTOR
GUIDANCE AND SUPPLEMENTAL GUIDANCE
To aid comparability and reflect progress since the releaseof the 2017 TCFD Annex, the TCFD is proposing a numberof updates to its Guidance for All Sectors on Strategy
and Metrics and Targets and its Supplemental Guidance
for the Financial Sector, including a set of cross-industry,
climate-related metrics and climate-related financial
impacts that all companies should disclose and a set offinancial sector metrics that banks, asset managers, asset
owners, and insurers should disclose.
Updates to Guidance for All Sectors
Cross-Industry, Climate-Related Metrics and ClimateRelated Financial Impacts
Cross-Industry, Climate-Related Metrics
As noted in Section A. Background and Purpose, there
is considerable demand for more comparable andstandard climate-related metrics. Some climate-related
metrics are increasingly reported by organizations andcommonly reflected in regional and national disclosure
requirements, forming an initial basis for climate-related
metrics that are common across non-financial companies
and financial institutions, in other words cross-industry,
climate-related metrics (see Box C3).
Cross-industry, climate-related metrics are a subset
of climate-related metrics, which also include industryspecific and company-specific climate-related metrics.
While the proposed guidance focuses primarily on crossindustry metrics, it is important for organizations
to also measure and disclose key industry- andcompany-specific climate-related metrics.22

Climate-related metrics and financial impacts, andassociated narrative, should be integrated with a20

See TCFD, Guidance on Risk Management Integration and Disclosure, October 2020.

21

 ee, for example, Section 3.5 Key Performance Indicators within the European Commission, “Guidelines on non-financial reporting: Supplement on
Sreporting climate-related information,” June 2019.

22

See SASB, Climate Risk Technical Bulletin, 2021, p. 21, for further discussion of the distinction between cross-industry and industry-specific disclosures.

16

The Task Force on Climate-related Financial Disclosures

Box C3
Defining Key Term
Cross-industry, climate-related metrics are metrics that
apply equally to all financial and non-financial organizations,though they may be implemented or reported slightly
differently in line with different best practices for eachjurisdiction, sector, or geography.23

To further support comparability across climaterelated disclosures, the Task Force is proposing toamend its Guidance for All Sectors to include a discrete
set of cross-industry, climate-related metrics that allorganizations should disclose. The Task Force believes
these disclosures are:
• indicative of many basic aspects and drivers of climaterelated risks and opportunities;• useful for managing an organization’s climate-relatedrisks and opportunities;• useful for estimating and understanding the financial
impacts of climate change on organizations, including
for users looking to analyze risk-adjusted returns andability to meet financial obligations;• requested by climate reporting frameworks, widelyused by investors, lenders, insurance underwriters,
and others, increasingly reported by organizations
across sectors, and reflected in regional and national
disclosure requirements; and• useful for understanding the aggregate effects
of climate-related risks and opportunities acrossinvestment activities and financial systems.
The Task Force has defined cross-industry, climaterelated metrics broadly in order to allow for
flexibility as organizations become more familiar
with implementation and industries and jurisdictions
adapt climate-related metrics to suit their needs.
The TCFD believes, however, that standardization isvaluable for both preparers and users of climate-related
information and encourages the IFRS Foundation andothers to provide further guidance on operationalizingthese metrics and for preparers to use common
taxonomies, where available.
(1) GHG emissions (Absolute Scope 1, Scope 2, andrelevant, material categories of Scope 3 emissions,as well as carbon intensity)
GHG emissions are the critical starting point for any
discussion of cross-industry, climate-related metrics
and are a component to estimating many other climaterelated metrics used by both preparers and users. The
absolute and intensity level of emissions is indicative ofan organization’s exposure and vulnerability to changes
in policies and technology aimed at a transition to a lowcarbon economy.
As a best practice, organizations should consider
disclosing both GHG emissions by relevant business line,
as well as those split out by the seven gases covered by
the Kyoto Protocol.24 Organizations that have set GHG
emission reduction targets should also consider disclosing
cumulative GHG emissions relative to the baseline year
used for their target in order to understand potential
overshoot dynamics.
TCFD encourages all financial and non-financialorganizations to disclose relevant, material categories
of Scope 3 emissions, including financed emissions. As
discussed in more detail in the section below on Scope
3 Emissions and in Appendix 3 Inclusion of Scope 3
and Financed Emissions, data and methodologies havematured sufficiently such that disclosure of relevant,material categories of Scope 3 emissions is now
appropriate for all sectors. Disclosure is particularly
important for organizations for which Scope 3 emissions
account for 40% or more of the total emissions of theorganization or for which Scope 3 emissions have been
deemed a significant risk in their value chain.25
Organizations should disclose Scope 3 emissions inline with the methodology in the GHG Protocol’s Scope
3 Standard, which covers 15 categories of Scope 3
emissions. The Standard’s reporting guidance notesthat “companies shall publicly report…[a] list of scope
3 categories and activities included in the inventory. A
list of scope 3 categories or activities excluded from theinventory with justification of their exclusion.”26

23

 number of Task force members have noted that these categories of metrics may be less applicable to asset owners given the types of assets they hold.
A
The TCFD invites readers to please consider and review as part of the consultation. For more details on the proposed Asset Owner guidance, see Appendix 1:
Proposed Changes to 2017 TCFD Annex Section D. Supplemental Guidance for the Financial Sector.

24

 he GHG Protocol Corporate Standard “covers the accounting and reporting of seven greenhouse gases covered by the Kyoto Protocol – carbon dioxide
T(CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).”
See https://ghgprotocol.org/corporate-standard.

25

See discussion of 40% threshold in SBTi’s paper SBTi Criteria and Recommendations, Version 4.2, April 2021, Section V, p. 10.

26

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

17

The Task Force on Climate-related Financial Disclosures

Figure C3

Example Disclosure: Barclays
Our clients’ activity
Fuel mix – Energy%

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

1

100
80
60
40

41

December 2020:
75.0 MtCO₂

20
0

2020

2025

2030

IEA SDS Benchmark: OECD*

2035

2040

Portfolio target path

44

39

Barclays Dec 2020

2020 Benchmark OECD

350

19

-30% by 2025

300

33

December 2020:
321 KgCO₂/MWh

100

22

50
0

21
2

250

150

2020

Coal
Oil
Gas

Fuel mix – Power%

Financed emissions – Power
Emissions intensity KgCO2/MWh

200

21

55

-15% by 2025

2025
IEA SDS Benchmark: OECD*

2030

2035

2040

Portfolio target path

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

As with all TCFD recommendations, organizations shouldtake account of their regional or national disclosure
requirements when disclosing Scope 3 emissions. 27 For
instance, the EU Technical Expert Group on Sustainable
Finance’s Report on Benchmarks recommends inclusionof “Scope 3 emissions data in the index construction
methodology in an incremental way,” with requirements
implemented on a sector-by-sector basis over a fouryear period. 28(2) Carbon price(s) (external and shadow/internal)
Carbon prices are an essential component for analyzing
and assessing economic impacts of carbon-related risks
and opportunities, such as those affecting the valuationof an organization’s key assets or potential changes in
input or output prices, and provides investors with anunderstanding of the reasonableness of a key assumption
in an organization’s risk and opportunity assessment.

27

 s noted in the 2017 TCFD Final Report, “The Task Force’s recommendations were developed to apply broadly across sectors and jurisdictions and should not be seen asAsuperseding 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 in other official company reports that are issued at least annually, widely distributed and available to investors and others, and subject to internal governanceprocesses that are the same or substantially similar to those used for financial reporting” (p. 17).

28

EU Technical Expert Group on Sustainable Finance, Report on Benchmarks, September 2019, p. 41.

18

The Task Force on Climate-related Financial Disclosures• be consistent with prices implied by theorganization’s climate-related targets(e.g., net-zero by 2050, Paris-aligned);

Organizations should implement a shadow carbon
price, or prices, in order to assess potential climaterelated financial impacts that could arise from carbon
pricing or restrictions. Shadow carbon prices have been
implemented at a range of financial and non-financialorganizations (see Appendix 2: Further Rationale for
Proposed Revisions for example language) and cantake a variety of forms, from a range of estimates usedin scenario and sensitivity analysis to shadow carbon
prices assessed on internal activities to incentivize
GHG reductions.

• increase over time to reflect diminishingcarbon budget;• be recalculated frequently to account for climate
action, or lack thereof, that may signal sharper priceincreases that will be needed to maintain the given
carbon budget implied by the chosen temperature
pathway; andEffective shadow carbon prices should:• incorporate geographic or sectoral granularity
where the organization judges such granularity will
have a significant impact on the carbon price level anda credible source for differentiated pricing can be found.

• be sourced from credible, reputable scientificresearch on the carbon price necessary to meet climate
goals. At a minimum, organizations should consider acarbon price that is aligned to a 2°C or lower pathway;

Figure C4

Example Disclosure: Aker BP
USD (2020)
per tonne CO2
250

235

200

150

150

143

100
64
50

53
35

0
2025

2040

IEA - SDS
IEA - STEPS

Source and notes: Aker BP, Sustainability Report 2020, p. 25; figure notes “Aker BP’s assumed carbon price reaches USD 235/tCO2 in 2030, assumed flat thereafter.”

19

The Task Force on Climate-related Financial Disclosures(3) Proportion of assets and/or operating, investing, or
financing activities materially exposed to physical risks,
based on key categories of commonly accepted risks29
Disclosure of proportion of an organization’s assets(i.e., tangible and intangible assets) and/or operating,investing, or financing activities (e.g., revenues, productmix, production) exposed to material climate-related
physical risks allows preparers and users to better
understand, track, and estimate potential financial
exposure regarding such issues as impairment or
stranding of assets, value of assets and liabilities, andchanges in cost of business interruptions.

The proportion of assets and/or operating, investing,or financing activities materially exposed to physicalrisks will be specific to the geography where the assets
or activities are located and their likely exposure orvulnerability to the risk. For example, certain assets
may be most vulnerable to acute risks from hurricanes
or wildfires, while others are more at risk from chronicchanges in average temperature, sea-level rise, ordrought. Organizations should refer to commonly usedtaxonomies in developing these metrics (additional
details provided in Appendix 2: Further Rationale for
Proposed Revisions).

Figure C5

Example Disclosure: Ilmarinen
Proportional shares of physical risk
Composite Sensitivity-Adjusted Risk Score by Type

Equity portfolio 2020

Corporate bond portfolio 2020

00%

Wildfire

Coldwave

Heatwave

0.2
20%

0.4
40%

Water Stress

0.6
60%

Coastal Flood

0.8
80%

Flood

1
100%

Hurricane

Source: Ilmarinen, Annual and Sustainable Report 2020, p. 50(4) Proportion of assets and/or operating, investing, or
financing activities materially exposed to transition risks,
based on key categories of commonly accepted risks29
Disclosure of proportion of an organization’s assets(i.e., tangible and intangible assets) and/or operating,investing, or financing activities (e.g., revenues, productmix, production) materially exposed to climate-relatedtransition risks allows preparers and users to better
understand, track, and estimate potential exposure
regarding such issues as possible impairment or
stranding of assets, value of assets and liabilities,
and change in demand for products or services.

29

The way in which organizations disclose “proportion ofassets and/or operating, investing, or financing activities
materially exposed to transition risks” will be specificto their company- and industry-specific climate risks.
Financial institutions may look at the proportion of theirloan book or portfolio materially exposed to carbonrelated assets, while non-financial companies may report
percent of revenues or production output coming fromhigh-carbon business lines. Organizations should refer tocommonly used taxonomies in developing these metrics(additional details provided in Appendix 2: Further
Rationale for Proposed Revisions).

 able 1 (p. 10) of the 2017 TCFD Final Report and Tables D2 and D3 (pp. 13–14) of the 2020 Guidance on Risk Management Integration and Disclosure provideTexamples of “key categories of commonly accepted risk.” Assets and business activities may be directly or indirectly exposed.

20

The Task Force on Climate-related Financial Disclosures

Figure C6

Example Disclosure: ERAFP

Source: ERAFP, Public Report 2019, p. 78

Figure C7

Example Disclosure: BHP

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

21

The Task Force on Climate-related Financial Disclosures

Figure C8

Example Disclosure: Citi
CLIMATE RISK HEAT MAP AND CREDIT EXPOSURE
2020
2018

2019

as of September 30, 2020

Total $
AmountTotal $
AmountTotal $
Amount% of
Total
Exposure

Energy & Commodities

49,69853,31751,035

6.6%

16,244Integrated Oil & Gas

13,513

12,883

13,886

1.8%

3,797

Oil & Gas Exploration &Production

12,803

15,682

14,228

1.8%

4,950

Oil & Gas Storage &Transportation

7,005

6,967

7,273

0.9%

1,856

Oil & Gas Refining & Marketing

9,255

9,611

7,409

1.0%

Oil & Gas Equipment, Services,and Drilling

4,361

5,562

5,285

0.7%

$ in Millions
1

Other
Power

Climate Risk

Funded% ofFundedExposure
4.7%

Transition
Risk

Physical
Risk

1.1%

High

Moderate

1.4%

High

Moderate

0.5%

High

Moderate

2,988

0.9%

High

Moderate

1,156

0.3%

High

Low

High

Moderate

2,762

2,611

2,954

0.4%

1,498

0.4%

27,20034,34928,408

3.7%

6,665

1.9%

Alternative Energy

1,595

2,052

2,621

0.3%

1,065

0.3%

Electric Utilities

7,655

13,056

6,744

0.9%

2,521

0.7%

Gas Utilities

1,745

1,667

1,554

0.2%

704

0.2%

Independent Power Producers& Service Operators

2,872

Multi-Utilities

11,265

Other
Transportation
Autos

2,679

3,446

0.4%

609

0.2%

$ in Millions
12,942

2,068

1,952

74,58378,588

11,767

1.5%

Metals & Mining

1,352

Low
High

2018

High

0.4%

2,275

0.3%

414

0.1%

79,863

10.3%

39,911

11.6%

Energy Minerals

Iron, Steel & AluminumHigh

Total $
AmountHigh

Moderate

2020

Moderate2019

as of September 30, 2020

Moderate
Moderate

Total $
AmountTotal $
AmountModerate

Climate Risk

% of
Total
Exposure

Funded% ofFundedExposure

Transition
Risk

PhysicalRisk

16,54015,891

13,476

1.7%

6,158

1.8%

967

822

765

0.1%

199

0.1%

High

Moderate

9,415

8,935

6,715

0.9%

3,708

1.1%

High

Moderate

6,158HighLow

48,17548,60451,0396.6%

24,191

7.0%

Automobile Manufacturers

16,421

15,355

Other
16,429

2.1%

7,689

2.2%

6,134 Low 5,996

0.8%

2,250

0.7%

Low

Moderate

Auto Parts & Equipment

2,107

2,544

Chemicals 1.3%
10,4054,493

1.3% 20,295
High 23,721Low 22,883

3.0%

8,124

2.4%

High

Moderate

Auto-Related Financing,
Leasing, and Rentals

18,52817,899Cons& Health9,900
19,947 Retail2.6%

2.9% 95,607
Low 116,346Low 112,915

14.6%

43,015

12.5%

Other

11,11912,806

4,258

0.6%

2,110

0.6%

High

1.4%

6,104

1.8%

7,379

2.1%

Food Beverage & Tobacco
Other

High

ModerateLow

31,99836,06033,403

4.3%

15,487

4.5%

Moderate

63,60980,286

79,511

10.3%

27,529

8.0%

Low

Low

50,88355,51862,4898.1%

42,197

12.3%

Moderate

High

11.1%

35,75010.4%

Moderate

Moderate
/ Low

0.6%

Low

Aviation

9,726

11,558

10,934

Shipping & Maritime Logistics

10,384

10,583

10,848Logistics

6,297

7,842

3
Financial
Institutions
7,043
0.9%
2,237

0.7% 78,376
Moderate94,789
Moderate86,172/ HighIndustrials

6.7% 26,020

Real Estate

1.4%

High

Low

High

58,97468,055

Insurance 8.7%
67,072

Building Products& Related

8,072

8,885

8,380
Property 1.1%
& Casualty2,756
Insurance0.8% 5,607High

Capital Goods

39,432

44,321

Reinsurance

43,98822,968

6,858

7,288

Professional Services

4,612

7,561

continued on next page

25,990

3.4%

2,208

Moderate6,430
5,429

0.8%

1,050

0.3%

Moderate

High

6,093

0.8%

64

0.0%

Moderate

High

24,305/ Low

13,613

4.0%/ Low 12,784/ Low 13,686
14,045

1.8%

1,093

0.3%

Moderate

Low

6,848 Bank
0.9%
Private

3,587

1.0% 85,392
Moderate
High 107,351
102,463

13.9%

70,03020.4%

Low

Moderate
/ Low

7,856

3,013

0.9%

Moderate

1.0%

Moderate

5,874

5.7%

Other
Paper Forest Products& Packaging

6,369

Moderate

Moderate

Low

ModerateLow

30,327

27,19426,267

3.4%

13,723

4.0%

ModerateTech, Media & Telecom

81,817

83,19979,65910.3%

31,136

9.1%

Low

Low

Other Industries

17,777

16,842

10,477

1.4%

5,561

1.6%

Low

Low

Total

713,490794,576

774,057

100.0%

343,690

100.0%

Public Sector4

1. In addition to this exposure, Citi has energy-related exposure within the public sector (e.g., energy-related state-owned
entities) and transportation sector (e.g., offshore drilling under Shipping & Maritime Logistics). Citi’s total exposure to theseenergy-related sectors is approximately $5.2 billion, of which approximately $3.1 billion consisted of direct outstanding fundedloans, as of December 31, 2018. As of September 30, 2020, this exposure remained largely consistent with December 31, 2019at approximately $5.5 billion, of which $3.2 billion is funded.
2. Based on Citi’s Risk Industry Classification, which differs from how Citi defines thermal coal mining companies under its
ESRM Policy. Additional reporting on our thermal coal mining exposure is provided on the next page of this report.
3. Includes Banks, Finance Companies, Securities Firms, Asset Managers and Funds, and Financial Markets Infrastructure.
4. Certain countries may see high transition and physical risks based on commodities exposure and geographic location.

Based on our climate risk heat map, approximately 23% of our total exposure and 20% of our funded
exposure are categorized as facing high transition risk while 15% of our total exposure and 18% of ourfunded exposure are categorized as facing high physical risk as of September 30, 2020. This includes
energy-related exposure within the public sector and transportation sector.

Source: Citi, Climate for a Resilient Future II, pp. 49–50

22

The Task Force on Climate-related Financial Disclosures(5) Proportion of assets and/or operating, investing,or financing activities aligned toward climate-related
opportunities, based on key categories of commonly
accepted opportunities30
Proportion of assets (i.e., tangible and intangible assets)
and/or operating, investing, or financing activities (e.g.,revenues, product mix, production) aligned to climate
opportunities of a given industry provides insight into
the relative position of organizations and allows users
to understand likely transition pathways and potentialchanges in revenue and profitability over time.
The operationalization of proportion of assets and/or operating, investing, or financing activities aligned
toward climate-related opportunities will be specific toeach industry’s climate opportunities. For example, auto
manufacturers might report sales of EVs relative to total
vehicle sales, while utilities report renewable generation
as a fraction of their total electricity generation. An
agricultural company might report revenues received

from the sale of drought-resilient seeds, while an asset
manager discloses the percent of resilient infrastructure
in its portfolio. Organizations should refer to commonlyused taxonomies in developing these metrics (additional
details provided in Appendix 2: Further Rationale for
Proposed Revisions).
Existing frameworks already provide some sector-specificguidance for this and other metrics to help preparers. 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 andSteel Producers Standard (SASB EM-IS-000.A) refers topercent raw steel production from basic oxygen furnace
processes and electric arc furnace processes; and its
Investment Banking and Brokerage Standard (SASB FN-IB410a.2) asks for the number and value of investments andloans incorporating integration of environmental, social,and governance (ESG) factors, by industry.

Figure C9

Example Disclosure: BASF

Source: BASF, BASF 2020 Report, p. 45

30

 able 2 (p. 11) of the 2017 TCFD Final Report provides examples of “key categories of commonly accepted opportunities” as well as types of investment
Tand financing opportunities and climate-related financial impact.

23

The Task Force on Climate-related Financial Disclosures(6) Amount of senior management remuneration
impacted by climate considerations
Remuneration policies are important incentives forachieving an organization’s goals and objectives and signal
governance, oversight, and accountability for managing
climate-related issues. The ways in which organizations link

executive compensation to climate-related performance
will be specific to their company and governance structure.
Some organizations choose to report the percentage ofthe executive’s pay linked to climate considerations, whileothers discuss weighting factors or total amountof compensation that could be impacted.

Figure C10

Example Disclosure: Daimler

Source: Daimler, 2020 Combined Management Report with Non-financial Declaration, p. 92

24

The Task Force on Climate-related Financial Disclosures(7) Amount of expenditure or capital investment
deployed toward climate risks and opportunities
Expenditure, capital investment, or financing/lending for
new technologies, infrastructure, or products are needed
to manage climate-related physical and transition risks
and opportunities. Expenditures or capital investment
by non-financial preparers or financing, lending,or underwriting by financial preparers provides anindication of the extent to which future earning capacity
might be affected. Expenditure, capital investment, or
amount of financing for new technologies, infrastructure,or products can be reported in line with financial
reporting standards and commonly used taxonomies fordelineating climate risks and opportunities (additional
details provided in Appendix 2: Further Rationale for
Proposed Revisions).

Figure C11

Example Disclosure: Liberty Mutual

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

25

The Task Force on Climate-related Financial Disclosures

The Task Force recommends that all organizations
disclose cross-industry, climate-related metrics andclimate-related financial impacts. Table C1 provides
a summary of the proposed types of information
organizations should disclose, and Appendix 2: Further
Rationale for Proposed Revisions provides alignmentof this information to existing frameworks as well as
additional examples of financial and non-financialorganization disclosures. Appendix 1: Proposed Changes
to Guidance and Supplemental Guidance provides the
specific proposed changes to the guidance.
In Table C1, TCFD has noted the most common unit ofmeasure. As discussed previously, there are multiple ways

to measure and disclose metrics and different jurisdictions
or industries may follow different best practices. For
example, some organizations reporting amount of senior
remuneration impacted by climate considerations notea percentage of the executive’s pay, while others discussweighting factors or total amount of compensation that
could be impacted. For proportion of assets materially
exposed to physical risk, some organizations may
choose to report the number of assets exposed relative
to the total number of assets, while others report thevalue of assets exposed relative to the total value. The
TCFD believes these differences in unit of measure help
provide organizations with flexibility and do not impact
comparability as long as units are clearly stated.

Table C1

Summary Table: Cross-Industry, Climate-Related Metrics
Note: Additional context, including alignment with existing frameworks and example disclosures,is provided in Appendix 2: Further Rationale for Proposed Revisions.
Cross-Industry, Climate-Related Metrics

Example Unit of Measure

GHG emissions (Absolute Scope 1, Scope 2, and relevant, material categories
of Scope 3 emissions, as well as carbon intensity)

MT of CO2e

Carbon price(s) (external and shadow/internal)

Price in local currency, per MT of CO2e

Proportion of assets and/or operating, investing, or financing activities materially exposed
to physical risks, based on key categories of commonly accepted risks

Percentage

Proportion of assets and/or operating, investing, or financing activities materially exposedto transition risks, based on key categories of commonly accepted risks

Percentage

Proportion of assets and/or operating, investing, or financing activities aligned
toward climate-related opportunities, based on key categories of commonly accepted
opportunities

Percentage

Amount of senior management remuneration impacted by climate considerations

Percentage/amount in local currency
or weighting

Amount of expenditure or capital investment deployed toward climate risks
and opportunities

Local currency

26

The Task Force on Climate-related Financial Disclosures

Climate-Related Financial Impacts
The cross-industry, climate-related metrics not only
improve comparability across companies but also are key
inputs with which to estimate climate-related financial
impacts. Annual assessments of the state of disclosures
have shown that organizations have made some
progress in disclosing climate-related financial impacts,
but that it continues to be one of the lowest areas of
disclosure.31 The 2020 Status Report noted that “disclosureof TCFD-aligned information increased by six percentage
points, on average, between 2017 and 2019…however,companies’ disclosure of the potential financial impact
of climate change on their businesses and strategies
remains low” (p. 4, original emphasis).
Further detail on challenges to and solutions for
estimating climate-related financial impact will be
included in the 2021 Status Report as part of FSB’s
request that the TCFD “undertake further analysis on
the extent to which companies describe the financial
impact of climate-related risks and opportunities on
their businesses and strategies.”32
Figure C12 illustrates how cross-industry, climaterelated metrics inform estimation of climate-related
financial impact. For example, estimating proportionof forward-looking assets and/or operating, investing, or
financing activities aligned toward climate opportunities
can be applied to an organization’s existing outlook on
future revenue to estimate the contribution to overall
revenue from climate opportunities. Calculating Scope
1, 2, and 3 emissions and carbon prices can inform thecompany’s cost-benefit analysis of potential investments
and process changes or investments, while scenario
analysis for plausible future emissions pathways andimplied carbon prices can allow for a range of estimates
on forward-looking carbon costs.

