TCFD in practice: how to structure climate risk disclosure

Most companies publishing a TCFD report for the first time believe they have done something substantial. Rarely did. What it produced was a well-formatted document that describes how weather could, in theory, affect the business — without quantifying exposure, without scenarios with auditable assumptions, without connection to real capital decisions. The trap of outsourcing everything to a consultancy produces exactly this result: sophisticated language, shallow substance.

What the TCFD really asks for — and where companies stop halfway

The Task Force on Climate-related Financial Disclosures organizes disclosure into four pillars: governance, strategy, risk management and metrics and goals. Each pillar requires a different level of organizational maturity, and companies tend to go through the first two without difficulty and get stuck in the last two.

Governance is the easiest: who on the board oversees the climate issue, how often the issue comes up to the board, which committee is responsible. Strategy is already complicated: it requires describing how physical and transition risks affect the business in different horizons, based on at least two climate scenarios — including one aligned with 1.5°C or 2°C. Risk management requires documenting how climate risk is integrated into the overall risk management process — not as a parallel exercise, but as part of the same framework that governs operational and financial risks. Metrics and targets close the cycle: quantitative exposure indicators and reduction targets with a defined trajectory.

The pattern of error is to fill governance and strategy with generic prose and leave risk management and metrics without real substance. The result is a report that describes the problem without highlighting any response process.

The trap of scenarios without premises

Scenario analysis is the heart of TCFD — and where most first-generation reports fail most visibly. A climate scenario is not a narrative about “the world in 2050 with 2°C more”. It is a set of quantitative assumptions — carbon price, fuel regulation, changes in demand by sector — that make it possible to calculate the financial impact on the business.

The practical problem is that building scenarios with auditable assumptions requires data and analytical capacity that many companies do not have internally, and hired consultancies sometimes deliver well-written narratives without the numerical modeling that supports them. A sophisticated investor reading a TCFD report knows to distinguish the two cases within a few paragraphs.

The IEA reference scenarios — NZE, APS, and STEPS — are the most commonly used starting point. The real work is to translate these macroeconomic scenarios into sectoral impacts and then into specific impacts for the company's asset portfolio. This exercise is where internal analytical capacity makes a difference.

Risk management: the pillar that no one really integrates

The third pillar question is straightforward: how does climate risk enter into the risk management process that the company already uses? Not "how the company thinks about climate", but how that risk is integrated into the system that governs operational risk, credit risk, liquidity risk.

In most companies, the honest answer is: it isn't. Climate risk lives in a separate area, with its own process and calendar — typically the sustainability reporting cycle. This creates a concrete asymmetry: the company can have a sophisticated TCFD report and at the same time approve expansions in regions of high physical risk without this risk appearing in the project analysis.

Truly integrating means that the corporate risk map includes climate risks with the same probability and impact methodology used for other risks, that new investment projects are screened for climate risk before approval, and that the risk committee — not the sustainability committee — receives periodic reports on climate exposure.

Metrics and goals: what is worth measuring

The fourth pillar is where objectivity arrives most strongly. Useful climate metrics track exposure and progress over time with clear connection to the company's financial model.

Greenhouse gas emissions are the unavoidable starting point: Scope 1 (direct emissions), Scope 2 (purchased energy) and Scope 3 (value chain). The difference between superficial inventories and useful inventories lies in the coverage of Scope 3 — which for most companies represents more than 70% of the total. Declaring Scope 3 as "in development" two years in a row is a clear sign that the problem has not yet been addressed. For companies with relevant physical exposure — assets in coastal regions, operations in water-stressed areas — physical exposure metrics are as important as emission metrics.

Goals without a trajectory are not goals. Announcing carbon neutrality by 2050 without a five-year reduction plan and without identifying which operations will be modified is a declaration of intent without strategic content.

Build in-house capability instead of outsourcing everything

The natural tendency is to hire a consultancy to produce the first TCFD report and repeat the cycle the following year. This model does not build anything internally — each cycle starts from scratch, the data remains in the consultancy, and the company continues to not know how to answer basic questions without external help.

Building internal capacity does not mean dispensing with consultancy. It means defining what stays in-house: ownership of emission data, the scenario model with documented assumptions, the integration process with risk management. Consulting can accelerate the learning curve, but knowledge needs to transfer to the internal team each cycle.