How to Report on Climate Risks According to the TCFD Framework?

What is the TCFD (Task Force on Climate-related Financial Disclosures)?

The answer to the question ofwhat is the TCFD framework lies in the global standard that enables organizations to disclose the financial impacts of climate change in a transparent and structured manner. TCFD, which stands for Task Force on Climate-related Financial Disclosures, aims for companies to show investors and stakeholders how climate risks and opportunitiesare reflected in financial statements. The framework integrates environmental performance and financial health by assessing the impact of climate scenarios on business finances.

The Strategic Importance of TCFD Reporting for Companies (Why Do It?)

Traditional corporate social responsibility reporting is being replaced by climate-related financial disclosures focused on financial impact. The three main reasons why TCFD is of strategic importance at the corporate level are as follows:

Investor Confidence and Access to Green Finance

Global capital is shifting to companies that are aligned with "Net Zero" targets and proactively manage climate risks. Institutional investors reference TCFD data when allocating capital; companies with a strong climate strategy can access financing at a lower cost of capital through instruments such as green bonds and sustainability-linked loans.

Compliance with Regulatory Requirements and New Standards (IFRS S2)

Regulatory authorities are transforming ESG reporting standardsfrom voluntary to a legal obligation. The International Sustainability Standards Board (ISSB) directly integrated the TCFD recommendations into its own structure with the IFRS S2 (Climate-related Disclosures) standard published in 2023. Therefore, it is mandatory to apply the TCFD framework when targeting IFRS S2 compliance. In addition, the Turkish Sustainability Reporting Standards (TSRS) issued by the Public Oversight Authority (POA) in Turkey are fully aligned with ISSB and IFRS S1/S2 standards, making the TCFD principles binding for large companies in Turkey.

Turning Climate Risks (Physical and Transition Risks) into Opportunities

The climate risks and opportunities that companies face directly threaten long-term financial sustainability. Physical risks, such as extreme weather events or wildfires destroying infrastructure (e.g. the bankruptcy of PG&E), as well as transition risks from carbon pricing (e.g. the European Union's Border Carbon Adjustment Mechanism - CBAM), have a direct impact on balance sheets. TCFD ensures that these risks are identified early and turned into opportunities, such as green innovation.

4 Pillars of the TCFD Framework

The basic answer to the question ofhow TCFD reporting is done is given by embedding climate risks into the corporate culture and financial reporting around the following 4 pillars:

1. Governance: Role of the Board of Directors

The role of the organization's board in overseeing climate-related risks and opportunities should be transparently disclosed. Effective governance includes establishing a board-level sustainability committee, monitoring climate risks and linking executive remuneration or bonus systems to sustainability goals. TCFD reporting cannot be functional without strong top-down ownership (tone at the top).

2. Strategy: Scenario Analysis and Impact on Business Model

The potential impacts of climate change scenarios on the organization's business model, strategy and financial planning should be explained. Companies should model how their supply chain and assets will be affected in the long term in the form of financial values (through scenario analyses), for example with reference to the Intergovernmental Panel on Climate Change's (IPCC) 1.5°C or 2°C warming scenarios.

3. Risk Management: Identifying Climate Risks

Report on how climate-related risks are identified, assessed and integrated into the entity's overall enterprise risk management (ERM) structure. Organizations should incorporate regulatory costs, social reputational risks, and financial risks of physical environmental events into their enterprise risk maps, using COSO-WBCSD guidance.

4. Metrics and Targets: Carbon Footprint and ESG Data

Companies should share which key performance indicators (KPIs) and targets they use to manage the risks and opportunities they have identified. This process requires the measurement and disclosure of Scope 1, Scope 2 and Scope 3 greenhouse gas emissions (Corporate Carbon Footprint) in accordance with ISO 14064-1 and GHG Protocol standards. It also includes setting an internal "shadow price of carbon" to be used in investment decisions and setting science-based interim targets (SBTi) on the path to net zero emission commitments.

What are Common Mistakes in TCFD Reporting?

The most common strategic and operational mistakes that organizations make in the TCFD compliance process are as follows:

"Empty Pledges" and Greenwashing: Setting "Net Zero" targets for decades into the future (e.g. 2050), but not providing a concrete mitigation plan or investment today. Such approaches are considered greenwashing by informed investors.

Siloed Teams: Confining sustainability management to a PR or CSR department. Climate risks are financial risks and should be fully integrated with the CFO, risk management and operations departments.

Incomplete Perception of Double Materiality: Measuring climate risks based only on their financial materiality and ignoring the company's impact on the environment and society (impact materiality) is a shortcoming that makes it difficult to transition from TCFD to full ESG reporting standards.

Ignoring Supply Chain Risks (Scope 3): Focusing only on own operations (Scopes 1 and 2) when most of the emissions and actual risks are located in the value chain, e.g. not pricing in cost increases from carbon regulations (CBAM, etc.). Companies should make their data management accurate by using modular systems such as CimpactPro,.