31

See, for example, 2018 Status Report, p. 13; 2019 Status Report pp. iv and 51; and 2020 Status Report, pp. 4, 8, and 12.

32

FSB, “FSB welcomes TCFD status report,” October 29, 2020.

27

The Task Force on Climate-related Financial Disclosures

Figure C12

Mapping Climate-Related Metrics and Financial
Impacts to the TCFD Pillars

Strategy

Governance

Key Questions
Is the organization’s
governance enablingoversight, assessment andmanagement of climate risks
and opportunities?

Is the organization aligningits businesses, strategy,
and financial planning inlight of climate risks andopportunities?

Climate-related
Metrics

Climate-related
Financial Impacts

Amount of senior management
remuneration impacted by climate
considerations

Impact of any material climate-relatedrisks or opportunities
on financial performance e.g.:• Change in profitability/cash flow

Proportion of assets and/or operating,investing, or financing activities aligned
toward climate opportunities
Amount of expenditure or capital investment
deployed towards climate risks andopportunities

Risk Management

GHG emissions (Absolute Scope 1, Scope 2,
and relevant, material categories of Scope 3
emissions, as well as carbon intensity)
Carbon price(s) (external and shadow/internal)
What is the organization’s
exposure to climate risk?

Proportion of assets and/or operating,investing, or financing activities exposed tomaterial transition risks- Impact on revenue due
to climate opportunities- Impact on cost from carbon price,business interruption, contingency,
repairs, etc.
• Impairment charges due
to assets exposed to physical andtransition risks

Impact of any material climate-relatedrisks or opportunities
on financial position e.g.:• Carrying amount of assets due toexposure to physical and transition
risks• Expected portfolio value given climate
risks and opportunities

Proportion of assets and/or operating,investing, or financing activities exposed
to material physical risks

Example information flow between foundational and financial metrics(1) Impact of any material climate-related risks oropportunities on financial performance (e.g., cost,profitability, operating cash flow, impairment)33
Changes to income and cash flow statements or otherappropriate financial performance measures as a result ofclimate-related risks, opportunities, initiatives, or actions
provide insight into management priorities and strategic
efforts in anticipation of or response to an organization’s
climate-related risks and opportunities. Impact onfinancial performance can include, for example:• increases in revenue from new products or services
from climate opportunities;• increases in cost due to carbon prices, businessinterruption, contingency, or repairs;• changes to operating cash flow from changes
in upstream costs;• impairment charges due to assets exposed
to physical and transition risks; and• changes to total expected losses.

33

Additional details on financial impact, including examples, are provided in the 2017 TCFD Final Report, pp. 8–11, and the 2017 TCFD Annex, Appendix 1, p. 77.

28

The Task Force on Climate-related Financial Disclosures

Figure C13

Example Disclosure: Meridian Energy

Source: Meridian Energy, Climate Change Disclosures Meridian Energy Limited FY20, p. 11(2) Impact of any material climate-related risks
or opportunities on financial position (e.g., assets
and liabilities)33
Changes to balance sheet statement, or other appropriate
financial position measures, as a result of climate-relatedrisks, opportunities, initiatives, or actions provide insight
into management priorities and strategic efforts inanticipation of or response to an organization’s climaterelated risks and opportunities. Impact on financial
position can include, for example:

33• changes to the carrying amount of assets due toexposure to physical and transition risks and• changes to the expected portfolio value given climate
risks and opportunities.
Proposed Update
The Task Force recommends that companies disclose
cross-industry, climate-related metrics and climaterelated financial impacts for the historical, current, andforward-looking periods, if relevant. In cases in which it
is difficult to distinguish the financial impacts of climate

Additional details on financial impact, including examples, are provided in the 2017 TCFD Final Report, pp. 8–11, and the 2017 TCFD Annex, Appendix 1, p. 77.

29

The Task Force on Climate-related Financial Disclosures

Figure C14

Example Disclosure: Equinor

Source: Equinor, Sustainability Report 2020, p. 17

change from a broader set of drivers impacting financial
performance or position, organizations should consider
disclosing qualitatively (e.g., directionally) the effect ofclimate change on particular changes in financial positionor performance.
Box C1 provides additional context regarding forwardlooking information and uncertainty. Organizations
should, at a minimum, disclose forward-looking
information for those climate-related metrics andfinancial impacts against which they have set climaterelated targets. Forward-looking information,
particularly information related to the organization’s
medium- and long-term time horizons, may be
more appropriate to report as ranges, qualitative
directions, or numbers tied to specific assumptions
about the future state of the world, such as those
informed by scenario analysis.
Organizations typically use a wide variety of informationinternally and externally to manage their operations.
These cross-industry, climate-related metrics andfinancial impacts are not meant to supplant or
replace other information that organizations track aspart of their business planning or that industries coalesce
around in order to track risks or opportunities specific totheir industry (for example, see Table 2 in the 2017 TCFD
Annex for common carbon footprinting and exposure
metrics, and Tables 3 through 6 for additional illustrative
metrics for the non-financial groups). Rather, the Task
Force intends for this discrete set of cross-industry
metrics to provide a base of comparability across andwithin industries and form the set of minimum climaterelated metrics that all companies should report.
To support further comparability across climate-related
disclosures, the TCFD encourages organizations todisclose all cross-industry, climate-related metrics
for the historical, current, and forward-looking
period, if relevant. These metrics are alreadywidely reported across financial and non-financialorganizations, are well aligned with existing disclosure
frameworks (both voluntary and regulatory), and are
crucial data from which market participants can assessclimate risks and opportunities. Appendix 2: Further
Rationale for Proposed Revisions provides details onalignment with existing frameworks as well as example
disclosures by financial and non-financial organizations.

30

The Task Force on Climate-related Financial Disclosures

Box C4
Summary of Proposed Update
The TCFD proposes updating its 2017 Guidance for All
Sectors recommended disclosure Metrics and Targets a) torecommend that all organizations should disclose each of
the cross-industry, climate-related metrics for the historical,
current, and forward-looking periods, if relevant. The Task
Force is requesting additional input on whether these crossindustry, climate-related metrics should be subject to amateriality assessment point as part of its consultation.
The proposed changes update the 2017 Guidance for All
Sectors recommended disclosures Strategy b) and c) to clarify
that organizations should disclose climate-related financial
impacts for the historical, current, and forward-looking
periods. See Appendix 1: Proposed Changes to Guidance andSupplemental Guidance for proposed text changes.
Input Requested on Materiality
The cornerstone of many disclosure standards andrequirements is a determination of materiality byreporting entities. In its 2017 report, the TCFD did not
define materiality but rather deferred to existing reporting
standards and legal requirements, stating that “organizations
should determine materiality for climate-related issues
consistent with how they determine the materiality of otherinformation included in their annual financial filings.” 34
Currently, the TCFD Governance and Risk Management
recommendations are not subject to an assessment ofmateriality while the Strategy and Metrics and Targets
recommendations are subject to an assessment ofmateriality. 35 However, TCFD did state that certain
organizations—those in the four non-financial groups
listed in the TCFD report—that have more than one billion
U.S. dollar equivalent in annual revenue—should consider
disclosing climate-related information even when theinformation is not deemed material and not included infinancial filings.36

34

2017 TCFD Final Report, June 15, 2017, p. 33.

35

2017 TCFD Annex, June 29, 2017, p. 3.

The TCFD also pointed out in 2020 that companies should becognizant that materiality is not a static concept. It is evolving
over time in terms of what primary users view as material
to their decisions, who beyond primary users might be an
audience for the disclosure, and what type of information
is desired. 37 TCFD expects that definitions of materiality as
it relates to climate information will continue to evolve as
jurisdictions provide further guidance on materiality, or
specific line-item disclosure requirements (without regard tomateriality), within their regulations, and as standard setters
aim to establish a common baseline of financially material
information that could be used by all jurisdictions.38, 39
The TCFD is proposing seven cross-industry, climate-related
metrics. In the TCFD’s view, these cross-industry, climaterelated metrics, particularly GHG emissions, are key tounderstanding climate-related risks and opportunities bothby users assessing individual companies; those aggregating
risks across companies within their investing, lending, orunderwriting portfolio; and by regulators looking to assess
systemic risks.
Given the potential importance and usefulness of thesecross-industry metrics, TCFD is requesting input, throughits consultation, on the disclosure treatment of these sevencross-industry, climate-related metrics in relation to theconcept of materiality. Should these metrics, or a subset, be
disclosed independent of a materiality assessment, or should
their disclosure be subject to a materiality determination?
Alternatively, a potential middle path would be for organizations
to disclose material cross-industry, climate-related metrics orprovide qualitative explanations as to why the information is notdeemed material (i.e., provide or explain).

36

2017 TCFD Final Report, June 15, 2017, p. 17, footnote 37.

37

TCFD, Guidance on Scenario Analysis for Non-Financial Companies, October 2020, p. 52.

38

 uillot and Hales, “Materiality: The Word that Launched a Thousand Debates,” May 14, 2021: “The collaborative work of the ‘Group of Five’ formed the basis
G
for the ‘building blocks’ approach now being embraced by the International Organization of Securities Commissions (IOSCO). This approach recognizes thatcompany operations and investment portfolios span jurisdictions that operate with different legal definitions of materiality, most significantly the US and theEuropean Union. A ‘building blocks’ approach could dramatically reduce the complexity and fragmentation that characterizes the global sustainability disclosure
landscape by establishing a common baseline of financially material information that could be used by all jurisdictions. The ‘building blocks’ approach could
reduce reporting complexity for preparers, provide global investors a baseline level of financially material, decision-useful information, and maintain theflexibility of jurisdictions to create additional building blocks, as they deem appropriate, based on their own legal frameworks and public policy objectives.”

39

US SEC Commissioner Allison Lee, “Living in a Material World: Myths and Misconceptions about ‘Materiality’,” May 24 2021: “In practice Regulation S-K has, fromthe outset, required periodic reports to include information that is important to investors but may or may not be material in every respect to every company
making the disclosure. We have done this, for example, with respect to disclosures of related party transactions, environmental proceedings, share repurchases,
and executive compensation…Moreover, if SEC disclosure rulemaking authority were artificially circumscribed by both an item-by-item, and company-bycompany, analysis of materiality, comparability would be sacrificed almost completely. Indeed such an approach would be at odds with modern capital markets
which have become increasingly comparative in nature thus requiring at least some specific metrics in order to make appropriate comparisons.”

31

The Task Force on Climate-related Financial Disclosures

Scope 3 Emissions
GHG emissions are included as one of the proposedcross-industry, climate-related metrics discussed above
but given the additional guidance on GHG emissions inrecommended disclosure Metrics and Targets b), it is worth
discussing the proposed updates regarding
Scope 3 and financed emissions in more detail.
The most well-known and widely referenced
classification of greenhouse gases is the GHG Protocol
Corporate Standard,40 which defines the three Scopesof emissions from the perspective of the reporting
company as follows:41• Scope 1 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 emissions are indirect emissions from thegeneration of purchased energy.
• Scope 3 emissions are all indirect emissions (notincluded in Scope 2) that occur in the value chain of
the reporting company, including both upstream anddownstream emissions. The GHG Protocol’s Scope
3 schema contains 15 stages, eight of which are
upstream, seven downstream.
As noted in the GHG Protocol Corporate Value Chain (Scope
3) Standard, “while a company has control over its directemissions, it has influence over its indirect emissions.”42
Scope 3 Emissions for Non-Financial Groups
Of the three categories of GHG emissions, Scope 3
emissions, including financed emissions, are understudied,
underreported, and often difficult to measure anddemarcate. Approximately 40% of global GHG emissions
are driven or influenced by organizations through theirpurchases (i.e., purchased goods and services) and throughthe products they sell.43 Furthermore, an organization’s
supply chain emissions are on average 5.5 times larger
than its Scope 1 and 2 emissions.44

Banks, insurance companies, asset managers, and asset
owners will need better disclosure of Scope 3 emissions
from preparers to understand their own financed
emissions and evaluate how their loan, underwriting,and investment activities may expose them to carbonrelated assets and their associated risks.45 In addition,
an increasing number of jurisdictions are formally moving
to net-zero targets and, as a result, may require morecomprehensive GHG reporting from companies within
their borders.
At the same time, the preparers and users of Scope 3
emission information need to understand the current
limitations of Scope 3 emissions accounting andreporting. The most well-known and widely referenced
Scope 3 reporting methodology is the Corporate Value
Chain (Scope 3) Accounting and Reporting Standard,
commonly referred to as the Scope 3 Standard. It states:“Use of this standard is intended to enable comparisonsof a company’s GHG emissions over time. It is notdesigned to support comparisons between companies
based on their Scope 3 emissions. Differences in reported
emissions may be a result of differences in inventory
methodology or differences in company size or structure.”
Therefore, it may be difficult presently to compare
Scope 3 emissions reported by different organizations
due to the inherent limitation of the Scope 3 Standard
methodology. In addition, while in principle the emissions
categories defined by the Scope 3 Standard are designed
to be mutually exclusive, applying the Scope 3 Standard inpractice can cause an overlap in reporting boundaries due
to an organization’s involvement at multiple points in thelife cycle of products and can result in double counting of
Scope 3 emissions.46
Notwithstanding these challenges, the TCFD believes
that reporting around Scope 3 emissions has matured
enough to warrant inclusion in disclosures. Scope 3
disclosures are an essential component of climate-related
risk analysis in commercial and financial markets. Scope 3
emissions are increasingly being demanded by investors
and other market participants, the number of companies

40T he GHG Protocol Corporate Standard, commonly referred to simply as the Corporate Standard, is a methodology developed by the GHG Protocol Initiativeand is the methodology explicitly recommended by the Task Force for calculating and reporting emissions (see 2017 TCFD Final Report, June 15, 2017, Section
C3, p. 22, footnote 40). The first edition of the Corporate Standard was published in 2001 and then updated in 2004 with additional guidance clarifying how
companies can measure emissions from electricity and other energy purchases, and account for emissions from throughout their value chains. Buildingon the Corporate Standard, the GHG Protocol then developed a more detailed approach to Scope 3 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 then publishedin 2013 providing detailed explanation of how to calculate Scope 3 emissions, namely the Technical Guidance for Calculating Scope-3 Emissions. The Scope 3
Standard is the only internationally recognized methodology for companies to report all their value chain emissions.

41See GHG Protocol, Frequently Asked Questions.

42

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

43

See CDP, Global Supply Chain Report 2018, 2018.

44

See We Mean Business Coalition, Climate Action in the Value Chain: Reducing Scope 3 Emissions and Achieving Science-Based Targets, April 9, 2020.

45

 017 TCFD Final Report, June 15, 2017, p. 36. As part of the Task Force’s public consultation as well as in discussions with preparers, some asset owners and2
asset managers expressed concern about reporting on GHG emissions related to their own or their clients’ investments given the current 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.

46

F or further discussion of Scope 3 limitations, see Rocky Mountain Institute, The Next Frontier of Carbon Accounting, June 2020.

32

The Task Force on Climate-related Financial Disclosures

disclosing Scope 3 emissions is growing, and companies
are improving their determination of Scope 3 emissions.
See Appendix 2: Further Rationale for Proposed Revisions
for additional context on TCFD’s proposed change.
Scope 3 Emissions for the Financial Sector: Financed
Emissions
According to the GHG Protocol, “investments” count as aform of Scope 3 emissions “applicable to investors…andcompanies that provide financial services. Investments
are categorized as a downstream Scope 3 category
because the provision of capital or financing is a service
provided by the reporting company.”47

For financial institutions, financed emissions provide aview on the organization’s exposure to climate-relatedrisks and opportunities and can be used by regulators
and authorities to assess aggregate risk across the
economy. According to a 2020 report by CDP, though only
25% of financial institutions report financed emissions,these reported emissions are over 700 times larger thanreported operational emissions.48
In November 2020, PCAF issued the first edition of the
PCAF Global GHG Accounting and Reporting Standard for
the Financial Industry. PCAF’s Standard builds on the
GHG Protocol’s accounting rules for Scope 3, category

Figure C15

Financed Emissions Metrics and Comparability

Source: PCAF, Global GHG Standard, p. 102

47

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

48

CDP, The Time to Green Finance, 2020, p. 33.

33

The Task Force on Climate-related Financial Disclosures

15 (Investments) by providing detailed methodologicalguidance to assist in the measurement and disclosureof 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.
PCAF notes, “The initiative, with guidance from PCAF
participants and users, intends to both update themethodologies over time and add additional ones.”49
PCAF’s Standard recognizes the difficulties inherent in
the comparability, coverage, transparency, and reliabilityof Scope 3 data when attempting to capture the Scope
3 dimension of financed emissions, but states that“by requiring Scope 3 reporting for selected sectors,
PCAF seeks to make Scope 3 emissions reporting morecommon practice by improving data availability andquality over time.”
SBTi and the CRO Forum have also worked on clarifying
financed emissions. These efforts are discussed inAppendix 2: Further Rationale for Proposed Revisions.
Note that insurance companies are currently out of scopeof the PCAF Global Standard. As a result, TCFD proposes
insurance underwriters disclose Weighted Average Carbon
Intensity (WACI), particularly for commercial property
and specialty lines that cover tangible properties andgoods. The CRO Forum’s Carbon Footprinting Methodology
for Underwriting Portfolios is currently the most advanced
adaptation of WACI to insurance portfolios and isreferenced in the proposed guidance. The to-be-launched
Net Zero Insurance Alliance may provide additional
discussion appropriate for insurance underwriting.50(Re)insurers should follow latest industry guidance.
Proposed Update
The 2017 TCFD Final Report provides guidance onrecommended disclosure Metrics and Targets b), stating,“Organizations should provide their Scope 1 and Scope
2 GHG emissions and, if appropriate, Scope 3 GHG
emissions and the related risks. GHG emissions should
be calculated in line with the GHG Protocol methodology
to allow for aggregation and comparability acrossorganizations and jurisdictions.”49

Box C5
Summary of Proposed Update
TCFD is proposing to update its Guidance for All Sectors toinclude disclosure of relevant, material categories of Scope 3
emissions. TCFD has determined that data and methodologies
have matured sufficiently such that Scope 3 disclosure
is appropriate for all financial and non-financial sectors.
Disclosure is particularly important for organizations forwhich Scope 3 emissions account for 40% or more of the total
emissions of the organization or for which Scope 3 emissions
have been deemed a significant risk in their value chain.51
The TCFD is also proposing to update its Supplemental
Guidance for the Financial Sector to clarify that banks, asset
owners, asset managers, and the asset management sideof insurers should disclose financed emissions in line with
PCAF’s methodology and WACI, if relevant, or a comparable
methodology. If a comparable methodology is used, the
TCFD recommends the details of such methodology be madepublicly available.
This proposal will replace the current “should disclose”
guidance around WACI for asset managers and asset owners,
with WACI and other carbon footprint metrics in the 2017
TCFD annex remaining as “should consider” metrics.
Because PCAF does not yet cover insurance underwriting,
TCFD is proposing that (re)insurance underwriters should
disclose WACI for their commercial property and specialty
lines of business that cover tangible properties and goods
for which data and some methodologies are available. Morecomplex commercial and retail lines may be addressed at alater stage. See Appendix 1: Proposed Changes to Guidance
and Supplemental Guidance for proposed text changes.

When the 2017 TCFD final report was published, there
were a number of unresolved issues regarding whenand how to calculate Scope 3 and financed emissions,
resulting in the insertion of the phrase “if appropriate” forthe Scope 3 disclosure recommendation. The intent was
to provide flexibility for reporting entities. As mentioned
previously, the discussion around Scope 3 emissions andfinanced emissions has evolved since 2017.52

See PCAF Global Standards 2020, November 18, 2020.

50

T he anticipated launch of the Net Zero Insurance Alliance was referenced in the GFANZ press release in April 2021.

51

See discussion of 40% threshold in SBTi’s paper SBTi Criteria and Recommendations, Version 4.2, April 2021, Section V, p. 10.

52 017 TCFD Final Report, June 15, 2017, p. 3. “The Task Force expects that reporting of climate-related risks and opportunities will evolve over time as
2organizations, investors, and others contribute to the quality and consistency of the information disclosed.”

34

The Task Force on Climate-related Financial Disclosures

In particular, the international dialogue on climate change
has shifted from a focus on carbon budgets consistent
with the Paris Agreement to a focus on achieving netzero emissions by 2050.53 This shift signals an increasing
urgency on reducing emissions—both direct andindirect—to zero by all economic sectors. To help identify
carbon-related assets and potential climate-related risk,
governments and investors are increasingly focusing on
the full value chain of emissions.
Updates to Supplemental Guidance for Financial Sector
In addition to the proposed changes to Guidance for
All Sectors, the Task Force is recommending updating
guidance around carbon-related asset metrics andforward-looking metrics for financial institutions,
including portfolio alignment metrics.
Carbon-Related Asset Metrics
The TCFD is proposing to update its supplemental
guidance for the financial sector on exposure to carbonrelated assets. This will help financial institutions
implement the cross-industry, climate-related metricon “proportion of assets and/or operating, investing, or
financing activities materially exposed to transition risks,
based on key categories of commonly accepted risks.”
The TCFD’s 2017 final report describes its FSB remit“to develop climate-related disclosures that could
promote more informed investment, credit or lending
and insurance underwriting decisions and in turn[would] enable stakeholders to understand better theconcentrations of carbon-related assets in the financial
sector and the financial system’s exposure to climaterelated risks” (p. 2). The TCFD recognized in its 2017 final
report that “the term carbon-related assets is not welldefined, but is generally considered to refer to assets ororganizations with relatively high direct or indirect GHG
emissions” (footnote 17). Section E of the TCFD’s 2017
final report identified “better defining carbon-related
assets” as one of the key areas for further work (p. 32).

53

Box C6
Summary of Proposed Update
The Task Force proposes expanding the Supplemental
Guidance on recommended disclosure Strategy a) on carbonrelated assets to insurance companies, asset managers, andasset owners, in addition to banks. The proposed changes
also expand the definition of exposure to carbon-related
assets from the energy sector group to all non-financial sector
groups identified in the 2017 TCFD Annex. See Appendix 1:
Proposed Changes to Guidance and Supplemental Guidancefor proposed text changes.

Forward-Looking Metrics for Financial Sector
Financial institutions have begun to develop forwardlooking metrics to disclose the alignment of theirportfolios with particular policy objectives (e.g., net-zero,
Paris-aligned, 1.5°C) or to assess the overall climaterelated risks in their portfolios, such as aggregate
unpriced carbon risks.
To further understand these developments, the Task
Force conducted a public consultation from October 29,
2020–January 28, 2021, to gather feedback on potential
forward-looking metrics for financial institutions.54, 55
In conjunction with this consultation, the Portfolio
Alignment Team (PAT) issued a report in 2020 titled
Measuring Portfolio Alignment: Assessing the Positionof Companies and Portfolios on the Path to Net Zero.56
This report provided a critical assessment of the strengths
and trade-offs of the options available to measure thealignment of investments with climate goals and on themethodology for implementing implied temperature rise
(ITR) for those institutions wishing to do so.
Responses to the consultation suggested that someorganizations are actively using such metrics, with more
expecting them to be useful going forward, but thatmany were looking for more clarity on methodology andstandardization (Box C8).

 his shift of emphasis was the direct result of the Intergovernmental Panel on Climate Change’s (IPCC’s) special report Global Warming of 1.5°C, publishedTin October 2018.

