The Task Force on Climate-related Financial Disclosures (TCFD) and the European Union Corporate Sustainability Reporting Directive (EU CSRD) are two significant initiatives aimed at promoting sustainable development and addressing the risks and opportunities associated with climate change. While the TCFD focuses on climate-related financial disclosures, the EU CSRD seeks to establish a standard for sustainability reporting across the European Union. To better understand the role each plays in an organization's ESG program, let's take a closer look at their similarities and differences.
Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD is a voluntary framework established in 2015 to help companies disclose information about their exposure to climate-related risks and opportunities. The TCFD framework provides guidance on the disclosure of four key areas: governance, strategy, risk management, and metrics and targets. The framework is intended to provide companies with a standardized and transparent way to report their climate-related financial risks and opportunities.
The TCFD framework's recommendations are based on the understanding that climate change poses significant risks to financial stability and that investors and other stakeholders require consistent, comparable, and reliable information about these risks. By disclosing their exposure to climate-related risks, companies can better manage these risks, and investors can make more informed investment decisions.
European Union Corporate Sustainability Reporting Directive (EU CSRD)
The EU CSRD is a proposed directive establishing a common sustainability reporting standard across the European Union. It builds on the existing Non-Financial Reporting Directive (NFRD) and is part of the European Union's efforts to transition to a more sustainable economy. The proposed directive would apply to large companies with more than 250 employees or revenues of more than 50 million euros.
The EU CSRD proposes that companies report on a range of sustainability issues, including environmental, social, and governance (ESG) factors. The directive aims to increase transparency and comparability of sustainability information for investors and other stakeholders. The EU CSRD also seeks to align the reporting requirements with internationally recognized standards, such as the TCFD framework.
Similarities and Differences
The TCFD and EU CSRD share a similar goal of promoting transparency and accountability around sustainability issues. Both initiatives recognize the importance of providing investors and other stakeholders with consistent, comparable, and reliable information about sustainability risks and opportunities. They also focus on addressing the financial risks associated with climate change.
However, there are some key differences between the two initiatives. First, the TCFD is a voluntary framework, while the EU CSRD would be a mandatory reporting requirement for companies. Companies would be required to report on sustainability issues under the EU CSRD, whereas adherence to the TCFD framework is voluntary.
Second, the TCFD framework explicitly focuses on climate-related financial disclosures, while the EU CSRD covers a broader range of sustainability issues. For example, the EU CSRD includes reporting requirements on environmental, social, and governance (ESG) factors, such as employee diversity and human rights, which are not covered by the TCFD framework.
Third, the TCFD framework is an international initiative not specific to the European Union, while the EU CSRD is a directive specific to the European Union. However, the EU has endorsed the TCFD framework and has recommended that companies use it as a basis for their climate-related disclosures.
Finally, the EU CSRD proposes that companies align their reporting requirements with internationally recognized standards, such as the TCFD framework. This would create greater consistency and comparability in sustainability reporting across the European Union.
What should your organizations do today to prepare for mandatory ESG reporting
With CSRD and other ESG mandates on the horizon, now is the time for organizations to address several key questions:
What should your business be doing now to prepare for mandatory ESG reporting?
What challenges does ESG data disclosure create for our organization, and how do we address them?
How can we bring efficiency and centralization to our corporate ESG program?
Archer's ESG Management solution enables organizations to collect and centralize ESG data into a single platform, evaluate the impact of risks and the opportunities on business strategy, understand 3rd party ESG risks, set ESG objectives, and produce auditable reporting on sustainability disclosures all from one integrated platform. In addition, Archer ESG Management can help automate and standardize the sustainability reporting process simplifying the effort needed to collect and aggregate data in sustainability reports and minimizing the risk of disclosing inaccurate information.
Interested in learning more? Register for our March 22, 2023 webinar, "ESG in the EU -Preparing for Mandatory Reporting," to learn about:
The expected impact of upcoming ESG reporting and regulatory enforcement
The critical role of risk management in the success of corporate ESG programs
How Archer ESG Management can help your organization tackle ESG reporting challenges
Contact us to speak to an Archer expert.