54

See TCFD, Forward-Looking Finance Sector Metrics Consultation, October 2020, for original consultation.

55

 dditional metrics considered in the consultation responses were the proportion of underlying investments aligned with EU Taxonomy, a forward-lookingAestimate of carbon-related exposures, unpriced carbon cost, carbon earnings at risk, and amount of apportion emissions over/under a 1.5°C alignment
trajectory. See TCFD, Summary of Forward-Looking Financial Metrics Consultation, March 2021, for more details.

56 he PAT consisted of technical representatives of seven major investment firms and other organizations. The PAT report provided important technicalTcontext for the TCFD consultation.

35

The Task Force on Climate-related Financial Disclosures

Box C7
Key Takeaways from Consultation57
Use and Disclosure•	Three-quarters of respondents report using someform of “forward-looking metrics,” a category that
includes not only the universe of metrics specificallyconsidered in the consultation—for example, implied
temperature rise, climate Value-at-Risk, and portfolioalignment estimates—but also a broader range of metrics
that include measures of emissions, carbon intensity,
environmental resources, and screening criteria.
•	This broad set of metrics supports many uses including
risk management, portfolio allocation, and communicationand engagement. Roughly half to three-quarters of
respondents at financial organizations report using atleast one of these metrics, with asset managers reporting
the highest use.
• Fewer report using the metrics described in the
consultation. When used, these metrics are more likely to
be used for monitoring than to support financial decisionmaking. Only a tenth of those that use these metrics
currently disclose them, though an additional third plan to
do so in the future.

Methodology Considerations•	Respondents agree there are challenges using anddisclosing the metrics described in the consultation,with roughly three-quarters particularly concerned withreliance on assumptions to derive future emissions, future
uncertainty, and opaque or difficult methodologies.
•	Despite the challenges raised, respondents agree that theconsultation metrics could be useful with improvements
to methodology, with roughly three-quarters pointing
to the need for more transparency, comparability, andstandardization across methodologies, as well as improved
emissions data.
•	Almost all would like the methodology for forward-looking
metrics to cover Scope 1 and 2 emissions, with many
interested in Scope 3 as well, though many also noted thechallenges around Scope 3 disclosures including inconsistentreporting and difficulty in accurate measurement.

In light of the findings of the Forward-Looking Metrics
consultation, the Task Force commissioned the PAT toconduct further analysis and to (1) develop technicalguidance on emerging best practice as it relates tobuilding portfolio alignment tools and producing forwardlooking measurements of financial portfolio alignment
with the goals of the Paris Agreement, and (2) identify
future research priorities where the field is not yet mature
enough to identify best practice.58, 59 This section provides
a summary of that report, which can be read in full via
TCFD’s publications page.
Portfolio Alignment Technical Supplement
To mitigate climate-related risks and opportunities
and meet their climate ambitions, financial institutions
must not only reduce emissions in line with the goalsof the Paris Agreement but also keep global cumulativeemissions within a defined carbon budget. The way
in which individual financial portfolios will reduce
emissions on the path to zero to align with the goals of
the Paris Agreement depends on the composition of that
portfolio, as different sectors and geographies all must
decarbonize at different rates. Portfolio alignment tools
can inform portfolio-level target setting frameworks
and help financial institutions measure and manage
toward the achievement of climate-related targets. The
Portfolio Alignment Technical Supplement (the technicalsupplement) focuses on multiple ways in which financial
institutions can align their portfolios with a net-zeroby-2050 ambition.
The purpose of the technical supplement is to identify
emerging best practices in portfolio alignment tool
construction and use to promote more widespread
adoption of consistent, robust, and decision-usefulapproaches. Attaining some degree of common practicerelated to portfolio alignment is important not only tofacilitate comparability and transparency within andacross financial institutions, but to provide further clarity
and consistency for companies on how their behavior
related to the net-zero transition may impact theirinteractions with investors and lenders.
The technical supplement identifies a number of potential
portfolio alignment methods (Figure C16). Financial
institutions can capture a binary categorization of thenumber of companies with and without GHG reduction
targets (e.g., net-zero). Others may choose to use ITR

57

See TCFD, Summary of Forward-Looking Financial Metrics Consultation, March 2021, for more details.

58 he PAT was established by Mark Carney in his capacity as UN Special Envoy for Climate and Finance and is led by David Blood of Generation Capital.
T
The team comprises participants from the following institutions: Bank of America, BBVA, Blackrock Investment Management, Generation Investment
Management, Goldman Sachs, HSBC, McKinsey & Company, and the COP26 Private Finance Hub.

59

 he PAT draws on surveys of, and in-person discussions with, 11 global portfolio alignment method providers, in addition to eight weeks of synthesis andTconceptual problem solving by an expanded working group of participants drawn from ten institutions. It expands substantially on the initial findings,
following roughly the same organizational structure.

36

The Task Force on Climate-related Financial Disclosures

Figure C16

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 orcounterparties with declared
net-zero targets• Measures forward-looking
performance against
normative benchmarks• Translates degree ofalignment into impact in theform of a temperature score• Primary issue: incentivizes
target setting, but does
not provide temperaturealignment assessment• Primary issue: poorly
constructed methods canlead to additional unintended
consequences• Primary issue: complex andopaque regarding influenceof key assumptions

models, which measure company alignment against
industry- and geography-level benchmarks and translate
the alignment or misalignment of each company to atemperature score.

ITR tools currently have limitations including variation inapproaches and outcomes that results in scores that may
not be directly comparable or may over- or underestimate
implied temperature rise.

The PAT technical supplement introduces seven evaluation
criteria to help financial institutions select among thesetools. It finds, in general, that advancing along thespectrum of sophistication improves tool performanceacross scientific robustness and incentive optimality
but can reduce transparency into key assumptions andease of use. Task Force members noted that those tools
characterized as “least sophisticated” are useful inputs
into decision-making and have decided not to include
the recommendation to move along the spectrumof sophistication in its proposed updates.

The Portfolio Alignment Team sets out four key
recommendations for financial institutions:

The supplement finds that ITR tools provide the ability
to translate degree of misalignment of a given company
with a benchmark into consequences for a desired
climate goal, which is an important functionality for
financial institutions managing their portfolios toward
Paris alignment (e.g., from a scientific perspective, whatmatters to achieving global climate goals is not thatan organization or portfolio eventually lines up with abenchmark, but for how long and to what degree it was
misaligned with that benchmark). However, as noted in
the Forward-Looking Financial Sector Metrics Consultation,• Financial institutions should measure and disclose thealignment of their portfolios with the goals of the Paris
Agreement using forward-looking metrics.
• Financial institutions should use whichever portfolioalignment tool best suits their institutional context
and capabilities but should consider advancing along
the spectrum of sophistication of approaches overtime as tools improve in robustness, transparency, andease of use.
• Portfolio-alignment tools should be developed
and used alongside existing approaches to setting
emissions reduction targets. This suite of tools should
also support management and engagement decisions
concerning emissions reductions.
• Institutions should use portfolio-alignment tools
alongside other purpose-built tools for quantifying
transition risks.

37

The Task Force on Climate-related Financial Disclosures

Table C2

Key Steps and Design Judgements forPortfolio Alignment Implementation
Methodological Step
Step 1:
Translating scenario-based carbon budgets
into benchmarks

Design Judgement
Judgement 1: What type of benchmark should you build?
Judgement 2: How granular should your benchmark be?
Judgement 3: Should you use absolute emissions, production capacity,or emissions intensity units?

Step 2:
Assessing company-level alignment

Judgement 4: What scope of emissions should be included?
Judgement 5: How do you measure company performance?
Judgement 6: How do you project company performance?
Judgement 7: How do you measure alignment?

Step 3:
Assessing portfolio-level alignment

Judgement 8: How do you express alignment as a metric?
Judgement 9: How do you aggregate company-level scores?

These four recommendations are supplemented byadditional recommendations organized around nine key
design judgements that financial institutions must makewhen designing portfolio alignment methods (Table C2).60
Finally, the Portfolio Alignment Technical Supplement
details some of the data and implementation challenges
facing portfolio alignment tools to support financial
institutions considering these tools and highlights areasof future work to support implementation.

Box C8
Summary of Proposed Update
Based on the recommendations of the Portfolio Alignment
Team, the Task Force proposes amending the existing
Supplemental Guidance for Banks, Insurance Companies,
Asset Owners, and Asset Managers on recommended
disclosure Metrics and Targets a) to recommend that financial
institutions should measure and disclose the alignment of
their portfolios consistent with a 2°C or lower temperature
pathway (e.g., Paris-aligned), and incorporate forward-looking
alignment metrics into their target-setting frameworks andmanagement processes.61
The proposed updates note that portfolio alignment tools areuseful inputs to quantifying transition risk and that financial
institutions should use whichever portfolio alignment tool
best suits their institutional context and capabilities. See
Appendix 1: Proposed Changes to Guidance and Supplemental
Guidance for proposed text changes.

60

The first PAT report introduced nine key design judgments for financial institutions to consider when implementing portfolio alignment tools.

61

(Re)insurance underwriters are at an earlier stage on portfolio alignment relative to other financial institutions, TCFD encourages (re)insurance
underwriters to begin with forward-looking metrics and then move to measuring and disclosing the alignment of their underwriting portfolios as
methodologies progress.

38

D.
Climate-Related Targets

The Task Force on Climate-related Financial Disclosures

D. Climate-Related Targets
This section provides an overview of principles forsetting targets aligned with climate ambition, including
illustrative examples of targets based on cross-industry,
climate-related metrics. Additionally, it outlines theimportance of tracking and disclosing progress against
climate-related targets. Finally, it provides a stylized
example of how this translates in practice.
When organizations select metrics, they should consider
whether there is an associated target against which to
track progress. Though not all metrics will require a target,
all targets should be supported by appropriate metrics.
And while the terms “goals” and “targets” are often usedinterchangeably, they have important differences. As
defined for purposes of this guidance, business goals are
written parts of a long-term vision laying out objectives
for what results an organization aims to accomplish andby what ultimate deadline. Targets are similar but typicallyhave a numerical value assigned, are often more specificand concrete, provide the steps needed to accomplish
a goal, and hence are aligned with the intended
outcomes and deadlines of larger goals. For example, anorganization may set a goal to increase the proportion of
their facilities upgraded against extreme heat. Climaterelated targets supporting that goal may specify that 30%
of facilities be upgraded by 2020 and 50% by 2030. As
individuals and teams within the organization reach theirtargets, the organization makes progress toward goals.
In setting climate-related targets, an organization needs
to consider its overall climate ambition and climate
strategy in light of:• where the organization currently is;• where it is going; and• how it will get there.

1. P
 RINCIPLES FOR SETTING
CLIMATE-RELATED TARGETS
Organizations should set climate-related targets basedon the following principles:
Based on recognized metrics. Climate-related targets
should be based on a set of recognized metrics, including
cross-industry, climate-related metrics, sector-specificmetrics, and organization-specific metrics.
Quantified and granular. Climate-related targets should
be quantified, where possible, especially for metrics thatare fully in the organization’s control, such as amountof investment in physical risk reduction. Climate-related
targets should also be granular enough to enable
tracking. Table D1 provides illustrative examples ofquantitative, granular targets across all cross-industry,
climate-related metrics.
Designed in consideration of an organization’s
strategy and forecasting, and informed notably by
scenario analysis and climate science. Climate-related
targets should be aligned with, and supportive of, anorganization’s strategy and strategic goals, and informedby company forecasting and climate science (see Box D2).
Organizations should consider providing a description of
how climate scenario analysis influenced the determinationof targets and broader climate strategy. For GHG reduction
targets, organizations should specify which temperature
pathway their target is expected to align to. Organizations
should consider summarizing the role of scenario analysis
in developing climate-related targets and testing theirresilience under various outcomes (e.g., choosing businessrelevant time horizons, testing achievability, determining
contribution to business resilience).
Clearly specified over time.62 Climate-related targets
should be defined clearly over time and specify:• Baseline: Clear definition of baseline time period
against which progress will be tracked with a consistentbase year across targets;• Time horizon: Defined time horizon by which targets
are intended to be achieved; should be consistentacross targets and, if feasible, consistent with key dates
tracked by climate-related organizations or regulators63(see Figure D1); and62 his principle is adapted from SBTi’s Criteria and Recommendations for Financial Institutions Section 2 and SBTi’s Science-Based Target Setting Manual, Version 4.1. In its targetT
setting manual, SBTi recommends that “Companies should set a target that covers a minimum of 5 years and a maximum of 15 years from the date the target is submitted forapproval. It is also recommended to set long-term targets beyond this interval and set interim milestones at five-year intervals” (p. 30).

63

 030 and 2050 have become key target dates following the publication of the Special Report on Global Warming of 1.5°C Summary for Policymakers by the IPCC. This report2
noted that in order to limit global warming to 1.5°C “global net human-caused emissions of carbon dioxide (CO2) would need to fall by about 45 percent from 2010 levels by
2030, reaching ‘net zero’ around 2050.” For example, the Net-Zero Banking Alliance, announced April 2021, requires members to “Within 18 months of joining, set 2030
targets (or sooner) and a 2050 target, with intermediary targets to be set every 5 years from 2030 onwards” (original emphasis).

40

The Task Force on Climate-related Financial Disclosures• Interim targets: Any mid-term and long-term targets
should have interim targets at appropriate, granularintervals (e.g., 5–10 years) covering the full mid-termor long-term target time horizon.

Box D1
Defining Key Terms•	An interim target is a short-term milestone between theorganization’s mid- or long-term target and current period.

Reviewed and updated, when appropriate.
Organizations should have a clear process for reviewing
climate-related targets, at least every five years, andupdating if necessary. Considerations when determining
whether or not to adjust targets may include changes toan organization’s climate ambition or climate strategy,
as well as any developments related to progressagainst targets (e.g., either outpacing previously
set target trajectory or providing transparency onunderperformance).
Reported annually. Progress against climate-related
targets should be reported annually.

Box D2
Role of Scenario Analysis in Setting Achievable Climate-Related Targets
Excerpt from 2020 Scenario Analysis Guidance for Non-Financial Companies, pp. 15–16“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 apreferred future...For normative scenarios, scenario analysis
starts with a preferred or desired future outcome andthen back-casts plausible pathways from the preferred
future to the present in order to inform decisions on whatis needed to achieve that preferred future. Examples ofnormative climate-related scenarios are those targeting
net-zero emissions in 2050. Normative scenarios are typicallyused for assessment and setting of specific targets andimplementation plans, rather than assessment of climaterelated risks and uncertainties.

Exploratory versus Normative Scenarios
Exploratory Scenarios
Future 1

Present

Future 2

Future 3

Exploratory scenarios describe a diverse set of plausible futurestates. These scenarios are then used to assess potential
climate-related risks and uncertainties and test the resiliencyof various strategies to a wide range of future conditions.

Different pathways leading
to different plausible futures

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

Normative Scenarios
Preferred
FuturePresent

Future 2

Future 3

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

41

The Task Force on Climate-related Financial Disclosures

Figure D1

Disclosing Business-Relevant Time Horizons
As stated in the 2017 TCFD annex, “The Task Force is not specifying time frames for short, medium, and long term given thatthe timing of climate-related financial impacts on business will vary. Instead, the Task Force recommends preparer define timeframes according to the life of their assets, the profile of the climate-related risk they face, and the sectors and geographies inwhich they operate” (p. 4).
The 2020 Scenario Guidance provided 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 thesame manner.

Financial 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: 2020 TCFD Guidance on Scenario Analysis for Non-Financial Companies, Figure E2

42

The Task Force on Climate-related Financial Disclosures

Table D1

Illustrative, Quantified Targets
Cross-Industry, Climate-Related Metrics

Quantified, Climate-Related Targets (Illustrative)

GHG emissions (Absolute Scope 1, Scope 2, and relevant,material categories of Scope 3 emissions, as well ascarbon intensity)• Reduce net Scope 1, 2, and 3 emissions to zero by 2050, withan interim target to cut emissions by 70% relative
to a 2015 baseline by 2035

Carbon price(s) (external and shadow/internal)• Increase shadow carbon price to $150 by 2030 to reflectpotential changes in policy• Not applicable for external carbon price

Proportion of assets and/or operating, investing, or financing
activities materially exposed to physical risks, based on key
categories of commonly accepted risks• Reduce percentage of asset value exposed to acute andchronic physical climate-related risks to 50% by 2050
• Ensure at least 60% of flood-exposed assets have risk
mitigation in place in line with the 2060 projected 100-year
floodplain

Proportion of assets and/or operating, investing,or financing activities materially exposed to transition risks,
based on key categories of commonly accepted risks• Reduce percentage of asset value exposed to transition risks
by 30% by 2030, relative to a 2019 baseline

Proportion of assets and/or operating, investing, or financing
activities aligned toward climate-related opportunities, basedon key categories of commonly accepted opportunities• Increase net installed renewable capacity so thatit comprises 85% of total capacity by 2035

Amount of senior management remuneration impacted
by climate considerations• Increase amount of senior management remuneration
impacted by climate considerations to 50% by 2025

Amount of expenditure or capital investment deployed toward
climate risks and opportunities• Invest at least 25% of annual capital expenditure
into renewable energy• Lend at least 10% of portfolio to projects focused primarily on
physical climate-related risk mitigation

43

The Task Force on Climate-related Financial Disclosuresappropriately thought of as part of the organizations
strategy but can be useful for describing what the
management of risk and pursuit of climate-related
opportunities might mean for the business and provide
the context for specific targets.

2. COMMUNICATING AND DISCLOSING
CLIMATE-RELATED TARGETS
Organizations should disclose their key climate-related
targets in their strategy and supporting operationaland financial plans as well as annual progress against
those targets in order to improve transparency andcommunication with market participants. Consistent
disclosure over time allows organizations to see how
they compare to their peers and allow for appropriate
adjustment. For example, Figure D2 shows current
progress against long-term GHG targets for select oil
and gas companies and shows the importance ofinterim targets for promoting transparency andenhancing credibility.

In addition to climate-related targets, which are disclosed
externally, there are some targets that are primarily usefulfor managing internal processes and are not intended
for disclosure to external stakeholders. For example, abusiness line may find it useful to develop more detailed
climate-related targets to enable tracking progress at amore granular level and aligning internal resources.
In considering whether particular climate-related targets
constitute confidential business information, a company
should carefully assess the case for not disclosing aparticular target. In other words, a company should not
default to business confidentiality as a reason foravoiding disclosure. In determining the appropriate
level of disclosure, organizations, as a matter ofprinciple, should look to disclose more rather thanless so that disclosures may be clearly understoodand sufficiently comprehensive for users. However, if acompany determines a particular climate-related target isconfidential, the relevant information may be provided inbroader terms that still convey useful information about
the organization’s plans.64

f FRANCESCA GIACCO at BLOOMBERG/ 120 PARK.

As countries, non-financial companies, and financial
institutions set net-zero targets, it is particularly
important for disclosures to incorporate GHG targets
based on the target-setting principles described
previously in order to assess the achievability andcredibility of organizations’ net-zero ambition. Figure
D3 provides a stylized example of implementation ofprinciples for setting a net-zero target.

mparable, forwardment

g as the risks ofOrganizations
climate changeshould
becomedescribe
apparentthe
andqualitative
more companies
goals acrossthattargets. More than
1,050 companies
have set targets
Science andBasedTargets
as ofencompassclimate-related
reflect
longerals to reduce greenhouse gas emissions in alignment with the Paris agreement.
term changes to an organization’s business or expected
1,100 companies committed to net zero by mid-century at the latest.
direction of travel. These qualitative goals are morer high-emission businesses and companies exposed to the fossil economy. For
r compliance with the Paris Agreement consumes substantially less oil – andate action remains limited. It also faces potentially costly environmental regulation.

8 out of 39

here are little useful data, as adoption of the Taskforce on Climate-related
ations remains Figure
limited. D2
Most data are historical and qualitative or hard to compare.
paque: it tends to rest on analyst opinion, not a clear, data-driven approach.

Oil and gas companies
with some form of CO2
neutral target, according
to BI Carbon

Illustrative Comparison of Progress Against Long-Term Targets

nt. While being a useful indicator of companies’ transition risk, the data aregas company will still face substantial transition risk.

ut hard to compare. Oil and gas
on targets, and some leaders have begun
t-zero targets are challenging to compare
es, special exclusions, base years andiness model transition risk. Even
may have radically different exposures tos model and competitive positioning.

be compared. These are increasingly
vary substantially in nature, meaning they
comparison of strategy resilience in themy.

ted. Many oil and gas companies do notansition strategies such as renewable
eir strategies, it is often qualitative or non-

Scope 1 and 2 net-zero targets for select oil & gas companies

MtCO2e90

Current progress

60
30

0
2010 2015 2020 2025 2030 2035 2040 2045 2050
Shell

TOTAL

BP

Eni

RepsolSource: BloombergNEF, Bloomberg Terminal, company reports

Source: BloombergNEF, BNEF Oil and Gas Business
Model
Transition
Scores,
December
2020
Note:
Chart
is forscope
1 and 218,emissions
only.

Data is from December 2020 and may have been subsequently updated by the organizations. Chart is for Scope 1 and 2 emissions only. In the absence on publicly disclosed
interim milestones, a linear extrapolation was created between baseline and target date.

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

44

The Task Force on Climate-related Financial Disclosures

Figure D3

Example of Implementation of Principles
for Setting Climate-Related Targets
Example climate ambition: Our firm commits to reducing net scope 1 and 2
emissions — as defined by the GHG Protocol — to zero by 2050, with an interim
target to cut scope 1 and 2 emissions by 50% relative to a 2015 baseline by 2030.
We are working with suppliers to reduce scope 3 emissions.

Clearly articulated climate ambition,scope and extent of emissions
covered, methodology, baseline,
and an interim target.

Current Metrics
Historical Metrics

Based on recognized metrics

Forward-Looking Information

CO2-equivalent emissions (tonnes)

Baseline

-20%
-100%
-50%

-70%
-80%
-90%

2000

Quantified target

2005

2010

2015

2020

2025

2030

2035

2040

Interim targets

2050

Historical data
Company target emissions path
Emissions under current policies scenario
Emissions under delayed 2°C scenario
Emissions under immediate 2°C scenario

Designed in consideration of anorganization’s strategy and forecastingand informed notably by scenario
analysis and climate science

Emissions under 1.5°C scenario

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

45

The Task Force on Climate-related Financial Disclosures

3. PROPOSED UPDATES TO GUIDANCEFOR ALL SECTORSThe proposed updates to Guidance for All Sectors forrecommended disclosure Metrics and Targets c) will alignthe current language with the principles for setting climaterelated targets described previously, in particular clarifying
the expectation that targets should be quantified and thatmid- and long-term targets should include interim targets.

Box D3
Summary of Proposed Update
TCFD proposes updating Guidance for All Sectors forrecommended disclosure Metrics and Targets c) to alignit with the principles articulated previously. See Appendix 1:
Proposed Changes to Guidance and Supplemental Guidancefor proposed wording changes.

46

E.
Climate-Related Transition Plans

The Task Force on Climate-related Financial Disclosures

E. Climate-Related Transition Plans
An organization’s strategy to address its climate-relatedrisks and opportunities often includes at least twocomponents: (1) a transition component that lays out
how an organization aims to minimize risks and increase
opportunities as the world transitions toward a lowcarbon economy and (2) an adaptation component thatlays out how an organization aims to minimize risks andcapture opportunities associated with physical climatechanges faced by the organization (see Figure E1).
Both the transition component and adaptation component
form part of the climate-related planning process thatan organization undertakes to develop a strategy thatwill help it reduce its climate-related risks and increase
its climate-related opportunities.65 This section describes
how organizations should further articulate their existing
strategy to highlight aspects of their transition plan.
Further guidance on adaptation planning is not includedin this draft but is noted in the consultation.

An organization’s transition plan:• provides a view of how risks will be reduced andopportunities captured as the company, and its
business environment, transitions, allowing users
to assess likely transmission of risks;• is an integral input with which market participants canappropriately assess and price climate-related risks
and opportunities and understand concentrationsof carbon-related assets over time; and• provides comparability across organizations to allow
regulators to assess systemic risks.
As mentioned in Section B. Introduction, a transition
plan is an aspect of an organization’s overall businessstrategy that lays out how an organization aims tominimize climate-related risks and increase opportunities

Figure E1

Relationship Between Business Strategy, Climate Strategy,
and Climate-Related Planning
Overall Business Strategy

Transition
Plan

Adaptation
Plan

Climate Strategy

Focus of thissectionClimate-related Planning65

In the context of this guidance, the use of terms such as “transition plan” and “climate strategy” are not meant to imply a separate set of strategies
or plans apart from an organization’s overall strategy, but rather important components of that overall strategy.

48

The Task Force on Climate-related Financial Disclosures

as the world transitions toward a low-carbon economy,
including by reducing emissions of its own balance sheet
and that of its value chain.
Transition plans help an organization deliver on its climaterelated strategy and conveys how it plans to achieve its
climate-related targets. Organizations can set a number ofclimate-related targets that help align the organization’s
strategy with a transition to a low-carbon economy(see Box E1). For instance, some organizations, such as
those in high-emitting sectors, may choose to focus their
reductions on Scope 1 and Scope 2 emissions; others,
such as financial institutions or auto manufacturers, maychoose to spend more time reducing Scope 3 emissions. In
addition to efforts to meet reduction targets, organizations
can articulate how they aim to reduce their risks andincrease their opportunities in a low-carbon world.
A specific type of transition planning that has gained
attention recently focuses on organizations aiming todeliver on a net-zero target. Attention around net-zeroplanning began primarily in response to the IPCC’s Special
Report on Global Warming of 1.5°C released in October
2018, which found:66“In model pathways with no or limited overshoot of
1.5°C, global net anthropogenic CO2 emissions decline
by about 45% from 2010 levels by 2030 (40–60%
interquartile range), reaching net zero around 2050
(2045–2055 interquartile range)” (emphasis added).

BoxE1
Examples of Different Typesof Climate-Related Targets
The commitments
Boxdriving
heighttransition
spacer plans may vary between
companies and may be determined in part, or in whole, byregulatory or industry requirements. These targets should
specify which emission scopes are included.
•	Net-zero target. According to the IPCC, in order to keep
warming to 1.5°C, emissions must reach “net-zero” by 2050.
The “net” in net-zero means any residual emissions fromhard-to-abate industries need to be removed from theatmosphere through technology or nature-based solutions.
•	Carbon-neutral target. Carbon-neutral means thatwhile some emissions are still being generated by anorganization, these emissions are being offset somewhere
else making the overall net emissions zero.
•	Zero-carbon target. Zero-carbon means that no carbon
emissions are being produced from a product/service(e.g., zero-carbon electricity could be provided by a 100%
renewable energy supplier).
•	Paris-aligned target. Paris-aligned means a commitment
in line with the Paris Agreement goal to hold the increasein the global average temperature to well below 2°C
above pre-industrial levels and pursue efforts to limit thetemperature increase to 1.5°C.
As noted in Section C. Climate-Related Metrics and Financial
Impacts, portfolio alignment metrics are important tools
for financial institutions to measure, manage, and disclosetransition risk and opportunity. Current and forwardlooking estimates of portfolio alignment supports financial
institutions in measuring progress against their statedclimate targets.

The report highlighted that the impact of 2°C of warming
would be significantly worse than 1.5°C and brought
renewed urgency to the effort to limit the global
temperature increase to 1.5°C. In turn, the report
has shifted the language used in the international
dialogue on climate change. Today, there is less focus
on the carbon budget that is consistent with the Paris
Agreement goals, and more focus on achieving net-zeroemissions by 2050, in keeping with the IPCC modelingof how to limit warming to 1.5°C.67

the United Nations Framework Convention on Climate
Change (UNFCCC) announced the launch of the Race toZero campaign to build momentum toward net-zero GHG
emissions by midcentury in the run up to COP26.71

Since the publication of the IPCC special report, the conceptof net-zero targets has entered mainstream corporate andpolitical debate, with many leading companies,68 financial
institutions,69 and a growing number of governments70
setting net-zero targets for midcentury. In June 2020,

A report released in March 2021 by the Energy andClimate Intelligence Unit and Oxford Net Zero foundthat “61% of countries, 9% of states & regions in thelargest emitting countries and 13% of cities over 500k
in population have now committed to net zero. Of the66

IPCC, Special Report: Global Warming of 1.5°C, October 2018.

67

IPCC, Headline Statements from the Summary for Policymakers, IPCC Special Report on Global Warming of 1.5°C, October 2018.

68

 ee, for example, the UN-convened Business Ambition for 1.5°C, an initiative that commits corporate signatories to a 1.5°C target through the Science
S
Based Targets initiative. As of June 5, 2020, 237 companies with a combined market capitalization of over $3.6trn have committed to the Business
Ambition for 1.5°C.

69

See, for example, the Glasgow Financial Alliance for Net Zero and CDP, The Time to Green Finance, 2020, p. 22.

70

See, for example, commitments by the EU, China, New Zealand, and United States.

71See https://unfccc.int/news/cities-regions-and-businesses-race-to-zero-emissions.

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The Task Force on Climate-related Financial Disclosures

world’s 2,000 largest public companies, at least one-fifth(21%) now have net zero commitments, representing
annual sales of nearly $14 trillion.” 72
In addition, CA100+ was launched in December 2017at the One Planet Summit in Paris and is an investor
initiative designed to ensure that the world’s largest
GHG emitters align their business models with the Paris
Agreement. CA100+ now counts 575 investors globally
among its members with more than $54 trillion in assets
under management (AUM).73 In March 2021, CA100+ and
the Transition Pathway Initiative released the first Net Zero
Company Benchmark to assess the transition of carbonintensive businesses.
In April 2021, the UN launched GFANZ, an industry-led
alliance that brings together over 160 firms, together
responsible for assets in excess of $70 trillion, from theleading net-zero initiatives across the financial system toaccelerate the transition to net-zero emissions by 2050,
at the latest. GFANZ comprises the Net-Zero Banking
Alliance, Net-Zero Asset Owner Alliance, and Net Zero
Asset Managers Initiative and will soon be joined by the
Net-Zero Insurance Alliance.

1. P
 RINCIPLES FOR DISCLOSING
TRANSITION PLANS
A number of organizations have released guidanceon recommended items to include as part of anorganization’s transition planning (see Table E1). The
TCFD’s goal in describing these various approaches is to
identify the key principles emerging from these initiatives.
In light of these efforts, the TCFD is proposing thefollowing principles for disclosing a transition plan:
Disclosed as part of the broader organization
strategy. Transition plans should be part of and alignedwith an organization’s broader strategy to address
climate-related risks and opportunities. The climate
components of an organization’s strategy are part of andaligned with the organization’s overall business strategy.
Anchored in quantitative elements, including climaterelated metrics and targets. Transition plans should
be designed in consideration of, and in order to, achievetargets. Progress should be regularly tracked against
these targets as well as any other metrics. The transition
plans should be based in climate science and consistent
with a transition to a low-carbon economy.
Approved and overseen by the Board. The transition
plan should be approved by the highest executive level
and appropriate committee of the Board or the full
Board. Transition plans should be subject to regular
oversight by the Board and senior management with
relevant climate expertise.
Actionable and linked to specific initiatives. The
transition plan should articulate specific actions theorganization will take that are based in science andprovide steps for the organization to effectively executethe transition plan, including near-term initiatives thatallow for accountability. Initiatives should specify how
the organization plans to decrease climate-related risks
and increase climate-related opportunities. For example,
the aspects of an organization’s strategy that are related
to transition plans may articulate how the organizationplans to reduce Scope 1 GHG emissions by investing inemission-reducing technology and processes, to reduce
its Scope 3 emissions by moving into new business lines,
or to reduce its transition risk by increasing its shadow
carbon price over time.
Detailed and verifiable. Transition plan disclosures
should comprise sufficient detail to enable verification
by external stakeholders.

72Black, Cullen, Fay, Hale, Lang, Mahmood, and Smith, Taking Stock: A global assessment of net zero targets, 2021.

73

Climate Action 100+.

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The Task Force on Climate-related Financial Disclosures

Table E1

Sample of Recommendations on Transition Plans
ClimatePrototype74

CA100+75

UN Race to Zero77

TPI76

SBTi80GFANZ 81

IIGCC 78

Investor
Agenda79

Aligned to TCFD reporting
Disclosed as partof the broader
organization strategy
Anchored in quantitative
elements, including climaterelated metrics and targets
Approved and overseenby the Board
Actionable and linked
to specific initiatives
Detailed and verifiable

2. COMMUNICATING AND DISCLOSING
TRANSITION ASPECTS OF STRATEGY
There are several elements around transition plans thatorganizations should consider disclosing as part of theirdisclosure related to the organization’s broader strategy.
The elements are shown here in reference to the TCFD
reporting framework in order to promote consistency
and comparability and highlight which aspects of the74

organization’s existing TCFD disclosures have specifictransition plan elements. The tables also show potentialalignment with the cross-industry, climate-related metrics
and climate-related financial impacts described in Section
C. Climate-Related Metrics and Financial Impacts.

CDP, CDSB, GRI, IIRC, and SASB, Reporting on enterprise value: Illustrated with a prototype climate-related financial disclosure standard, December 2020.

75

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

76

Transition Pathway Initiative (TPI), Methodology and Indicators Report, version 3.0, June 2019 and TPI Sectors Tool.

77

 he UN-Convened Race to Zero Campaign covers transition planning across non-financial and financial organizations. Non-financial organizations reportTusing SBTi, while financial organizations must be members of one of the GFANZ groups. See Interpretation Guide, Version 1.0, April 2021, for more details.

78

Institutional Investors Group on Climate Change (IIGCC), Net Zero Investment Framework, March 2021. Note: IIGCC are the Secretariat for both the Net Zero
Asset Managers Initiative and Paris Aligned Investment Initiative.

79

T he Investor Agenda, Investor Climate Action Plans (ICAPs): Expectations Ladder, May 20 2021.

80

 BTi, Science-Based Target Setting Manual, Version 4.1, April 2020; Foundations for Science-Based Net Zero Target Setting in the Corporate Sector, Version 1.0,
S
September 2020; and Financial Sector Science-Based Targets Guidance, Pilot Version, October 2020.

81

 FANZ comprises the NZ Banking Alliance, NZ Asset Managers Initiative, NZ Asset Owner Alliance, Paris Aligned Investment Initiative, and the to-be-launchedG
NZ Insurance Alliance. See example transition planning language from the Net-Zero Asset Owner Alliance, Inaugural 2025 Target Setting Protocol, March 2021.

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The Task Force on Climate-related Financial Disclosures

Table E2

Alignment of Transition Plan Elements with TCFD Pillars
Recommended Disclosure

Transition Plan Element (associated climate-related information)a) Describe the board’s
oversight of climate-relatedrisks and opportunities.

•	Approval: Transition plan and climate-related targets are approved by senior management and/or appropriate committee of the board as part of the organization’s strategy to address climaterelated risks and opportunities•	Oversight: Development and execution of transition plan is subject to the regular oversight of theorganization’s strategy by the board and senior management

Governance– Description of any assessment of organizational expertise and training providedb) Describe management’s
role in assessing andmanaging climate-relatedrisks and opportunities.

•	Accountability: Responsibility for execution of the transition plan elements of the organization’s
strategy is clearly assigned at a senior level. Accountable parties have adequate authority andaccess to resources to ensure effective implementation•	Incentives: Compensation, and other incentives, are aligned with goals of transition plan
– Progress against climate-related targets outlining amount of senior management remuneration
impacted by climate considerations•	Monitoring and reporting: Progress is monitored and regularly reported by accountable parties
to the board and senior management– Description of internal tracking and reporting process, cadence, and escalation protocols

Strategy•	Transparency: The company provides transparency around transition planning goals andperformance to external stakeholders, including financial aspects, performance against targets,and impacts on the company’s business and financial resultsa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

•	Alignment with climate ambition and climate strategy: Transition plan is integrated withthe organization’s high-level climate strategy and articulates how it helps to implement theorganization’s climate ambitionb) Describe the impact
of climate-related risks
and opportunities on theorganization’s businesses,
strategy, and financial
planning.

•	Description of prioritized opportunities: Transition plan describes how the organization intends
to maximize its prioritized climate opportunities as the world transitions to a low-carbon economy(e.g., which high-emitting activities/clients’ sectors to prioritize for emissions reduction)–D escription of how transition plan helps achieve company targets in defined time horizons– Description of alignment to a global temperature goal (e.g.,1.5°C alignment, any relevant regulatory
mandate and/or sectoral decarbonization strategies (e.g., Poseidon, CORSIA)•	Action plans: Organizations set short-term and medium-term tactical and operating action plans thatare aligned with, and support, the strategic elements in its transition planning– Overview of current and planned initiatives to reduce climate-related risks and increase climaterelated opportunities–A rticulation of, and progress against, targets outlining proportion of assets and/or operating,investing, or financing activities aligned toward climate-related opportunities, based on key
categories of commonly accepted opportunities• Financial plans: Transition plan clearly articulates investments and other financial implications in
supporting financial plans and budgets– Articulation of, and progress against, climate-related targets outlining amount of expenditure orcapital investment deployed toward climate risks and opportunities– Articulation of how expenditure or capital investment supports decarbonization strategy
Continued on next page52

Risk Management

Strategy

The Task Force on Climate-related Financial Disclosures

Recommended Disclosure

Transition Plan Element (associated climate-related information)c) Describe the resilience ofthe organization’s strategy,
taking into considerationdifferent climate-related
scenarios, including a 2°C or
lower scenario.

• Scenario analysis: The organization tests achievability of transition plan, and associated targets,
using multiple climate scenarios, including one aligned to 2°C or lowera) Describe theorganization’s processes for
identifying and assessing
climate-related risks.

• Description of risks faced in implementation: Transition plan identifies risks thatthe organization faces from a transition to a low-carbon economyb) Describe the organization’s
processes for managing
climate-related risks.

• Management of risks faced in implementation: Transition plan includes detailed action plans
for minimizing risks to a successful implementation of the transition planc) Describe how processes for
identifying, assessing, andmanaging climate-relatedrisks are integrated into theorganization’s overall risk
management.

• Link to risk management processes: Transition plan articulates how climate risks areincorporated into overall risk management, including who is accountable for reducing climaterelated risks throughout the transitiona) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with its
strategy and risk management
process.

• Metrics supporting transition: Transition plan describes metrics that will be monitored
throughout the transition to track progress against plans and targets– Forward-looking financial impacts under multiple scenarios (e.g., amount of investment, impact
of material climate-related risks or opportunities on financial performance, financial position)– This includes disclosure of cross-industry, climate-related metrics– Additionally, disclosure of any sector-specific or company-specific metrics supporting
communication and comparability• Methodology: Transition plan articulates methodology used to collect data and estimate metrics
related to transition planning

Metrics and Targets• Tracking: Metrics should be tracked and reported in a consistent and comparable manner, and be
calculated using a transparent and disclosed methodology to allow for examination of progressagainst the organization’s transition plan over timeb) Disclose Scope 1, Scope2, and, if appropriate, Scope
3 greenhouse gas (GHG)
emissions, and the relatedrisks.

• GHG emissions targets and coverage: Transition plan articulates emissions targets in line withprinciples for setting targets, and includes the type and scope of GHG emissions included as well
as extent of emissions across territories, time frames, or activities– For financial institutions, transition plan discloses the alignment of the portfolios andincorporation of forward-looking metrics into the management of processes• Source of GHG reductions: Transition plan is transparent about the extent to which GHG
reduction targets are to be met with direct Scope 1, 2, and 3 reductions relative to purchaseof carbon offsetsc) Describe the targets
used by the organization
to manage climate-relatedrisks and opportunities andperformance against targets.

• Consistent with principles. Targets are:– based on recognized metrics;– quantified and granular;– designed in consideration of an organization’s strategy and forecasting, and informed
notably by scenario analysis and climate science;– clearly specified over time, including clear baselines, time horizons, and interim targets;– reviewed and updated, when appropriate; and– reported annually.
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The Task Force on Climate-related Financial Disclosures

3. PROPOSED UPDATES TO GUIDANCEFOR ALL SECTORSIn line with the Task Force’s remit, the Task Force believes
that an organization should disclose a transition plan aspart of its existing disclosure under the recommended
disclosure Strategy c), if the organization has identified
material transition risk, including:82
1. if an organization operates in a jurisdiction with anemissions reduction commitment;

Box E2
Summary of Proposed Update
TCFD proposes updating Guidance for All Sectors forrecommended disclosure Strategy c) to clarify which typesof companies should disclose or should consider disclosing
important elements of their transition plan as part oftheir existing climate strategy. See Appendix 1: Proposed
Changes to Guidance and Supplemental Guidance for
proposed wording changes.

2. if an organization has made an emissions reduction
commitment (see Box E1 for examples); or
3. if an organization has to meet emissions reduction
expectations from stakeholders, especially investors
and lenders.
In addition, all other organizations that have set climaterelated targets should consider disclosing their transition
plan if their business activity generates significant
emissions (Scope 1, 2, or 3) or is materially dependent
on carbon-related assets.

82

 ote: Addressing material physical risks are also an important part of an organization’s strategy and are covered under the existing language
Non Guidance for All Sectors Strategy recommended disclosures.

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Appendix 1:
Proposed Changes
to Guidance and Supplemental
Guidance

The Task Force on Climate-related Financial Disclosures

Appendix 1: Proposed Changes to Guidance
and Supplemental Guidance
The TCFD is proposing releasing updated Guidance for
all Sectors and Supplemental Guidance to align withthe changes discussed in Sections C. Climate-Related
Metrics and Financial Impacts, D. Climate-Related
Targets, and E. Climate-Related Transition Plans of thisdocument. For ease of review, these proposed changes
are presented as redline changes to the 2017 TCFD Annex
and are concentrated in the annex’s Metrics and Targets
and Strategy subsections of Sections C. Guidance for
All Sectors, D. Supplemental Guidance for the Financial
Sector, and E. Supplemental Guidance for Non-Financial
Groups (see Figure A2-1), with some additional proposedchanges in Section A. Introduction to align with theproposed updates in the other sections.

Readers are invited to comment to these proposed
updates by referring to the consultation questions andsubmitting comments through the public consultation.

The TCFD is not proposing any changes to the fourrecommendations or to the eleven recommended
disclosures across any of the four pillars, nor is it
proposing changes to the guidance provided on
governance or risk management.

Section C.1 Governance
There are no proposed changes to this section.

Please note that figures and tables within sections that
follow refer to their numbering within the 2017 TCFD
annex. Footnotes are provided within the main bodyto avoid confusion with footnote text and numbering
throughout this document.

PROPOSED CHANGES TO 2017 TCFD ANNEXSECTION C. GUIDANCE FOR ALL SECTORS

Figure A1-1

Recommendations and Guidance
A transition plan should be positioned for the low-carbon economy, financed for the low-carbon economy, and be governed
for the low-carbon economy. It should integrate climate issues into decision-making and be flexible enough to adapt.

Recommendations

Guidance for
All Sectors
Recommended
Disclosures
Supplemental
Guidance for
Certain Sectors

Recommendations
Four widely adoptable recommendations tied to: governance,
strategy, risk management, and metrics and targets
Recommended Disclosures
Specific recommended disclosures organizations should include
in their financial filings to provide decision-useful information
Guidance for All Sectors
Guidance providing context and suggestions for implementing therecommended disclosures for all organizations
Supplemental Guidance for Certain Sectors
Guidance that highlights important considerations for certain sectors
and provides a fuller picture of potential climate-related financial
impacts in those sectors
Supplemental guidance is provided for the financial sector and fornon-financial sectors potentially most affected by climate change

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The Task Force on Climate-related Financial Disclosures

Section C.2 Strategy
TCFD proposes updating the guidance on Strategy recommended disclosures in line with the changes in red.

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.
Recommended Disclosure

Guidance for All Sectorsa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

Organizations should provide the following information:• a description of what they consider to be the relevant short-, medium-, and long-term time horizons,
taking into consideration the useful life of the organization’s assets or infrastructure and the fact thatclimate-related issues often manifest themselves over the medium and longer terms,• a description of the specific climate-related issues potentially arising in each time horizon (short,medium, and long term) that could have a material financial impact on the organization, and• a description of the process(es) used to determine which risks and opportunities could have a material
financial impact on the organization.
Organizations should consider providing a description of their risks and opportunities by sector and/or
geography, as appropriate. In describing climate-related issues, organizations should refer to Tables A1
and A2 (pp. [to be updated]).

b) Describe the impact
of climate-related risks
and opportunities on theorganization’s businesses,
strategy, and financial
planning.

Building on recommended disclosure (a), organizations should discuss how identified climate-related
issues have affected their businesses, strategy, and financial planning.
Organizations should consider including the impact on their businesses and strategy in the following areas:• Products and services• Supply chain and/or value chain• Adaptation and mitigation activities• Investment in research and development• Operations (including types of operations and location of facilities)
Organizations should describe how climate-related issues serve as an input to their financial planning
process, the time period(s) used, and how these risks and opportunities are prioritized. Organizations’disclosures should reflect a holistic picture of the interdependencies among the factors that affect theirability to create value over time. Organizations should also consider including in their disclosures theimpact on financial planning in the following areas:• Operating costs and revenues• Capital expenditures and capital allocation• Acquisitions or divestments• Access to capital
If climate-related scenarios were used to inform the organization’s strategy and financial planning,such scenarios should be described.
Organizations should disclose climate-related financial impacts, estimated in consideration of climaterelated metrics, among other factors, and reported for the historical and current period:•	impact of any material climate-related risks or opportunities on financial performance (e.g., cost,profitability, operating cash flow, impairment)•	impact of any material climate-related risks or opportunities on financial position (e.g., assets and liabilities)

Continued on next page57

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
The
Task Force
Climate-related
Financialstrategy,andon
financialplanning
where Disclosures
such information is material.
Recommended Disclosure

Guidance for All Sectorsc) Describe the resilience ofthe organization’s strategy,
taking into considerationdifferent climate-related
scenarios, including a 2°C or
lower scenario.

Organizations should describe how resilient their strategies are to climate-related risks andopportunities, taking into consideration a transition to a lower-carbon economy consistent with a 2°C
or lower scenario and, where relevant to the organization, scenarios consistent with increased physicalclimate-related risks.
Organizations should disclose climate-related financial impacts, estimated in consideration of climaterelated metrics, among other factors, and reported for the forward-looking period:New footnote•	impact of any material climate-related risks or opportunities on financial performance(e.g., cost, profitability, operating cash flow, impairment)•	impact of any material climate-related risks or opportunities on financial position(e.g., assets and liabilities)
Transition planning is emerging as an important component of a company’s overall strategy to address
climate-related risks and opportunities in the context of a transition to a low-carbon economy consistent
with a 2°C or lower scenario.
An organization should release a transition plan component of its strategy if an organization determines
it has material climate-related transition risks, including if it operates in a jurisdiction with an emissions
reduction commitment, has made an emissions reduction commitment, or seeks to meet emissions
reduction expectations from financial market participants.
All other organizations should consider disclosing a transition plan if their business activity includes
significant emissions (Scope 1, 2, or 3) or is materially dependent on carbon-related assets.
Transition plans should be disclosed as part of an organization’s broader climate-related strategy,
be anchored in quantitative elements, including climate-related metrics and targets, be approved andoverseen by the board, be actionable and linked to specific initiatives, and be detailed and verifiable
to allow for verification of progress and achievement of intended outcomes.
Organizations should consider discussing:•	where they believe their strategies, including transition plans, may be affected by climate-related risks
and opportunities;•	how their strategies, including transition plans, might change to address such potential risks andopportunities; and• the climate-related scenarios and associated time horizon(s) considered.
Refer to Section D in the Task Force’s report and the 2020 Guidance on Scenario Analysis for NonFinancial Companies for information on applying scenarios to forward-looking analysis.
New footnote: Forward-looking information, particularly information related to the organization’s
medium- and long-term time horizons, may be more appropriate to report as ranges or numbers tied to
specific assumptions about the future state of the world, such as those informed by scenario analysis.

Section C.3 Risk Management
There are no proposed changes to this section.

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The Task Force on Climate-related Financial Disclosures

Section C.4 Metrics and Targets
TCFD proposes updating the guidance on Metrics and Targets recommended disclosures in line with the changes in red.

Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Guidance for All Sectorsa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with its
strategy and risk management
process.

Organizations should provide the key metrics used to measure and manage climate-related risks andopportunities, as described in Tables A1 and A2 (pp. [to be updated]). These metrics should be decisionuseful, understandable, verifiable, objective, trackable over time and consistent, and aligned to the other
TCFD pillars.
At a minimum, organizations should disclose the cross-industry, climate-related metrics noted below anddescribed in more detail in Table 2:•	GHG emissions (Absolute Scope 1, Scope 2, and relevant, material categories of Scope 3 emissions, aswell as carbon intensity)—covered in more detail in guidance for recommended disclosure b)•	carbon price(s) (external and shadow/internal)•	proportion of assets and/or operating, investing, or financing activities materially exposed to physicalrisks, based on key categories of commonly accepted risksNew footnote 1•	proportion of assets and/or operating, investing, or financing activities materially exposed to transition
risks, based on key categories of commonly accepted risksNew footnote 1•	proportion of assets and/or operating, investing, or financing activities aligned toward climate-related
opportunities, based on key categories of commonly accepted opportunitiesNew footnote 2•	amount of senior management remuneration impacted by climate considerations•	amount of expenditure or capital investment deployed toward climate risks and opportunities
Organizations should consider including metrics on climate-related risks associated with water, energy,
land use, and waste management where relevant and applicable.
Where climate-related issues are material, organizations should consider describing whether and how
related performance metrics are incorporated into remuneration policies.
Where relevant, Organizations should estimate and disclose provide their internal carbon prices as well
as climate-related opportunity metrics such as revenue from products and services designed for a lowercarbon economy.
Metrics should be provided for historical, current, and forward-looking periods, if relevant, to allow
for trend analysis. In addition, where not apparent, organizations should provide a description of themethodologies used to calculate or estimate climate-related metrics.
New footnote 1: Table 1 (p. 10) of the 2017 Final Report and Tables D2 and D3 (pp. 13–14) of the 2020
Guidance on Risk Management Integration and Disclosure provide examples of “key categories of commonly
accepted risk.”
New footnote 2: Table 2 (p. 11) of the 2017 Final Report provides examples of “key categories ofcommonly accepted opportunities,” including product changes.

b) Disclose Scope 1, Scope2, and, if appropriate, Scope
3 greenhouse gas (GHG)
emissions, and the relatedrisks.

Organizations should provide disclose their absolute Scope 1 and Scope 2 GHG emissions and, if
appropriate, Scope 3 GHG emissions and the related risks.10, New footnote Disclosures should include
methodologies and emission factors used.
GHG emissions should be calculated in line with the GHG Protocol methodology to allow for aggregationand comparability across organizations and jurisdictions.11 As appropriate, organizations should consider
providing related, generally accepted industry-specific GHG efficiency ratios.12
GHG emissions and associated metrics should be provided for historical periods to allow fortrend analysis. In addition, where not apparent, organizations should provide a description of themethodologies used to calculate or estimate the metrics.
Continued on next page59

Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
The
Task such
Forceinformation
on Climate-related
Financial Disclosureswhere
is material.
Recommended Disclosure

Guidance for All Sectors
Footnote 10: Emissions are a prime driver of rising global temperatures and, as such, are a key focal
point of policy, regulatory, market, and technology responses to limit climate change. As a result,organizations with significant emissions are likely to be impacted more significantly by transition risk
than other organizations. In addition, current or future constraints on emissions, either directly byemission restrictions or indirectly through carbon budgets, may impact organizations financially.
New footnote: TCFD has determined that data and methodologies have matured sufficiently such that
Scope 3 disclosure is appropriate for all sectors. Disclosure is particularly important for organizations forwhich Scope 3 emissions account for 40% or more of the total emissions of the organization or for which
Scope 3 emissions have been deemed a significant risk in their value chain.
Footnote 11: While challenges remain, the GHG Protocol methodology is the most widely recognized andused international standard for calculating GHG emissions. Organizations may use national reporting
methodologies if they are consistent with the GHG Protocol methodology.
Footnote 12: For industries with high energy consumption, metrics related to emission intensity areimportant to provide. For example, emissions per unit of economic output (e.g., unit of production,
number of employees, or value-added) is widely used.

c) Describe the targets
used by the organization
to manage climate-relatedrisks and opportunities andperformance against targets.

Organizations should disclose their climate-related targets, especially those based on the cross-industry,
climate-related metrics noted in recommended disclosure a). Organizations should consider targets suchas those related to GHG emissions, water usage, energy usage, etc., in line with anticipated regulatory
requirements or market constraints or other goals. Other goals may include efficiency or financial goals,
financial loss tolerances, avoided GHG emissions through the entire product life cycle, or net revenue
goals for products and services designed for a lower-carbon economy.
Targets should be quantified and granular enough to enable tracking and be informed by qualitativeor quantitative scenario analysis and company forecasting.
In describing their targets, organizations should consider including include the following:•	Unit: The unit of measurement, including whether the target is absolute or intensity based•	Time horizon: Defined time horizon by which targets are intended to be achieved; should be consistentacross targets and, if feasible, consistent with key dates tracked by climate-related organizations
or regulators New footnote•	Baseline: Clear definition of baseline time period against which progress will be tracked witha consistent base year across targets•	Interim targets: Any mid-term and long-term targets should have interim targets at appropriate,
granular intervals (e.g., 5–10 years) covering the full mid-term or long-term target time horizon.
•	time frames over which the target applies,•	base year from which progress is measured, and•	key performance indicators used to assess progress against targets.
Where not apparent, organizations should provide a description of the methodologies used to calculate
targets and measures.
Organizations should report targets annually and have a clear process for reviewing targets at least every
five years and updating when appropriate.
New footnote: 2030 and 2050 have become key target dates following the publication of the Special
Report on Global Warming of 1.5°C Summary for Policymakers by the Intergovernmental Panel on Climate
Change (IPCC). This report noted that in order to limit global warming to 1.5°C “global net human-caused
emissions of carbon dioxide (CO2) would need to fall by about 45 percent from 2010 levels by 2030,
reaching ‘net zero’ around 2050.”

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The proposed updated will include a new Table 2. All subsequent table numbers will be updated.
New Table 2

Climate-Related Information
Climate-RelatedInformation

Unit of Measure
New footnote

Rationale for Inclusion

GHG emissions (Absolute
Scope 1, Scope 2, andrelevant, material categories
of Scope 3 emissions, as wellas carbon intensity)

MT of CO2e

GHG emissions are the critical starting point for any discussion of cross-industry,
climate-related metrics and are a component to estimating many other climaterelated metrics used by both preparers and users. The absolute and intensity
level of emissions is indicative of an organization’s exposure and vulnerability tochanges in policies and technology aimed at a transition to a low-carbon economy.

Carbon price(s) (externaland shadow/internal)

Price in local
currency, per MT
of CO2eCarbon prices are an essential component for analyzing and assessing economic
impacts of carbon-related risks and opportunities, such as those affecting thevaluation of an organization’s key assets or potential changes in input or output
prices, and provides investors with an understanding of the reasonableness of a
key assumption in an organization’s risk and opportunity assessment.

Proportion of assets and/or operating, investing, or
financing activities materially
exposed to physical risks,
based on key categories ofcommonly accepted risks

Percentage

Disclosure of proportion of an organization’s assets (i.e., tangible and intangible
assets) and/or operating, investing, or financing activities (e.g., revenues, productmix, production) exposed to material climate-related physical risks allows
preparers and users to better understand, track, and estimate potential financial
exposure regarding such issues as impairment or stranding of assets, value of
assets and liabilities, and changes in cost of business interruptions.

Proportion of assets and/or operating, investing, or
financing activities materially
exposed to transition risks,
based on key categories ofcommonly accepted risks

Percentage

Disclosure of proportion of an organization’s assets (i.e., tangible and intangible
assets) and/or operating, investing, or financing activities (e.g., revenues, productmix, production) materially exposed to climate-related transition risks allows
preparers and users to better understand, track, and estimate potential exposure
regarding such issues as possible impairment or stranding of assets, value of
assets and liabilities, and change in demand for products or services.

Proportion of assets and/or operating, investing, or
financing activities aligned
toward climate-related
opportunities, based on
key categories of commonly
accepted opportunities

Percentage

Proportion of assets (i.e., tangible and intangible assets) and/or operating,investing, or financing activities (e.g., revenues, product mix, production) aligned
to climate opportunities of a given industry provides insight into the relative
position of organizations and allows users to understand likely transition
pathways and potential changes in revenue and profitability over time.

Amount of senior
management remuneration
impacted by climate
considerations

Percentage/amount in local
currency orweighting

Remuneration policies are important incentives for achieving an organization’s
goals and objectives and signal governance, oversight, and accountability for
managing climate-related issues.

Amount of expenditure orcapital investment deployed
toward climate risks andopportunities

Local currency

Expenditure, capital investment, or financing/lending for new technologies,
infrastructure, or products are needed to manage climate-related physical andtransition risks and opportunities. Expenditures or capital investment by non-financial
preparers or financing, lending, or underwriting by financial preparers provides anindication of the extent to which future earning capacity might be affected.

Climate-Related Metrics

Continued on next page

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Climate-RelatedInformation

Unit of Measure
New footnote

Rationale for Inclusion

Climate-related financial impact
Impact of any material
climate-related risks oropportunities on financial
performance (e.g., cost,profitability, operating cash
flow, impairment)

Local currency

Changes to income and cash flow statements or other appropriate financial
performance measures as a result of climate-related risks, opportunities,
initiatives, or actions provide insight into management priorities and strategic
efforts in anticipation of or response to an organization’s climate-related risks andopportunities.

Impact of any material
climate-related risks oropportunities on financial
position (e.g., assets andliabilities)

Local currency

Changes to balance sheet statement, or other appropriate financial position
measures, as a result of climate-related risks, opportunities, initiatives, or actions
provide insight into management priorities and strategic efforts in anticipation of or
response to an organization’s climate-related risks and opportunities.

New footnote: TCFD has noted the most common unit of measure. There are multiple ways to measure and disclose metrics, and different
jurisdictions or industries may follow different best practices. For example, some organizations reporting the amount of senior remuneration
impacted by climate considerations note a percentage of the executive’s pay, while others discuss weighting factors or the total amount ofcompensation that could be impacted. For proportion of assets materially exposed to physical risk, some organizations may choose to report
the number of assets exposed relative to the total number of assets, while others report the value of assets exposed relative to the total
value. The TCFD believes these differences in units of measure help provide organizations with flexibility and do not impact comparability as
long as units are clearly stated.

Section C.5 Alignment of Recommended Disclosures with Other Frameworks
There are no proposed changes to this section.

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PROPOSED CHANGES TO 2017 TCFD ANNEXSECTION D. SUPPLEMENTAL GUIDANCE FOR
THE FINANCIAL SECTOR
section will also be updated in line with the proposedchanges previously mentioned.

The following proposed updates focus only on
supplemental guidance specific to financial sector
institutions in the TCFD scope: banks, insurancecompanies, asset owners, and asset managers. The
Guidance for All Sectors that is provided within each

The proposed updates will revise Figure 8 to reflect
the updated guidance scope.

Original Figure 8

Supplemental Guidance for the Financial Sector
GovernanceIndustriesa)Strategy
b)

a)

b)

c)

Risk Management

Metrics
and Targets

a)

a)

b)

c)

b)

c)

Banks
Insurance Companies
Asset Owners
Asset Managers

Updated Figure 8

Supplemental Guidance for the Financial Sector
GovernanceIndustriesa)Strategy
b)

a)

b)

c)

Risk Management

Metrics
and Targets

a)

a)

b)

c)

b)

c)

Banks
Insurance Companies
Asset Owners
Asset Managers

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The Task Force on Climate-related Financial Disclosures

Section D.1 Banks
Proposed updates to the supplemental guidance are included in red. The proposed updates do not update
the Governance or Risk Management aspects of the Supplemental Guidance for Banks.

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.
Recommended Disclosure

Supplemental Guidance for Banksa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

As part to their disclosure of “proportion of assets and/or operating, investing, or financing activities
materially exposed to transition risk” described in Section C.4, recommended disclosure a), banks should
describe significant concentrations of credit, investment, and underwriting exposure to carbon-related
assets.14 Additionally, banks should consider disclosing their climate-related risks (transition and physical)
in their lending and other financial intermediary business activities.
Footnote 14: Recognizing that the term “carbon-related assets” is not well defined, the Task Forceencourages banks financial institutions to use a consistent definition to support comparability. For
purposes of disclosing information on significant concentrations of credit, investment, and underwriting
exposure to carbon-related assets under this framework, the Task Force suggests financial institutions
banks define carbon-related assets as those assets tied to the four non-financial groups identified by
the Task Force in its 2017 final recommendations. as those assets tied to the energy and utilities sectors
under the Global Industry Classification Standard, excluding water utilities and independent power andrenewable electricity producer industries.
(NOTE: This footnote is repeated on page 44 as footnote 34 and footnote 17 on page 26 of the 2017 TCFD
annex and is proposed to be similarly amended.)

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Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Supplemental Guidance for Banksa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with
its strategy and risk
management process.

As part to their disclosure of cross-industry, climate-related metrics described in Section C.4,
recommended disclosure a), banks should provide the metrics used to assess the impact of (transitionand physical) climate-related risks on their lending and other financial intermediary business activities
in the short, medium, and long term. Metrics provided may relate to credit exposure, equity and debt
holdings, or trading positions, broken down by:• Industry16• Geography• Credit quality (e.g., investment grade or non-investment grade, internal rating system)• Average tenor
Banks should also provide the amount and percentage of carbon-related assets relative to total assets aswell as the amount of lending and other financing connected with climate-related opportunities.17
Banks should measure and disclose the alignment of their portfolios consistent with a 2°C or lower
temperature pathway (e.g., Paris-aligned), and incorporate forward-looking alignment metrics into theirtarget-setting frameworks and management processes.New footnote
Footnote 16: Industry should be based on the Global Industry Classification Standard or nationalclassification systems aligned with financial filing requirements.
Footnote 17: Recognizing that the term carbon-related assets is not well defined, the Task Forceencourages banks financial institutions to use a consistent definition to support comparability. For
purposes of disclosing information on significant concentrations of credit, investment, and underwriting
exposure to carbon-related assets under this framework, the Task Force suggests financial institutions
banks define carbon-related assets as those assets tied to the four non-financial groups identified by
the Task Force in its 2017 final recommendations. as those assets tied to the energy and utilities sectors
under the Global Industry Classification Standard, excluding water utilities and independent power andrenewable electricity producer industries.
New footnote: Portfolio alignment tools are useful inputs to quantifying transition risk. Financial
institutions should use whichever portfolio alignment tool best suits their institutional context
and capabilities.

b) Disclose Scope 1,
Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG)
emissions, andthe related risks.

Banks should disclose the appropriate financed-emissions metric, based on the Partnership for Carbon
Accounting Financials’ (PCAF’s) methodology and weighted average carbon intensity (WACI), if relevant,or a comparable methodology, for their industry where data are available or can be reasonably
estimated. If a comparable methodology is used, the TCFD recommends the details of such methodology
be made publicly available. See Table 3A for financed-emissions metrics.
In addition, banks should consider providing other carbon-footprinting and exposure metrics they
believe are useful for decision-making along with a description of the methodology used. See Table 3Cfor other suggested common carbon footprinting and exposure metrics, including weighted averagecarbon intensity.

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Section D.2 Insurance Companies
Proposed updates to the Supplemental Guidance are included in red below. The proposed updates do not update
the Governance or Risk Management aspects of the Supplemental Guidance for Insurance Companies.

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.
Recommended Disclosure

Supplemental Guidance for Insurance Companiesa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

As part to their disclosure of “proportion of assets and/or operating, investing, or financing activities
materially exposed to transition risk” described in Section C.4, recommended disclosure a), insurers should
describe significant concentrations of exposure to carbon-related assets.New footnoteb) Describe the impact
of climate-related risks
and opportunities on theorganization’s businesses,
strategy, and financial
planning.

New footnote: Recognizing that the term “carbon-related assets” is not well defined, the Task Forceencourages financial institutions to use a consistent definition to support comparability. For purposes of
disclosing information on significant concentrations of credit, investment, and underwriting exposure tocarbon-related assets under this framework, the Task Force suggests financial institutions define carbonrelated assets as those assets tied to the four non-financial groups identified by the Task Force in its 2017
final recommendations.
Insurance companies should describe the potential impacts of climate-related risks and opportunities,
as well as provide supporting quantitative information where available, on their core businesses, products,
and services, including:•	information at the business division, sector, or geography levels;•	how the potential impacts influence client, cedent, or broker selection; and•	whether specific climate-related products or competencies are under development, such as insuranceof green infrastructure, specialty climate-related risk advisory services, and climate-related client
engagement.

c) Describe the resilience of theorganization’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower
scenario.

Insurance companies that perform climate-related scenario analysis on their underwriting activities should
provide the following information:•	description of the climate-related scenarios used, including the critical input parameters, assumptions
and considerations, and analytical choices. In addition to a 2°C scenario, insurance companies with
substantial exposure to weather-related perils should consider using a greater than 2°C scenario toaccount for physical effects of climate change and•	time frames used for the climate-related scenarios, including short-, medium-, and long-term milestones.

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Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Supplemental Guidance for Insurance Companiesa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with
its strategy and risk
management process.

As part to their disclosure of cross-industry, climate-related metrics described in Section C.4,
recommended disclosure c), insurance companies should provide aggregated risk exposure to weatherrelated catastrophes of their property business (i.e., annual aggregated expected losses from weatherrelated catastrophes) by relevant jurisdiction.
(Re)Insurance underwriters should incorporate forward-looking metrics into their target-setting
frameworks and management processes, for example by measuring and disclosing the alignment of theirunderwriting portfolios consistent with a 2°C or lower temperature pathway (e.g., Paris-aligned).New footnote
New footnote: Portfolio alignment tools are useful inputs to quantifying transition risk. Financial
institutions should use whichever portfolio alignment tool best suits their institutional context andcapabilities.

b) Disclose Scope 1,
Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG)
emissions, andthe related risks.

As part to their disclosure of GHG emissions covered in Guidance for All Sectors recommended
disclosures Metrics and Targets a) and b), (re)insurance underwriters should disclose WACI for theircommercial property and specialty lines of business that cover tangible properties and goods forwhich data and some methodologies are available. More complex commercial and retail lines may be
addressed at a later stage.New footnote Table 3B describes one potential methodology.
New footnote: Note: The CRO Forum’s 2020 Carbon Footprinting Methodology for Underwriting Portfolios
is currently the most advanced adaptation of WACI to insurance portfolios. (Re)insurers should follow
latest industry guidance as it becomes available.

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The Task Force on Climate-related Financial Disclosures

Section D.3 Asset Owners
Proposed updates to the Supplemental Guidance are included in red. The proposed updates do not update
the Governance or Risk Management aspects of the Supplemental Guidance for Asset Owners.

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.
Recommended Disclosure

Supplemental Guidance for Asset Ownersa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

As part to their disclosure of “proportion of assets and/or operating, investing, or financing activities
materially exposed to transition risk” described in Section C.4, recommended disclosure a), asset owners
should describe significant concentrations of exposure to carbon-related assets.New footnote
New footnote: Recognizing that the term “carbon-related assets” is not well defined, the Task Forceencourages financial institutions to use a consistent definition to support comparability. For purposes of
disclosing information on significant concentrations of credit, investment, and underwriting exposure tocarbon-related assets under this framework, the Task Force suggests financial institutions define carbonrelated assets as those assets tied to the four non-financial groups identified by the Task Force in its 2017
final recommendations.

b) Describe the impact
of climate-related risks
and opportunities on theorganization’s businesses,
strategy, and financial
planning.

Asset owners should describe how climate-related risks and opportunities are factored into relevant
investment strategies. This could be described from the perspective of the total fund or investment
strategy or individual investment strategies for various asset classes.

c) Describe the resilience of theorganization’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower
scenario.

Asset owners that perform scenario analysis should consider providing a discussion of how climate-related
scenarios are used, such as to inform investments in specific assets.

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The Task Force on Climate-related Financial Disclosures

Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Supplemental Guidance for Asset Ownersa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with
its strategy and risk
management process.

As part to their disclosure of cross-industry, climate-related metrics described in Section C.4,
recommended disclosure a), asset owners should describe metrics used to assess climate-relatedrisks and opportunities in each fund or investment strategy. Where relevant, asset owners should also
describe how these metrics have changed over time.
Where appropriate, asset owners should provide metrics considered in investment decisions
and monitoring.
Asset owners should measure and disclose the alignment of their portfolios consistent with a 2°C or
lower temperature pathway (e.g., Paris-aligned), and incorporate forward-looking alignment metrics into
their target-setting frameworks and management processes.New footnote
New footnote: Portfolio alignment tools are useful inputs to quantifying transition risk. Financial
institutions should use whichever portfolio alignment tool best suits their institutional context
and capabilities.

b) Disclose Scope 1,
Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG)
emissions, andthe related risks.

Asset owners should disclose the appropriate financed-emissions metric, based on PCAF’s methodology
and WACI, if relevant, or a comparable methodology, for their industry where data are available or can bereasonably estimated. If a comparable methodology is used, the TCFD recommends the details of suchmethodology be made publicly available. See Table 3A for financed-emissions metrics.
In addition, asset owners should consider providing other carbon footprinting and exposure metrics
they believe are useful for decision-making along with a description of the methodology used. See
Table 3C for other suggested common carbon footprinting and exposure metrics, including weighted
average carbon intensity.
Asset owners should provide the weighted average carbon intensity, where data are available or can bereasonably estimated, for each fund or investment strategy.
In addition, asset owners should provide other metrics they believe are useful for decision making
along with a description of the methodology used. See Table 2 (p. 43) for common carbon footprinting
and exposure metrics, including weighted average carbon intensity.
Note: The Task Force acknowledges the challenges and limitations of current carbon footprinting metrics,
including that such metrics should not necessarily be interpreted as risk metrics. The Task Force views thereporting of weighted average carbon intensity as a first step and expects disclosure of this information toprompt important advancements in the development of decision-useful, climate-related risk metrics. The
Task Force recognizes that some asset owners may be able to report weighted average carbon intensity for
only a portion of their investments given data availability and methodological issues.

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The Task Force on Climate-related Financial Disclosures

Section D.4 Asset Managers
Proposed updates to the Supplemental Guidance are included in red. The proposed updates do not update
the Governance or Risk Management aspects of the Supplemental Guidance for Asset Managers.

Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses,
strategy, and financial planning where such information is material.
Recommended Disclosure

Supplemental Guidance for Asset Managersa) Describe the climate-relatedrisks and opportunities theorganization has identified
over the short, medium, andlong term.

As part to their disclosure of “proportion of assets and/or operating, investing, or financing activities
materially exposed to transition risk” described in Section C.4, recommended disclosure a), asset managers
should describe significant concentrations of exposure to carbon-related assets.New footnoteb) Describe the impact
of climate-related risks
and opportunities on theorganization’s businesses,
strategy, and financial
planning.

New footnote: Recognizing that the term “carbon-related assets” is not well defined, the Task Forceencourages financial institutions to use a consistent definition to support comparability. For purposes of
disclosing information on significant concentrations of credit, investment, and underwriting exposure tocarbon-related assets under this framework, the Task Force suggests financial institutions define carbonrelated assets as those assets tied to the four non-financial groups identified by the Task Force in its 2017
final recommendations.
Asset managers should describe how climate-related risks and opportunities are factored into relevant
products or investment strategies.
Asset managers should also describe how each product or investment strategy might be affected by thetransition to a lower-carbon economy.

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The Task Force on Climate-related Financial Disclosures

Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Supplemental Guidance for Asset Managersa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with
its strategy and risk
management process.

As part to their disclosure of cross-industry, climate-related metrics described in Section C.4,
recommended disclosure a), asset managers should describe metrics used to assess climate-related risks
and opportunities in each product or investment strategy. Where relevant, asset managers should also
describe how these metrics have changed over time.
Where appropriate, asset managers should provide metrics considered in investment decisions andmonitoring.
Asset managers should measure and disclose the alignment of their portfolios consistent with a 2°C or
lower temperature pathway (e.g., Paris-aligned), and incorporate forward-looking alignment metrics into
their target-setting frameworks and management processes.New footnote
New footnote: Portfolio alignment tools are useful inputs to quantifying transition risk. Financial
institutions should use whichever portfolio alignment tool best suits their institutional context andcapabilities.

b) Disclose Scope 1,
Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG)
emissions, andthe related risks.

Asset managers should disclose the appropriate financed-emissions metric, based on PCAF’s methodology
and WACI, if relevant, or a comparable methodology, for their industry where data are available or can bereasonably estimated. If a comparable methodology is used, the TCFD recommends the details of suchmethodology be made publicly available. See Table 3A for financed-emissions metrics.
In addition, asset managers should consider providing other carbon footprinting and exposure metrics
they believe are useful for decision-making along with a description of the methodology used. See
Table 3C for other suggested common carbon footprinting and exposure metrics, including weighted
average carbon intensity.
Asset managers should provide the weighted average carbon intensity, where data are available or canbe reasonably estimated, for each product or investment strategy.
In addition, asset managers should provide other metrics they believe are useful for decision making
along with a description of the methodology used. See Table 2 (p. 43) for common carbon footprinting
and exposure metrics, including weighted average carbon intensity.
Note: The Task Force acknowledges the challenges and limitations of current carbon footprinting metrics,
including that such metrics should not necessarily be interpreted as risk metrics. The Task Force views thereporting of weighted average carbon intensity as a first step and expects disclosure of this information toprompt important advancements in the development of decision-useful, climate-related risk metrics. The
Task Force recognizes that some asset managers may be able to report weighted average carbon intensity for
only portion of the assets they manage given data availability and methodological issues.

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Section D.5 Carbon Footprinting and Exposure Metrics
Proposed updates to this section will add a new Table 3A to provide details on financed emissions metrics for banks,
asset owners, and asset managers and Table 3B to provide details on WACI for insurance underwriting. Current Table 2
will be renumbered Table 3C but otherwise remain the same.

Proposed New Table 3A for Supplemental GuidanceNew Footnote

Financed Emissions (PCAF methodology, as of March 2021)
Note: PCAF is continuing to add asset classes. Financial institutions should refer to the PCAF Global GHG Standard
methodology for the latest guidance on measuring financed emissions.
MetricDescription

Listed Equity andCorporate Bonds

Business Loans andUnlisted Equity

Project FinanceCommercial Real Estate
Mortgages
Motor Vehicle Loans

Proposed New Table 3B for Supplemental Guidance

Insurance Underwriting
MetricDescription

Carbon Emission:
Premiums, by business line

Supplemental Information
To determine the value of the transaction relative to the overall size of the insurance portfolio,
information on capital required/capacity/expected loss can be used alternatively to gross written
premium based on the level of information available.
See “Carbon footprinting methodology for underwriting portfolios,” CRO Forum, April 2020. Guidance
for the insurance sector applies to the liability side (underwriting) side of insurance activities; forinsurance companies’ investment activities, guidance for asset owners applies.

New Footnote: For further details on these metrics, see The Global GHG Accounting and Reporting Standard for the Financial Industry,
PCAF, November 2020.

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Table 3C

Common Carbon Footprinting and Exposure Metrics
MetricSupporting Information

Weighted Average
Carbon Intensity

Description

Portfolio’s exposure to carbon-intensive companies, expressed in tons CO2e/$M revenue.
Metric recommended by the Task Force.

FormulaMethodology

Unlike the next three metrics, Scope 1 and Scope 2 GHG emissions are allocated based on
portfolio weights (the current value of the investment relative to the current portfolio value),rather than the equity ownership approach (as described under methodology for Total Carbon
Emissions). Gross values should be used.

Key Points +/-+	Metric can be more easily applied across asset classes since it does not rely on equity
ownership approach.
+	The calculation of this metric is fairly simple and easy to communicate to investors.
+	Metric allows for portfolio decomposition and attribution analysis.
-	Metric is sensitive to outliers.
-	Using revenue (instead of physical or other metrics) to normalize the data tends to favorcompanies with higher pricing levels relative to their peers.

Total Carbon
Emissions

Description

The absolute greenhouse gas emissions associated with a portfolio, expressed in tons CO2e.

FormulaMethodology

Scope 1 and Scope 2 GHG emissions are allocated to investors based on an equity ownershipapproach. Under this approach, if an investor owns 5 percent of a company’s total market
capitalization, then the investor owns 5 percent of the company as well as 5 percent of thecompany’s GHG (or carbon) emissions.
While this metric is generally used for public equities, it can be used for other asset classes by
allocating GHG emissions across the total capital structure of the investee (debt and equity).

Key Points +/-+	Metric may be used to communicate the carbon footprint of a portfolio consistent with the
GHG protocol.
+	Metric may be used to track changes in GHG emissions in a portfolio.
+	Metric allows for portfolio decomposition and attribution analysis.
-	Metric is generally not used to compare portfolios because the data are not normalized.
-	Changes in underlying companies’ market capitalization can be misinterpreted.

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The Task Force on Climate-related Financial Disclosures

MetricSupporting Information

Carbon Footprint

Description

Total carbon emissions for a portfolio normalized by the market value of the portfolio, expressedin tons CO2e/$M invested.

FormulaMethodology

Scope 1 and Scope 2 GHG emissions are allocated to investors based on an equity ownershipapproach as described under methodology for Total Carbon Emissions.
The current portfolio value is used to normalize the data.

Key Points +/-+	Metric may be used to compare portfolios to one another and/or to a benchmark.
+	Using the portfolio market value to normalize data is fairly intuitive to investors.
+	Metric allows for portfolio decomposition and attribution analysis.
-	Metric does not take into account differences in the size of companies (e.g., does not consider
the carbon efficiency of companies).
-	Changes in underlying companies’ market capitalization can be misinterpreted.

Carbon Intensity

Description

Volume of carbon emissions per million dollars of revenue (carbon efficiency of a portfolio),
expressed in tons CO2e/$M revenue.

FormulaMethodology

Scope 1 and Scope 2 GHG emissions are allocated to investors based on an equity ownershipapproach as described under methodology for Total Carbon Emissions.
The company’s (or issuer’s) revenue is used to adjust for company size to provide a measurementof the efficiency of output.

Key Points +/-+	Metric may be used to compare portfolios to one another and/or to a benchmark.
+	Metric takes into account differences in the size of companies (e.g., considers the carbon
efficiency of companies).
+	Metric allows for portfolio decomposition and attribution analysis.
-	The calculation of this metric is somewhat complex and may be difficult to communicate.
-	Changes in underlying companies’ market capitalization can be misinterpreted.

Continued on next page

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The Task Force on Climate-related Financial Disclosures

MetricSupporting Information

Exposure to CarbonRelated Assets

Description

The amount or percentage of carbon-related assets34 in the portfolio, expressed in $M
or percentage of the current portfolio value.

Formula for
AmountFormula for
Percentage
Methodology

This metric focuses on a portfolio’s exposure to sectors and industries considered the most GHG
emissions intensive. Gross values should be used.

Key Points +/-+	Metric can be applied across asset classes and does not rely on underlying companies’ Scope 1
and Scope 2 GHG emissions.
-	Metric does not provide information on sectors or industries other than those included in thedefinition of carbon-related assets (i.e., energy and utilities sectors under the Global Industry
Classification Standard excluding water utilities and independent power and renewableelectricity producer industries).

Note: The term “portfolio” used in the Table 3C is defined as “fund or investment strategy” for asset owners and “productor investment strategy” for asset managers.
Footnote 34: Recognizing that the term “carbon-related assets” is not well defined, the Task Force encourages banks financial
institutions to use a consistent definition to support comparability. For purposes of disclosing information on significant
concentrations of credit, investment, and underwriting exposure to carbon-related assets under this framework, the Task Forcesuggests financial institutions banks define carbon-related assets as those assets tied to the four non-financial groups identified by
the Task Force in its 2017 final recommendations. as those assets tied to the energy and utilities sectors under the Global Industry
Classification Standard, excluding water utilities and independent power and renewable electricity producer industries. In line withchanges discussed in footnote 14 in Section D.1 Banks, footnote 34 will be updated to clarify the definition of carbon-related assets.

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The Task Force on Climate-related Financial Disclosures

PROPOSED CHANGES TO 2017 TCFD ANNEXSECTION E. SUPPLEMENTAL GUIDANCE FORNON-FINANCIAL GROUPS
The following proposed updates focus only on supplemental
guidance specific to non-financial groups within thescope of the TCFD: Energy Group, Transportation Group,
Materials and Buildings Group, and Agriculture, Food, andForest Products Group. The Guidance for All Sectors thatis provided within each section will also be updated in linewith the proposed changes above.

The proposed updates revise the supplemental guidance
but do not add new supplemental guidance. As such,
Figure 9 will not be updated.
The proposed updates do not change the Supplemental
Guidance for Non-Financial Groups within the Governance,
Risk Management, or Strategy pillars. The changes to theMetrics and Targets pillar are shown in red.

Figure 9

Supplemental Guidance for Non-Financial Groups
GovernanceIndustries
and Groupsa)Strategy
b)

a)

b)

c)

Risk Management

Metrics
and Targets

a)

a)

b)

c)

b)

c)

EnergyTransportation
Materials and Buildings
Ag. Food, and Forest
Products

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Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
Recommended Disclosure

Supplemental Guidance for Non-Financial Groupsa) Disclose the metrics usedby the organization to assessclimate-related risks andopportunities in line with
its strategy and risk
management process.

Non-financial group organizations should disclose cross-industry, climate-related metrics describedin Section C.4, recommended disclosure a).
For all relevant metrics, organizations should consider providing provide historical trends and forwardlooking projections (by relevant country and/or jurisdiction, business line, or asset type). Organizations
should also consider disclosing metrics that support their scenario analysis and strategic planning
process and that are used to monitor the organization’s business environment from a strategic and risk
management perspective.
Organizations should consider providing key metrics related to GHG emissions, energy, water, land use,
and, if relevant, investments in climate adaptation and mitigation that address potential financial aspectsof shifting demand, expenditures, asset valuation, and cost of financing.
Illustrative examples of metrics for each of the four non-financial groups are provided in the tables
listed below.
• Energy Group: Table 4 (pp. [to be updated])• Transportation Group: Table 5 (pp. [to be updated])• Materials and Buildings Group: Table 6 (pp. [to be updated]) 45• Agriculture, Food, and Forest Group: Table 7 (pp. [to be updated])
Footnote 45: The TCFD Secretariat corrected an error in Table 5 on December 15, 2017. Metric ton (MT)of carbon dioxide emissions (CO2e) was shown as an illustrative metric for real estate, but it should havebeen shown as an illustrative metric for metals and mining.

Section E.1 Energy Group
There are no proposed changes to this section.
Section E.2 Transportation Group
There are no proposed changes to this section.
Section E.3 Materials and Buildings Group
There are no proposed changes to this section.
Section E.4 Agriculture, Food, and Forest Products Group
There are no proposed changes to this section.

ADDITIONAL PROPOSED CHANGESTO 2017 TCFD ANNEXThe TCFD proposes a few additional updates to align the document with the updated guidance in Sections C, D,
and E of the 2017 TCFD annex.
Section A.2 Structure of Recommendations
The proposed changes will update Figure 2 to reflect the updated scope.

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The Task Force on Climate-related Financial Disclosures

Original Figure 2

Supplemental Guidance for Financial Sector
and Non-Financial Groups
GovernanceIndustries
and Groupsa)Strategy
b)

a)

b)

c)

Risk Management

Metrics
and Targets

a)

a)

b)

c)

b)

c)

Financial

Banks
Insurance Companies
Asset Owners
Asset Managers

Non-Financial

EnergyTransportation
Materials and Buildings
Ag. Food, and Forest
Products

Updated Figure 2

Supplemental Guidance for Financial Sector
and Non-Financial Groups
GovernanceIndustries
and Groupsa)Strategy
b)

a)

b)

c)

Risk Management

Metrics
and Targets

a)

a)

b)

c)

b)

c)

Financial

Banks
Insurance Companies
Asset Owners
Asset Managers

Non-Financial

EnergyTransportation
Materials and Buildings
Ag. Food, and Forest
Products

78Appendix 2:
Further Rationale
for Proposed Revisions

The Task Force on Climate-related Financial Disclosures

Appendix 2: Further Rationale for Proposed Revisions
INCLUSION OF CROSS-INDUSTRY, CLIMATERELATED METRICS AND FINANCIAL IMPACTS
This section provides additional rationale for TCFD’s proposed revisions to Guidance for All Sectors Recommended Disclosure a). The cross-industry,
climate-related metrics and financial impacts are well aligned both with what framework providers are collecting and what non-financial and financialorganizations are disclosing (see Table A3-1).

Table A3-1

Climate-Related Financial Information
Information

Alignment(Non-exhaustive)

Implementation examples

Financial institution examples• Absolute Scope 1, 2, 3
emissions

Barclays:83 “Power portfolio emissions
intensity will reduce by 30% by 2025, on
the way to alignment with the IEA SDS
benchmark by 2035.”

Non-financialorganization examples

Cross-Industry, Climate-Related Metrics
GHG emissions (Absolute
Scope 1, Scope 2, andrelevant, material categories
of Scope 3 emissions, as wellas carbon intensity)

GRI: 102-29, 102-30, 305-1, 3052, 305-3; CDP: C4.1a, C5.1, C5.2,
C6.1, C6.3, C6.5; CDSB: REQ-04,
REQ-05; SASB: various sector
frameworks
GRI: 102-29, 201-2, 305-4; CDP:
C4.1, C6.1, C6.3, C6.5, C6.10;
PCAF: Global Standard Table
2-1;
SASB: TR-AF-540a.2 (Air Freightand Logistics Standard)• GHG emissions intensity• Weighted average carbon
intensity (WACI)• Absolute GHG emissions,
across business lines• Absolute GHG emissions, by
type of gas

ECB Supervisory Expectation:
13.5;
European Commission
Guidelines: Section 3.5

Temasek:84 “We have committed tocarbon neutrality in our own operations
by 2020 and achieved this target by 31
March 2020 through the purchase andretirement of carbon credits from thevoluntary carbon markets.”

Dow:85 “Dow confirmed today it hasentered into new renewable power
agreements for its manufacturing
facilities in Argentina, Brazil, Texas,
and Kentucky, securing 338 moremegawatts of power capacity fromrenewable sources, representing an
expected reduction of more than
225,000 metric tons of CO2e.”
EDF:86 “(EDF group’s current trajectory)
represents an absolute reductionof direct greenhouse-gas emissions
amounting to 25 Mt CO2 by 2030,
equivalent to a carbon intensity of
approximately 35 g CO2/kWh in 2030.”

Continued on next page83

Barclays, “Update on Barclay’s ambition to be a net zero bank by 2050,” February 18, 2021.

84

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

85

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

86

EDF, “Carbon neutrality by 2050,” Accessed May 6, 2021.

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The Task Force on Climate-related Financial Disclosures

Information

Alignment(Non-exhaustive)

Carbon price(s) (external andshadow/internal)

Proportion of assets and/or operating, investing, or
financing activities materially
exposed to physical risks,
based on key categories ofcommonly accepted risks

Financial institution examples

CDP: CC2.2; SASB: NR0101-22,
NR0201-16• External carbon tax

BNP Paribas:87 “We use a price range
between USD25 and USD40 per tonneof CO2… in 2017 and 2018, BNP Paribas
developed an internal carbon pricemethodology… we continue to develop
and improve our methodology… thegoal of the test of a carbon price was toevaluate the resilience of our clients to theenergy transition, to measure and steer
carbon risks in the Group’s loan book.”

Aker BP:88 “Assumed carbon pricereaches USD 235/tCO2 in 2030,
assumed flat thereafter… we calculate
the NPV of the total future carbon
costs under different carbon priceassumptions, shown as a percentage
share of the NPV of Aker BP’s portfolio.”

SASB: IF0402-13 (Real EstateStandard);•	Number and value ofmortgage loans in 100-year
flood zones

HSBC:89 [Describing pilot test of 97 mostcritical properties and sites] “By 2050,
15 of the 97 most critical properties
will potentially face increased risk fromphysical hazards under the most severe
Hot house climate change scenario of
3°C increase in climate temperature.”

ConEdison:90 “To assess future asset
vulnerability to sea level rise andstorm surge, the Study team analyzed
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.”

ING:91 “Outstanding– upstream oil andgas €4.0 billion.”

United Airlines:93 “Approximately 33%
of United’s 2019 capacity (including
regional partners) was flown between
country-pairs that have volunteered forthe first phase of the Carbon Offsetting
and Reduction Scheme for International
Aviation (CORSIA) (2021–23). If additionalcountries join in subsequent years, thisnumber is expected to increase.” (CDP
2020 Report)

SASB: FN-MF-450a.1 (Mortgage
Finance Standards);
European Commission
Guidelines: Section 3.5;
ECB Supervisory Expectation:
1.1, 9.1;• Shadow carbon price•	Proportion of buildings
in wildfire areas•	Proportion of substations
at risk from sea-level riseby 2050EBA Guidelines (EBA/
GL/2019/02)

Proportion of assets and/or operating, investing, or
financing activities materially
exposed to transition risks,
based on key categories ofcommonly accepted risks

Non-financialorganization examples

Implementation examples

CDP: C2.3a;
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)•	Concentration of credit
exposure to carbon-related
assets•	Volume of real estatecollaterals highly exposedto transition risk
•	Percent of revenue fromhigh-carbon business lines•	Amount of carbon-related
assets in each portfolio

Manulife Investment Management:92
Provides quantified climate VaR
estimates for 1.5°C, 2°C, and 3°C futures
across its Canadian and Asian equity
portfolios. For example, table estimates:
135.7% in transition risk and 17.2% intech opportunity from 2°C transition in
its Asian equity portfolio.

Continued on next page87

BNP Paribas, 2019 Climate Change Information Request – Carbon Disclosure Project, 2019, p. 73.

88

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

91

ING, Terra progress report, 2020, p. 22.

89

HSBC, “Powering a greener future for the UK,” June 25, 2020.

92

Manulife Investment Management, 2019 Sustainable and responsible investing report, October 2020, p. 69.

90

ConEdison, “Climate Change Vulnerability Study,” December 2019, p. 5.

93

CDP, United Airlines Holdings Climate Change 2020 report, Section C2.2a.

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The Task Force on Climate-related Financial Disclosures

Information
Proportion of assets and/or operating, investing, or
financing activities aligned
toward climate-related
opportunities, based on
key categories of commonly
accepted opportunities

Alignment(Non-exhaustive)
CDP: C4.2b;
SASB: EM-CM-410a.1(Construction Materials
Standard);

Implementation examples

Financial institution examples

Non-financialorganization examples•	Percent of generation thatis renewable

UBS:94 “The year 2020 saw very strong
momentum in sustainable financeactivities, indicated by growth in Core
Sustainable Investments (Core SI), whichrose by 62%... to become 19% of allclient invested assets.”

BMW:97 Investor presentation includes
electric vehicle sales and road map
targets “at least 25 electrified models by
2023 including at least 13 fully electriccars” and “25% electrified” new vehicle
fleet by 2021.

Nordea: 95 Investor presentation
includes (1) percentage breakdownof Green Bond Assets by category,including: energy efficiency, cleantransportation, pollution prevention
and control, green buildings, andrenewable energy, and (2) percentage
breakdown by sub-category (e.g.,renewable energy type).

Enel:98 “50% net installed renewablecapacity” as a percent of total capacity.

•	Percent of vehicle sales
from electric vehicles

SASB: EM-SV-000.A, EM-SV000.B (Oil and Gas Services
Standard);•	Percent of cropland plantedwith drought-resilient vs.
traditional seeds

European Commission
Guidelines: Section 3.5,
Annex 1.5;

•	Percent of resilient
infrastructure in real estate
portfolio

EU Taxonomy: Article 8;•	Percent of portfolio-aligned
bonds

EBA Guidelines(EBA/GL/11/2017)• Green bond ratio• Green asset ratio•	Percent of productsthat qualify for credits
in sustainable building
design and construction
certifications

BASF:99 “Accelerator products (products
considered to make a ‘substantial
sustainability contribution in thevalue chain’) account for 30.9% of theevaluated relevant portfolio.”

Ircantec:96 “The green share of
infrastructure assets for renewableenergy and low-carbon transport
infrastructure comprises 79 assets for€102.2 M. That is 62% of this segmentof Ircantec’s portfolio.”•	Percent of environmentally
sustainable assets
Continued on next page

94

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

95

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

96

Ircantec, Climate Action and ESG Report, 2019, p. 38.

97

BMW Group, Investor Presentation, December 2021, pp. 9 and 25,

98

Enel, Sustainability Report 2019, p. 8.

99

BASF, BASF Report 2020, 2020, p. 45.

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The Task Force on Climate-related Financial Disclosures

Information
Amount of senior
management remuneration
impacted by climate
considerations

Alignment(Non-exhaustive)

Implementation examples

Financial institution examples

CDP: C1.1a, C1.3a; CDSB: REQ01, REQ-03; EU Taxonomy: 3.2;
IR: 4.9;•	Percent or weighting of
remuneration impacted byclimate considerations

Siemens:100 “Since fiscal year 2020,
the number of Siemens shares (StockAwards) that are actually transferreddepends… 20% on the non-financial
performance criterion ‘sustainability.’This is assessed on the basis of Siemensinternal ESG/sustainability index,
determined annually.”

ECB Supervisory Expectation:
4.3;
EBA Guidelines under Articles
74(3) and 75(2) of Directive
2013/36/EU and Article 450 ofRegulation (EU) No 575/201

Amount of expenditure orcapital investment deployed
toward climate risks andopportunities

CDP: C2.3a, C2.4a, C3.3, C3.4,
C4.2b; CDSB: REQ-03’
European Commission
Guidelines: Section 3.5;
SASB: EM-EP-420a.4 (Oil and
Gas Exploration Standard)•	Proportion of CapEx
deployed for low-carbon
solutionsDBS Bank:103 “Provided SGD 4.8 billionof green loans…Underwrote SGD 5.3
billion worth of green bonds.”•	Amount of investment
in low-carbon R&D

Wells Fargo:104 Has invested a total
of $8.9M to “help communities build
capacity to better prepare for andrespond to extreme weather andclimate-related events.”•	Percent of annual revenue
invested in low-carbon R&D•	Amount invested inrenewable energy, revenue
generated by renewableenergy sales

Goldman Sachs:105 “In 2012, weestablished a target to deploy $40
billion of capital to advance the clean
energy sector, which we later expanded
to $150 billion by 2025, and is now
encompassed in our broader $750
billion commitment.”

Non-financialorganization examples
Daimler:101 “Sustainability oriented
targets can raise or lower the annual
bonus by up to +/-25% and +/-10%,
respectively.”
Unilever:102 “With the introduction of
the Sustainability Progress Index as a
25% performance metric in our MCIP
in 2017, we have further strengthened
the linkage between our remuneration
policy and Unilever’s identity, values
and mission.”
BHP:106 “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 ourestimate was calculated using FY2019
R&D spend data due to differences inreporting time-frames.”
Equinor:107 “Our low-carbon and energy
efficiency R&D expenditure was around
20% in 2019, which is a small decrease
from 2018.“

Continued on next page

100

Siemens, Annual Report 2020, p. 54.

101

Daimler, Combined Management Report with Non-Financial Declaration, p. 92.

102

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

103

DBS Bank, Stronger Together: Sustainability Report 2020, March 2, 2021, p. 5.

104

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

105

Goldman Sachs, 2019 Sustainability Report, 2020, p. 5.

106

BHP, BHP Sustainability and ESG Navigators Databook 2020, 2020, n.p.

107

Equinor, 2019 Sustainability Report, March 16, 2020, p. 30.

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The Task Force on Climate-related Financial Disclosures

Information

Alignment(Non-exhaustive)

Implementation examples

Financial institution examples

CDP: C2.2a, C2.4a, CC3.2, 3.3,
CC6.1; SASB: NR0103-14; CDSB:
REQ-03;•	Revenue/savings frominvestments in low-carbon
alternatives

CDP: C2.3a, C2.4a;•	Direct or indirect costs
related to carbon price,business interruption,
contingency, repairs, etc.

Citi:108 “The adjusted probability ofdefault (PD) and credit rating impacts ofa global carbon price varied significantly
across companies, ranging from adowngrade of 0 to 9 notches at $50/
tCO2, with an average of 3.5 notches.”

Non-financialorganization examples

Climate-Related Financial Impact
Impact of any material
climate-related risks oropportunities on financial
performance (e.g., cost,profitability, operating cash
flow, impairment)

CDP: C2.4a, C3.4; CDSB: REQ03; SASB: TR0101-10;
GRI: 307-1;
CDP: C2.4a; SASB: RT-AE-410a.1(Aerospace, Defense Standard);• Change in profitability

SASB: FN-IN-450a.1;•	Fines and sanctions for
non-compliance withenvironmental regulations

European Commission
Guidelines: Section 3.5, Annex
1;•	ROI from low-carbon techor alternative energy
products

ECB Supervisory Expectation:
7.2;•	Probable Maximum Loss
(PML) of insured products
from natural catastrophes

EU Taxonomy: Article 8

Hannon Armstrong:109 “Under ascenario where a carbon tax drives theprice of power up by 10%, our windequity investments may generate
approximately 6% in additional
cashflows over their life as comparedto the cashflow the investments are
expected to generate under the current
baseline scenario.”

Canadian Railway:110 “CP initiated awildfire response program…equipment
such as sprinkles and fire retardants
were set up…While the fire threat did
not materialize into physical network/
equipment damage, management andresponse cost was $800,000.”
HPE:111 “The company took a $93 million
charge in 2017 to pay for (Hurricane
Harvey) storm damages not covered byinsurance claims.”
Meridian Energy:112 “The potential
annualised financial impact is $12
million. This is calculated using thedifference between the modelled‘no climate change’ scenario and the
Evolution scenario and is based onmodelling the potential impact on
Meridian generation revenues over 30
years and then annualised over the2020 to 2050 timeframe.”
Continued on next page

108

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

109

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

110

Canadian Pacific, 2019 CDP Climate Change Questionnaire: CP Response, 2019, p. 23.

111

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

112

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
Impact of any material
climate-related risks oropportunities on financial
position (e.g., assets andliabilities)

Alignment(Non-exhaustive)

Implementation examples

Financial institution examples

CDP: C2.4a, C2.3a, C3.4, C2.2a;
CDSB: REQ-03, REQ-06; SASB:
EM-EP-420a.1, FN-CB-410a.1;•	Fair value of assets due toexposure to physical andtransition risks

CDP: C2.2a; CDSB: REQ-03;•	Transition risk from
implementation of carbon
regulation

Invesco:113 “The carbon-managed
portfolio significantly reduces thenegative impact of the 1.5°C scenario
compared to the former strategy,
while keeping the risk characteristicsof the UK benchmark.” Figure showsa –5% change in valuation under a
1.5°C scenario in the baseline strategy
relative to a roughly –3.4% change in the
carbon-managed strategy.

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;•	Access to capital fromclimate risk or opportunities•	Risk of stranded, illiquid
assets from climate change•	Sensitivity of hydrocarbon
reserve levels to futurecarbon price projections

ECB ILAAP Principle: IV

113

Invesco, 2019 Invesco Climate Change Report, p. 31.

114

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

115

Eni, Annual Report 2019, February 27, 2020, p. 95.

Non-financialorganization examples
BP:114 “These lower long-term priceassumptions are…broadly in line with arange of transition paths consistent with
the Paris climate goals…The aggregate
second-quarter 2020 non-cash, posttax PP&E impairment charges andexploration intangible write-offs will bein the range of $13B to $17.5B.”
Eni:115 “Stress test: resilience of
the upstream portfolio (100% cash
generating unit) based on the IEA SDS
low-carbon scenario: ‘The sensitivity
test performed at Eni’s Oil & Gas
CGUs under the IEA SDS assumptions
indicated the resiliency of Eni’s asset
portfolio in terms of carrying amounts
and fair value, determining a reductionof 7% in the total fair value of all of Eni’s
Oil & Gas CGUs compared to the resultof the impairment review performedby the Company in the preparationof its 2019 financial statements. That
reduction falls to a 2% decline assuming
the recoverability of CO2 costs in thecost oil or the deductibility from thetaxable income.”

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The Task Force on Climate-related Financial Disclosures

INCLUSION OF SCOPE 3
AND FINANCED EMISSIONSThis appendix explains in further detail the basis for the
TCFD’s conclusions for proposing the changes related to
Scope 3 GHG emissions, including financed emissions.
The Financial Stability Board’s (FSB’s) remit to the TCFD,
stated in its November 2015 proposal to establish the
Task Force, notes:116“Appropriate disclosure is a prerequisite for boththe private sector and authorities to understand andmeasure the potential effects on the financial sectorof climate change, as markets evolve and as the wider
economy transitions towards a low-carbon economy.
For instance, one relevant company disclosure
could be information on the size of its carbon
footprint117 and its strategies to manage its transition
to a lower-carbon business model. This may assist
market participants in making investment, credit,
or insurance underwriting decisions that take into
account the physical, liability and transition risks
associated with climate change, including how thoserisks may evolve in the future“ (emphasis added).
And in the 2017 TCFD final report (p. 22) the Task
Force states:“The FSB called on the Task Force to develop
climate-related disclosures that ‘could promote
more informed investment, credit [or lending], andinsurance underwriting decisions’ and, in turn, ‘would
enable stakeholders to understand better theconcentrations of carbon-related assets
in the financial sector and the financial
system’s exposures to climate-related risks’”(emphasis added).

116

The Task Force believes that consulting on Scope 3
emissions and on financed emissions is now appropriate,
and that this is consistent with its remit from the FSB.118
Given recent developments around need and demand for
Scope 3 reporting, the Task Force is seeking views on thedisclosure of Scope 3 emissions, financed emissions, andimplications for TCFD guidance.
The first section explains the inclusion of Scope 3
emissions for non-financial groups while the second
explains the inclusion of financed emissions for financial
sector organizations. They provide more detail on theimportance of Scope 3 emissions in understanding
companies’ total contribution to carbon emissions acrosstheir value chain and the key developments in markets,
the thinking of governments, and the work of the TCFD
itself regarding Scope 3 emissions.
Scope 3 Emissions
The GHG Protocol Categorization of Scope 3 Emissions
The most well-known and widely referenced
classification of greenhouse gases is the GHG Protocol
Corporate Standard,119 which defines the three Scopesof emissions from the perspective of the reporting
company as follows:120• Scope 1 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 emissions are indirect emissions from thegeneration of purchased energy.
• Scope 3 emissions are all indirect emissions (notincluded in Scope 2) that occur in the value chain of
the reporting company, including both upstream anddownstream emissions. The GHG Protocol’s Scope
3 schema contains 15 stages, eight of which are
upstream, seven downstream.

FSB, Proposal for a disclosure task force on climate-related risks, p. 2. Note that a carbon footprint refers to the total amount of greenhouse gases generated
by an activity or company.

117

The term “carbon footprint” is used as a shorthand to refer to an organization’s greenhouse gas emissions.

118

FSB, Proposal for a disclosure task force on climate-related risks, p. 4. “The Task Force expects that reporting of climate-related risks and opportunities will
evolve over time as organizations, investors, and others contribute to the quality and consistency of the information disclosed.”119T he GHG Protocol Corporate Standard, commonly referred to simply as the Corporate Standard, is a methodology developed by the GHG Protocol Initiativeand is the methodology explicitly recommended by the Task Force for calculating and reporting emissions (see 2017 TCFD Final Report, June 15, 2017,
Section C3, p. 22, footnote 40). The first edition of the Corporate Standard was published in 2001 and then updated in 2004 with additional guidanceclarifying how companies can measure emissions from electricity and other energy purchases and account for emissions from throughout their value
chains. Building on the Corporate Standard, the GHG Protocol then developed a more detailed approach to Scope 3 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 then published in 2013 providing detailed explanation of how to calculate Scope 3 emissions, namely the Technical Guidance for Calculating Scope-3
Emissions. The Scope 3 Standard is the only internationally recognized methodology for companies to report all their value chain emissions.

120

See GHG Protocol, Frequently Asked Questions.

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The Task Force on Climate-related Financial Disclosures

Consider the example of a fertilizer producer that uses
natural gas an input. The fertilizer producer’s Scope 1
emissions would include those released in the productionof fertilizer as well as any other emissions from sources
directly under the control of the producer, such as trucks
or generators used on site. If the company sourced
electricity through the local grid, its Scope 2 emissions
would include a proportion of the emissions of power
plants that supplied power to that grid.
Scope 3 upstream emissions would include other value
chain emissions emitted before the fertilizer production,such as fugitive methane emissions from natural gas
wells, while Scope 3 downstream emissions would include
other value chain emissions from consumers using thefertilizer, such as emissions released from trucks or
tractors at a farm.
Relevant Developments on Scope 3 GHG Emissions
Since 2017
When the 2017 TCFD final report was published, there
were a number of unresolved issues regarding whenand how to calculate Scope 3 and financed emissions,
resulting in the insertion of the phrase “if appropriate” forthe Scope 3 disclosure recommendation. The intent was
to provide flexibility for reporting entities. As discussed
previously, the discussion around Scope 3 emissions andfinanced emissions has evolved since 2017.121
In particular, the international dialogue on climate change
has shifted from a focus on carbon budgets consistent
with the Paris Agreement to a focus on achieving netzero emissions by 2050.122 This shift signals an increasing
urgency on reducing emissions—both direct andindirect—to zero by all economic sectors. To help identify
carbon-related assets and potential climate-related risk,
governments and investors are increasingly focusing on
the full value chain of emissions.
As legislative and regulatory actions around disclosure
increase, companies are also aware that insufficient
data for Scope 3 and financed emissions create further
uncertainty and added barriers to disclosure. There
have been improvements in these areas since the TCFD
published its original recommendations and the Task
Force hopes that by encouraging more specific disclosureof Scope 3 and financed emissions, it will help support
and accelerate these efforts.123
Additionally, the financial system’s exposure toclimate-related risks depends on the effectiveness ofthe climate-related disclosures of the companies andsectors that are financed by banks and underwritten
by insurance companies.

Box A3-1
Shift to Net-Zero
With jurisdictions legislating net-zero targets, issuers are
increasingly exposed to policy risk. Investors, in response,
have added to their portfolio view on climate risk, a morecompany-specific, value chain lens on climate risk.*
For example, coal and oil-and-gas companies sell fossil fuelsconsumed by their customers. If the focus is on a given carbon
budget, then fossil fuel companies are satisfying market
demand and focus of risk is customer-centric.
However, if the focus is on achieving net-zero emissions by
2050, both the fossil fuel companies and their customers are
incentivized to consider their respective carbon footprints(in this example, Scope 3 emissions in the case of the fossil
fuel companies, and Scope 1 emissions in the case of theircustomers).
*GHG Protocol Corporate Value Chain (Scope 3) Accounting
and Reporting Standard states: “Use of 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 emissions. Differences in reported emissions may be a
result of differences in inventory methodology or differencesin company size or structure. Additional measures arenecessary to enable valid comparisons across companies.
Such measures include consistency in methodology and data
used to calculate the inventory, and reporting of additional
information such as intensity ratios or performance metrics.”

However, if the disclosures made by organizations withsignificant direct and indirect emissions do not include
Scope 3 emissions, then the banking and insurance
sector’s understanding of the concentration of carbonrelated assets on their balance sheets may be incomplete,asset owner and asset managers will have limited visibility
into risk associated with carbon-intensive issuers, andthe collective understanding of the financial system’s
potential exposure to the systemic risk posed by climatechange may be insufficient.
Since the 2017 TCFD final report and annex were
published in June 2017, the debate over Scope 3 emissions
has moved on significantly across three main areas ofrelevance to the Task Force’s remit: (i) financial markets
and civil society; (ii) governments and regulators; and (iii)
the work of the Task force itself.

121

 017 TCFD Final Report, June 15 2017, p. 3. “The Task Force expects that reporting of climate-related risks and opportunities will evolve over time as organizations, investors,
2and others contribute to the quality and consistency of the information disclosed.”122

This shift of emphasis was the direct result of the IPCC’s Special Report Global Warming of 1.5°C, published in October 2018.

123

SBTi, Value Change in the Value Chain: Best Practices In Scope 3 Greenhouse Gas Management, 2018, p. 10.

87

The Task Force on Climate-related Financial Disclosures

Relevant Developments in Financial Markets
and Civil Society
There have been a number of significant developments
in financial markets and civil society since June 2017 thathave heightened awareness of and increased the focus
on Scope 3 emissions. Four of these developments areof particular relevance for the Task Force’s guidanceon this topic: (1) the IPCC special report on 1.5°C andmainstreaming of the net-zero emissions concept, (2)the launch of the Climate Action 100+ Initiative, (3)the increased prominence of Paris-aligned reporting
and analytical frameworks, and (4) increasing focus ofacademic/NGO research on Scope 3 emissions beyond
the energy sector.
1) The IPCC special report on 1.5°C and mainstreamingof the net-zero emissions concept: In response to an
invitation from policymakers extended at COP21 in Paris,in October 2018 the IPCC released a special report on theimpact of global warming of 1.5°C above pre-industrial
levels.124
The report showed that the impact of 2°C of warming
would be significantly worse than 1.5°C. The IPCC reportbrought renewed urgency to the effort to limit the global
temperature increase to 1.5°C. In turn, the report has
shifted the language used in the international dialogue
on climate change. Today, there is less of a focus on the
carbon budget that is consistent with Paris, and moreof a focus on achieving net-zero emissions by 2050, in
keeping with the IPCC modeling of how to limit warming
to 1.5°C:125“In model pathways with no or limited overshoot of
1.5°C, global net anthropogenic CO2 emissions decline
by about 45% from 2010 levels by 2030 (40–60%
interquartile range), reaching net zero around 2050
(2045–2055 interquartile range)” (emphasis added).

124

Since the publication of the IPCC special report, the conceptof net-zero targets has entered mainstream corporate andpolitical debate, with many leading companies,126 financial
institutions,127 and a growing number of governments128
setting net-zero targets for midcentury. In June 2020,
the UNFCCC announced the launch of the Race to Zerocampaign to build momentum toward net-zero GHG
emissions by midcentury in the run up to COP26.129
Net-zero targets, by definition, entail the decarbonizationof every aspect of a company’s or an economy’s activity,
which means reducing Scope 3 emissions to zero, as wellas Scope 1 and Scope 2 emissions.
2) The launch of the Climate Action 100+ Initiative130(CA100+): CA100+ was launched in December 2017 at the
One Planet Summit in Paris and is an investor initiative
designed to ensure that the world’s largest GHG emittersalign their business models with the Paris Agreement.
CA100+ now counts 575 investors globally among its
members with more than $54 trillion in assets undermanagement (AUM).131 CA100+ explicitly states that itengages with the companies regarding the basis of theiremissions across the entire value chain, with Scope 3
therefore a key focus.132 It notes, for example, that“the most material or greatest source of greenhousegas emissions of an auto manufacturer are thosegenerated during the use of the vehicles it sells (Scope 3).
Value-chain emissions, like those of vehicles, aresubstantial sources of greenhouse gas emissions.
Such value-chain emissions are highly material toreducing emissions. Transportation emissions accountfor a quarter of annual emissions. If only Scope 1 and2 emissions had been used to assess the footprint ofcompanies, transportation emissions would have notbeen taken into consideration.”133

IPCC, Special Report: Global Warming of 1.5°C, October 2018.

125

IPCC, Headline Statements from the Summary for Policymakers, IPCC Special Report on Global Warming of 1.5°C, October 2018.

126

 ee, for example, the UN-convened Business Ambition for 1.5°C, an initiative that commits corporate signatories to a 1.5°C target through the Science
S
Based Targets initiative. As of June 5, 2020, 237 companies with a combined market capitalization of over $3.6trn have committed to the Business
Ambition for 1.5°C.

127

See, for example, the Glasgow Financial Alliance for Net Zero and CDP, The Time to Green Finance, 2020, p. 22.

128

See, for example, commitments by the EU, China, New Zealand, and United States.

129See https://unfccc.int/news/cities-regions-and-businesses-race-to-zero-emissions.

130

 ee Climate Action 100+. CA100+ chose the initial 100 companies to engage with on the basis of their having “the highest combined direct and indirect
S
Scope 1, 2 and 3 emissions (emissions associated with the use of their products) using CDP modelled and reported data.”

131

Climate Action 100+, Who’s Involved.

132

See Climate Action 100+.

133

 ote that the Transportation industry group under the Global Industry Classification Standard (GICS) does not include automobiles, which is underN
the Consumer Discretionary industry group.

88Energy Transition & Climate Change

The Task Force on Climate-related Financial Disclosures

Indeed, in its methodology for awarding science-based3) The increased prominence of Paris-aligned reporting
What scope should I include?
targets, the SBTi explicitly states under criteria 16
and analytical frameworks: A number of NGO reporting
The GHG Protocol ‘Corporate Accounting and Reporting Standard’ (link) has
and 17 that any company seeking the SBTi validation
and analytical frameworks exist that use Paris-aligned
developed aintended
standardtotoacceleratemeasure corporate
the GHG emissions ofmust
companies
using
three3 screening to establish theircompletea Scopemethodologies‘scopes’.
significance, and, where these Scope 3 emissions accountdecarbonizationin line with the Paris Agreement.
40% or moreof thetotal emissions of the company,
These frameworks
increasingly
being
adoptedby
 Scope 1areemissions
are thedirectemissionsof aforcompany,
notably
from
must
then
also
set
a
Scope
3 reduction target.137
corporations
acrossmany
different
industries.
Amongcompany vehicles and energy use in facilities.
the most prominent are the Science Based Target
135 upstream emissions
4) Increasing
academic/NGO research
Scope the2 emissions
indirectthat comefocus
from ofthe
We Mean are
Businesscoalition,
initiative134 (SBTi),
136
on
Scope
3
emissionsbeyondthe energy sector:
purchaseofelectricity,
heatingandcooling.
and the Transition Pathways Initiative (TPI).
Awareness of other sectors’ indirect emissions is Scopeemissionsare also
indirectand refer to both
upstreamassupply-chain
The objectiveof all3these
initiatives
is tohelp companies
increasing
academics and NGOs are increasingly
emissions
suchasupstreamlogistics
andpurchased
goods onandtheservices,align their business models with the Paris Agreement,
focusedScope 3asemissions of sectors other thanas downstream
emissionsfromtheanduse utility
and disposal
increasinglywell
understoodto meanactivities,
net-zero notably
emissionsbyenergycompanies (e.g., textiles138 and autoof sold
products,
ason
well
as emissions
from
The GHG 139
emissions). A growing body of research is showing
manufacturers
2050, so these
initiatives
focus
emissions
acrossall franchises.
thisfor
category.
most sectors, Scope 3 emissions are an important
aspects of afrom
giveninvestments
company’s (‘financed
activity. emissions’) also fall intothat

One could argue that a company has more influence on its Scope 1 and 2 emissions
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).
FigureA3-1

Importance of Scope 3 Emissions in Certain Sectors
Chart 5: Scope 3 – it matters!
100
Percentage of emissions

90
80
70
60
50
40
30
20
10
0

Scope 2 and 3 Upstream (supply chain)

Scope 1

Scope 3 downstream (Product Use)

Source: Kepler-Cheuvreux, “Carbon Compass,” 360 Report, November 23, 2015

Source: Based on Inrate data

Yet, most companies do not disclose Scope 3 emissions, beyond categories such as134

 he SBTi was established in 2015 but has gained greater traction since the publication of the TCFD final report and annex and the proliferation of otherT‘business travel’. Only approximately 10 out of the world’s 800 largest publiclyinitiatives drawing on its work (e.g., the Business Ambition for 1.5°C referenced above). The SBTi approves science-based targets for companies basedon 2°C,
well companies
below 2°C, and 1.5°C
decarbonization
pathways.
of March
2021,
theScope
SBTi had3approved
643 companies’
decarbonization targets as being
listedprovideinformation
on As
each
of the15categories
on a basis
compatible with the Paris Agreement, and states that a total of 1,310 companies are taking science-based action on climate.

135

 he We Mean Business coalition is an NGO working with businesses to take action on climate change. It was established in 2014 but like the SBTi hasTgainedincreased prominence
since 2017.itAsisofnot
March2021, it listedcompanies
a combined
market capitalizationof $24.8trn as being
reported,
usually because
relevant
to 1,680
the sector
orwithbusinessmodel)(link).
committed to one or more of the decarbonization initiatives it helps to coordinate with partner organizations (e.g., on renewable energy, energy efficiency,
and electric vehicles).

136 he TPI was established in 2017 by a group of asset owners and is supported by asset managers. The TPI “evaluates and tracks the quality of companies’Tmanagement of their greenhouse gas emissions and of risks and opportunities related to the low-carbon transition.” As of March 2021, over 100 investors globallywith combined AUM and under advice of $25trn have pledged support for the TPI.

137

See the explanation of the SBTi approach in its updated paper SBTi Criteria and Recommendations, Version 4.1, April 2020, Section V, p. 10.

138In its 2018 report A New Textiles Economy, the Ellen Macarthur Foundation estimates total emissions from the global apparel industry at 1.2Gt, with fiber
production and yarn production by far the two largest components (1.1Gt combined). In their 2018 report Value Change in the Value Chain: Best Practices
in Scope 3 GHG
Management, the Science Based Targets SBTi, Gold Standard, and Navigant estimate that of this total 70% is Scope 3 emissions.
keplercheuvreux.com

139of ‘comply-or-explain’ (i.e. explanation is given as to why a Scope 3 category is not20

 s referenced above, CA100+ gives the auto manufacturing industry as an example of one where Scope 3 emissions are significantly greater than Scope 1
A
and Scope 2 emissions.

89

The Task Force on Climate-related Financial Disclosurespart of their carbon emissions, often accounting forseveral times the impact of a company’s Scope 1 andScope 2 emissions.140
For example, a report by the sell-side investment researchhouse Kepler-Cheuvreux published in 2015 in collaboration
with a number of NGOs analyzed the carbon emissions for
24 industry groups under the Global Industry Classification
Standard (GICS) (Figure A3-1). It found that 21 industry
Environ.emissions
Res. Lett. 13 (2018)
104013 3 emissions
groups had indirect(Scopeupstream and downstream and Scope 2 upstream
emissions) greater than 50% of their overall carbon
emissions.141 For eight of these 21 industries, downstream
Scope 3 emissions were predominant.142 For the other 13
industries, upstream emissions were predominant.143 Just
three industry groups had indirect emissions less than
50%—Utilities, Transportation, and Materials.

A 2018 paper by Hertwich and Wood, using the IPCC GHG
reporting sectors of Energy, Transport, Industry, Buildings,
and Agriculture/Forestry/Other Land Use (AFOLU),144 found
two sectors with Scope 3 emissions greater than 50% of
their total carbon emissions—industry and AFOLU. The
building sector was close to 50% (Figure A3-2).
The analysis Scope 3 emissions has become moresophisticated, which has aided efforts to report Scope 3
emissions.145 In short, Scope 3 emissions have become theobject of much greater interest in financial markets, civilsociety, government, and companies since the launch of
the TCFD final report and annex in 2017.

Figure A3-2

Scope 1, 2, and 3 Emissions by IPCC Sector (1995–2015)

Figure 2. Scopes 1–3 emissions of the ﬁve IPCC sectors over the period 1995–2015, calculated using EXIOBASE 3.
Source: Hertwich and Wood, “The growing importance of scope 3 greenhouse gas emissions from industry,” Environmental Research Letters,
October 5, 2018, p. 6. Original content from this work used under the terms of the Creative Commons Attribution 3.0 license.

140 ee SBTi, Gold Standard, and Navigant, Value Change in the Value Chain: Best Practices in Scope 3 GHG Management, citing CDP’s Global Supply Chain reportS
Closing the Gap: Scaling Up Sustainable Supply Chains. The same paragraph in the report by SBTi et al. went on to say (again citing the CDP report): “Indeed,approximately 40% of global GHG emissions are driven or influenced by companies through their purchases (i.e. purchased goods and services) and throughthe products they sell (i.e. use of sold products).” This is a very important point as far as mapping the materiality of the different steps in the GHG protocol’s
Scope 3 schema is concerned, and Section D. (Scope and Approach) explores it in greater detail.

141

See Carbon Compass: Investor Guide to Carbon Footprinting and the section titled “Fasten your seat belt,” pp. 20–23.

142

 hese eight sectors are Banks, Insurance, Real Estate, Energy (i.e., the fossil fuel extraction industries of Mining and Oil & Gas), Capital Goods, Automobiles
T& Components, Consumer Durables and Apparel, and Technology.

143

 he other 13 industries are Household & Personal Goods, Food, Beverage & Tobacco, Food & Staples Retailing, Media, Pharmaceuticals, Commercial
T
Services, Healthcare, Consumer Services, Software & Services, Telecommunication Services, Retailing, Semi-Conductors, and Diversified Financials.

144 ertwich and Wood, “The growing importance of scope 3 greenhouse gas emissions from industry,” October 5, 2018; IPCC, Guidelines for National GreenhouseH
Gas Inventories, 2006. The analysis was conducted with the EXIOBASE 3.4 MRIO model, describing the world economy disaggregated into 200 products
produced and consumed in 43 countries and six aggregate regions, covering a time series from 1995 to 2015.

145

 his being said, there is one methodological issue unique to Scope 3 emissions when compared with Scope 1 and Scope 2 emissions and that is theToverlapping nature of company supply chains and hence the potential for the double-counting of Scope 3 emissions at the aggregated global level. However,while this makes the analysis of and accounting for Scope 3 emissions intrinsically more complicated for banks, insurance companies, asset owners, andasset managers, it also creates possibilities for companies with overlapping supply chains to collaborate on emissions reductions. Given that the financial
benefits of reduced emissions could be very significant in carbon-intensive industry supply chains (and companies failing to act on their supply chains,therefore at a potential disadvantage), Financials clearly have a strong incentive in understanding the extent and demarcation of Scope 3 emissions in theirloan books, underwriting portfolios, and investment portfolios as markets and civil society bring ever greater scrutiny to bear on supply chain emissions.

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The Task Force on Climate-related Financial Disclosures

Increased Reporting of Scope 3 Emissions by Companies
An analysis by the Carbon Disclosure Project found thatfrom 2017–2019, companies within their sample thatwere disclosing some form of Scope 3 emissions grewfrom 1,643 companies in 2017 to 1,728 companies in
2019.146 This represents about 87% of companies in the
CDP reporting sample in 2019. Among the categories of
Scope 3 emissions, business travel, purchased goods
and services (supply chain), generated waste, fuel- andenergy-related activities, and employee commuting wereconsistently in the top five. While fewer companies aredisclosing downstream Scope 3 emissions, the trend isalso growing in the disclosure of these categories.
Legislative and Regulatory Developments
Legislative and regulatory pressure has increased in somejurisdictions around emission standards and targets. A
report released in March 2021 by the Energy and Climate
Intelligence Unit and Oxford Net Zero found that “61% ofcountries, 9% of states & regions in the largest emitting
countries and 13% of cities over 500k in population have
now committed to net zero. Of the world’s 2,000 largest
public companies, at least one-fifth (21%) now have net
zero commitments, representing annual sales of nearly$14 trillion.”147
Many company proposals include articulation of Scope
3 emissions. The EU proposal, for example, states that,from the date of its application, Scope 3 emissions data
for the Oil and Gas and Mining sectors will be expected
to be provided. Scope 3 data for the Transportation,
Construction, Buildings, and Materials sectors will be
expected within two years of implementation, and this data
for every other sector will be expected within four years.148
Developments in the Task Force’s Own Work
The TCFD’s own work, most notably concerning the sector
forums organized by the WBCSD on behalf of the TCFD,
has also converged on the importance of disclosing Scope
3 emissions. In particular, the WBCSD forum on Materials
and Buildings and Chemicals suggested that Scope 3
emissions be disclosed by companies in these sectors.
Providing clearer guidance on when Scope 3 emissions
should be disclosed (e.g., for certain types of companies,
under certain circumstances) may help improveconsistency in reporting.
Taking these developments in whole, the updates
to recommendations and guidance are designed toencourage more organizations to report Scope 3 GHG

emissions. This is because banks, insurance companies,
asset managers, and asset owners will need better
disclosure on emissions, particularly Scope 3 emissions,from non-financials to better understand their financed
emissions and evaluate how their loan, underwriting,and investment activities may expose them to carbonrelated assets and their associated risks. In addition, an
increasing number of jurisdictions are formally adopting
the Paris Agreement’s temperature objective, and as aresult, non-financial companies may have to do much
more to measure, manage, and reduce their emissions,particularly Scope 3 emissions.
If disclosures made by organizations with significant direct
and indirect emissions do not include Scope 3 emissions,then the financial sector’s understanding of theconcentration of carbon-related assets on their balance
sheets and portfolios, and hence their understanding offinanced emissions, is limited. As a result, the Task Forceconsiders that the time is now right to revisit its original
guidance on Scope 3 emissions and financed emissions.
Financed Emissions
Since the TCFD final report and annex were publishedin June 2017, a number of initiatives have emerged
to improve the disclosure and reporting of financial
institutions’ financed emissions.
Three of these developments are of particular relevancefor the Task Force’s guidance on this topic: (1) the SBTiapproach to financed emissions, (2) the methodology
on financed emissions for the insurance industry being
developed by the CRO Forum, and (3) the Partnership for
Carbon Accounting Financials (PCAF).
The SBTi Approach to Financed Emissions149
The SBTi has launched a methodological framework forfinancial institutions that will enable banks, insurancecompanies, and asset owners and asset managers to set
science-based targets for decarbonizing their portfolios.150
Financial institutions seeking endorsement from the SBTi
will have to set targets not only for their own Scope 1 andScope 2 emissions but also for their Scope 3 emissions,
including their financed emissions. It is not yet clear,though, whether Financials will also have to include the
Scope 3 emissions of their investee companies in theirfinanced emissions—for example, the Scope 3 emissionsof their loans to/investments in oil-and-gas companies.

146

From a CDP sample of 1,987 companies that disclosed consistently over the three years: 2019, 2018, 2017.

147

Black, Cullen, Fay, Hale, Lang, Mahmood, and Smith, Taking Stock: A global assessment of net zero targets, 2021.

148

See EU climate benchmarks and benchmarks’ ESG disclosures.

149F or the background and more details, see the SBTi’s approach to financed emissions.

150

See the SBTi paper Science Based Targets initiative for Financial Institutions Theory of Change and Strategy, February 2020.

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The Task Force on Climate-related Financial Disclosures

The CRO Forum’s Approach to Financed Emissions
in Underwriting Portfolios151
The CRO Forum is an initiative established in 2004 bringing
together the Chief Risk Officers of leading insurancecompanies to advance risk-management practices in theinsurance industry. In April 2020, the CRO published a report
titled Carbon Footprinting Methodology for Underwriting
Portfolios,152 with the aim of summarizing “a range of options,
methodologies and barriers for the carbon-footprinting of
insurance companies’ underwriting portfolios” (p. 5).
The CRO Forum’s report recommends using WACI metrics
as a first step in gauging the financial risks posed tounderwriting portfolios by climate change, although it
also emphasizes that the WACI methodologies it presents
should be viewed as “an exploration of the different
carbon-footprinting methodologies that may be applied tounderwriting portfolios and the barriers to applying them.”
The CRO Forum’s WACI153 metrics are calculated on
the basis of the insured entities’ Scope 1 and Scope 2
emissions only, with the Scope 3 emissions of entities
underwritten excluded from the calculation.
The PCAF Approach to Financed Emissions
In November 2020, PCAF issued the first edition of the
PCAF Global GHG Accounting and Reporting Standard for
the Financial Industry. PCAF’s Standard builds on the
GHG Protocol’s accounting rules for Scope 3, category
15 (Investments) by providing detailed methodologicalguidance to assist in the measurement and disclosureof 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.
PCAF notes, “The initiative, with guidance from PCAF
participants and users, intends to both update themethodologies over time and add additional ones.”154
The PCAF global standard for financed emissions requires
not only the measuring and disclosure of the Scope 1
and Scope 2 emissions associated with these assets but
also the Scope 3 emissions, with the Scope 3 emissions
to be phased in on the same time frame as that set out
by the EU Technical Experts Group for the low-carbon
benchmarks.155 PCAF’s Standard recognizes the difficulties
inherent in the comparability, coverage, transparency,
and reliability of Scope 3 data when attempting to capture
the Scope 3 dimension of financed emissions, but statesthat “by requiring Scope 3 reporting for selected sectors,
PCAF seeks to make Scope 3 emissions reporting morecommon practice by improving data availability andquality over time.”

Box A3-2
Global Carbon Accounting Standard
for the Financial Industry
PCAF is an industry-led initiative, created in 2015 by
Dutch financial institutions, extended to North America in
2018, and scaled up globally in 2019. PCAF helps financial
institutions assess and disclose greenhouse gas (GHG)
emissions from their loans and investments throughcarbon accounting. These disclosures allow stakeholders
to understand how a financial institution’s loans andinvestments are contributing to, or inhibiting, the transition
to a low-carbon economy.
Until now, there has not been a globally accepted
methodology for the measurement and disclosureof financed emissions. The absence of harmonizedmethodologies and reporting rules has led to the poor
uptake of carbon accounting of financed emissions andinconsistent disclosures across financial institutions.
Responding to industry demand for a global, standardized
carbon accounting approach, PCAF developed the Global
Carbon Accounting Standard for the financial industry (theStandard). With the GHG Protocol Scope 3 Standard 2 as its
foundation, the Standard builds upon the carbon accounting
methods that PCAF has been developing since 2015. Thesemethods are widely tested by banks and investors and used
to prepare disclosures of financed emissions.
These methods assist in the measurement and disclosure of
GHG emissions associated with the following six asset classes:(1) listed equity and corporate bonds, (2) business loans andunlisted equity, (3) project finance, (4) commercial real estate,(5) mortgages, and (6) motor vehicle loans. The Standard
provides detailed guidance for each asset class to calculate
the emissions resulting from activities in the real economy
that are financed through lending and investment portfolios.
Emissions are attributed to financial institutions based on
accounting rules that are specific for each asset class.
Limited data is often the main challenge in calculating
financed emissions; however, data limitations should not
deter financial institutions from starting their carbon
accounting journeys. Beginning with estimated or proxy
data can help identify carbon-intensive hotspots in lending
and investment portfolios. The Standard provides guidanceon data quality scoring per asset class, facilitating datatransparency and encouraging improvements to data quality
in the medium and long term. The Standard also provides
recommendations and requirements for disclosures, which
include a minimum disclosure threshold with flexibility toreport beyond this level. Any requirements not fulfilled mustbe accompanied by an explanation.

151

F or the background and more details, see the CRO Forum.

152

See Carbon Footprinting Methodology for Underwriting Portfolios, April 29, 2020.

153

 he CRO report explicitly references the WACI metric for asset owners and asset managers recommended by the TCFD in its 2017 final report as beingTapplicable—with the appropriate changes being made—to underwriting portfolios.

154See PCAF’s The Global Carbon Accounting Standard for the Financial Industry, November 18, 2020.

155

See PCAF’s The Global Carbon Accounting Standard for the Financial Industry, November 18, 2020, p. 49.

92

Appendix 3:
Glossary and Abbreviations

The Task Force on Climate-related Financial Disclosures

Appendix 3: Glossary and Abbreviations
ANNUAL OR INTEGRATED REPORTS refer to reportsthat describe companies’ activities for the preceding year
(annual reports) or the broader range of measures that
contribute to companies’ long-term value and the role
they play in society (integrated reports).
BOARD OF DIRECTORS (OR BOARD) refers to a body ofelected or appointed members who jointly oversee theactivities of a company or organization. Some countries
use a two-tiered system in which “board” refers to the“supervisory board” and “key executives” refers to the“management board.”156
CARBON ACCOUNTING of financial portfolios is theannual accounting and disclosure of GHG emissions ofloans and investments at a fixed point in time in line withfinancial accounting periods.
CARBON FOOTPRINTING is the calculation of the total
greenhouse gas emissions caused by an individual, event,organization, service, or product expressed as a carbon
dioxide equivalent.
CARBON INTENSITY relates to a company’s physicalcarbon performance and describes the extent to which
its business activities are based on carbon usage for adefined Scope and fiscal year.
CLIMATE-RELATED FINANCIAL IMPACT is a historical or
current quantity or forward-looking quantitative outlook(estimate, projection, or forecast) regarding the financial
impact of climate-related risks and opportunities on anorganization’s financial performance or position.
CLIMATE-RELATED METRIC is a quantity indicative of thelevel of historical, current, and forward-looking climaterelated risks and opportunities for a given organization.
These indicators are used to track climate-related risks
and opportunities and can also be used to measureprogress against climate-related targets over the durationof the period for which a target is set.
CLIMATE-RELATED OPPORTUNITY refers to the potential
positive impacts related to climate change on a company
or organization. Efforts to mitigate and adapt to climatechange can produce opportunities for companies, suchas through resource efficiency and cost savings, theadoption and utilization of low-emission energy sources,
the development of new products and services, andbuilding resilience along the supply chain. Climate-related
opportunities will vary depending on the region, market,
and industry in which an organization operates.
CLIMATE-RELATED RISK refers to the potential negative
impacts of climate change on a company or organization.
Physical risks emanating from climate change can be
event-driven (acute) such as increased severity of extreme
weather events (e.g., cyclones, droughts, floods, fires).
They can also relate to longer-term shifts (chronic) in
precipitation and temperature and increased variability
in weather patterns (e.g., sea level rise). Climate-relatedrisks can also be associated with the transition to a lowercarbon global economy, the most common of which
relates to policy and legal actions, technology changes,
market responses, and reputational considerations.
CLIMATE-RELATED TARGET is a specific level, threshold,or quantity of a metric that the organization wishes tomeet over a defined time horizon in order to achieve
the organization’s overall climate-related ambition andstrategy.
CROSS-INDUSTRY, CLIMATE-RELATED METRICS are
metrics that apply equally to all financial and nonfinancial organizations, though they may be implemented
or reported slightly differently in line with different bestpractices for each jurisdiction, sector, or geography.
FINANCED EMISSIONS see Carbon Accounting.
FINANCIAL FILINGS refer to the annual reporting
packages in which companies are required to deliver theiraudited 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 andother information such as governance statements andmanagement commentary.157
FINANCIAL PLANNING refers to a company’s
consideration of how it will achieve and fund its objectives
and strategic goals. The process of financial planningallows companies to assess future financial positions
and determine how resources can be utilized in pursuitof short- and long-term objectives. As part of financial
planning, companies often create “financial plans”
that outline the specific actions, assets, and resources(including capital) necessary to achieve these objectives

156

Organisation for Economic Co-operation and Development (OECD), G20/OECD Principles of Corporate Governance, 2015.

157

 ased on Climate Disclosure Standards Board, CDSB Framework for Reporting Environmental Information, Natural Capital and Associated Business Impacts,
B
April 2018.

94

The Task Force on Climate-related Financial Disclosuresover a one-to-five-year period. However, financial
planning is broader than the development of a financial
plan as it includes long-term capital allocation and otherconsiderations that may extend beyond the typical threeto-five-year financial plan (e.g., investment, research anddevelopment, manufacturing, markets).
GOVERNANCE refers to “the system by which anorganization is directed and controlled in the interestsof shareholders and other stakeholders.”158 “Governanceinvolves a set of relationships between an organization’s
management, its board, its shareholders, and otherstakeholders. Governance provides the structure
and processes through which the objectives of theorganization are set, progress against performance ismonitored, and results are evaluated.”159
GREENHOUSE GAS (GHG) EMISSIONS SCOPE LEVELS160• 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 coveredin Scope 2 that occur in the value chain of the reporting
company, including both upstream and downstream
emissions. Scope 3 emissions could include: theextraction 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.161
IMPLIED TEMPERATURE RISE (ITR) refers to an estimate ofa global temperature rise associated with the greenhousegas emissions of a single entity (e.g., a company) or aselection of entities (e.g., those in a given investment
portfolio, fund, or investment strategy). Expressed as anumeric degree 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 allcompanies in corresponding sectors had the same carbon
intensity as the selected asset(s).
INTERIM TARGET is a short-term milestone between theorganization’s mid- or long-term target and current period.

KEY PERFORMANCE INDICATOR (KPI) is a measurable
value that demonstrates how effectively a company
is achieving key business objectives. They are critical(key) indicators of progress toward an intended result.
KPIs provide a focus for strategic and operational
improvement, create an analytical basis for decisionmaking, and help focus attention on what matters most.
KEY RISK INDICATOR (KRI) is a measure used inmanagement to indicate how risky an activity is. Key risk
indicators are metrics used by organizations to provide
an early signal of increasing risk exposures in various
areas of the enterprise. It differs from a key performanceindicator in that the latter is meant as a measure of how
well something is being done, while the former is anindicator of the possibility of future adverse impact.
MANAGEMENT refers to those positions a company
or organization views as executive or senior
management positions.
NET-ZERO refers to achieving an equal balance between
GHG emissions produced and GHG emissions removed
from the atmosphere.
RISK ASSESSMENT consists of risks identification,risk analysis, and risk evaluation. The essentialbuilding blocks for comprehensively assessing risk
(and establishing metrics) are hazards, exposure,vulnerability, risk, and impacts.
RISK is defined in many ways. For purposes of thisguidance, risk is defined as the possibility or likelihoodthat actual results (operational or financial) deviate
from expected results in a manner that has an effecton objectives at different levels (such as strategic,organization-wide, project, product, and process). Risk
is often characterized by reference to potential eventsand consequences, or a combination of these, andexpressed in terms of a combination of the consequencesof an event (including changes in circumstances) and theassociated likelihood of occurrence. Uncertainty is thestate, 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 events occurring
multiplied by the company’s exposure and vulnerability
to the event.

158

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

159

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

160

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

161

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

95

The Task Force on Climate-related Financial Disclosures

RISK MANAGEMENT refers to a set of processes that are
carried out by a company or organization’s board andmanagement to support the achievement of its objectives
by addressing its risks and managing the combined
potential impact of those risks.
RISK PROFILE Each company has a unique risk profile that
determines its willingness and ability to withstand risk. A
risk profile consists of a company’s risk attitude, which may
be described as risk-averse, risk-neutral, or risk-seeking,a risk tolerance, which looks at acceptable/unacceptabledeviations from what is expected, and a risk appetite,which looks at how much risk one is willing to accept.
SCENARIO ANALYSIS is a process for identifying andassessing a potential range of outcomes of future events
under conditions of uncertainty. In the case of climatechange, for example, scenarios allow an organization
to explore and develop an understanding of how
the physical and transition risks of climate change
may impact its businesses, strategies, and financial
performance over time.

SUSTAINABILITY REPORT is a report that describes
a company or organization’s impact on society, often
addressing environmental, social, and governance issues.
TRANSITION PLAN is an aspect of an organization’s
overall business strategy that lays out how anorganization aims to minimize climate-related risks andincrease opportunities as the world transitions toward a
low-carbon economy, including by reducing emissions of
its own balance sheet and that of its value chain.
USER, or PRIMARY USER, refers to investors, lenders, andinsurance underwriters. The Task Force recognizes thatmany other organizations, including credit rating agencies,
equity analysts, stock exchanges, investment consultants,
and proxy advisors also use climate-related financial
disclosures, allowing them to push information throughthe credit and investment chain and contribute to thebetter pricing of risks by investors, lenders, and insurance
underwriters. These organizations, in principle, depend on
the same types of information as primary users.162

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 ofbusiness types, while “industry” is used to describe more
specific groupings of companies within a sector.
STRATEGY refers to an organization’s desired future state.
An organization’s strategy establishes a foundation against
which it can monitor and measure its progress in reachingthat desired state. Strategy formulation generally involves
establishing the purpose and Scope of the organization’s
activities and the nature of its businesses, taking into
account the risks and opportunities it faces and theenvironment in which it operates.

162

2017 TCFD Final Report, June 15, 2017, pp. 2-3.

96

The Task Force on Climate-related Financial Disclosures

ABBREVIATIONS
1.5°C — 1.5° Celsius

NZAMI—Net Zero Asset Managers Initiative

IIRC—International Integrated Reporting Council

NZIA — Net-Zero Insurance Alliance

2°C — 2° Celsius

PCAF — Partnership for Carbon Accounting Financials

AUM — Assets under management

PRA — Prudential Regulation Authority (Bank of England)

CA100+ — Climate Action 100+

PRI — Principles for Responsible Investment

CDP — Carbon Disclosure Project

SASB — Sustainability Accounting Standards Board

CDSB — Climate Disclosure Standards Board

SBTI — Science Based Targets initiative

CO2E — Carbon dioxide equivalent

TCFD — Task Force on Climate-related Financial
Disclosures

CRD — Corporate Reporting Dialogue
CSRD — Corporate Sustainability Reporting Directive
ESG — Environmental, social, and governance
FASB — Financial Accounting Standards Board
FSB — Financial Stability Board
G20 — Group of 20
GFANZ — Glasgow Financial Alliance for Net Zero

TPI — Transition Pathway Initiative
UNFCCC — United Nations Framework Convention on
Climate Change
UNEP-FI — United Nations Environment Programme
Finance Initiative
WACI — Weighted average carbon intensity
WBCSD — World Business Council for Sustainable
Development

GHG — Greenhouse gas
GICS — Global Industry Classification Standard
GRI — Global Reporting Initiative
IASB — International Accounting Standards BoardIFRS — International Financial Reporting Standards
IIF — Institute of International Finance
IIGCC — Institutional Investors Group on Climate Change
IOSCO—International Organization of Securities
Commissions
IPCC—Intergovernmental Panel on Climate Change
ISSB — International Sustainability Standards Board
NGFS — Network for Greening the Financial System
NZBA — Net-Zero Banking Alliance
NZAOA—Net-Zero Asset Owner Alliance97Appendix 4:
References

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Appendix 5:
Acknowledgments

The Task Force on Climate-related Financial Disclosures

Appendix 5: Acknowlegments
The TCFD greatly appreciates the assistance provided by the following individuals in developing this guidance:

TCFD WORKING GROUP MEMBERS
Adam Gustafsson, UBS
Alan X. Gómez Hernández, Member of the TCFD,
Citibanamex
Andrew Rudyy, BHP
Catherine Saire, Member of the TCFD, Deloitte
Eunice Heath, Dow
Leanne Bouvet, PwC
Lois Guthrie and Luke Blower, WBCSD

OTHER CONTRIBUTORS AND EXTERNALREVIEWERS
Clara Barby and Spencer Powell, Impact Management
Project
Ed Baker, UN PRIJanine Guillot and David Parham, SASBMark Lewis, Member of the TCFD, BNP Paribas AssetManagement
Nadia Glasspool, Ray Hertanto, Ronan Hodge,
Sean de Montfort, COP26 Private Finance

Lothar Rieth, EnBW
Martin Skancke, Member of the TCFD, Storebrandand UN PRI
Masaaki Nagamura, Member of the TCFD, Tokio Marine& Nichido Fire Insurance Co., Ltd.
Steve Bullock, S&P Global
Zoe Knight, HSBC

The Task Force gratefully acknowledges the work of the TCFD Secretariat’s Curtis Ravenel and Jeff Stehm and Oliver
Wyman’s Alban Pyanet, Kaja Pergar, Becky Swanson, Megan Dombrowski, and Kais Ben Halim in the developmentof this proposed guidance.

108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 recommendation of asecurity or financial instrument. The Task Force on Climate-related Financial Disclosures believes the information herein was obtained from reliable sources but does notguarantee its accuracy. Copyright 2021 The Task Force on Climate-related Financial Disclosures.