The Task Force on Climate-related Financial Disclosures (TCFD) was a critical framework for companies in the UK and EU to increase transparency around climate-related financial risks and opportunities. However, as of October 2023, the TCFD has been disbanded and merged with the International Sustainability Standards Board (ISSB), marking a new phase for Environmental, Social, and Governance (ESG) reporting. This merger represents a significant shift in how companies approach sustainability reporting moving forward. In this article, we will explore the implications of the TCFD’s transition into the ISSB, the continued importance of ESG reporting, and how companies can leverage solutions like IBM Envizi from Ikano Insight to navigate these changes.
The TCFD’s legacy and its transition to the ISSB?
Established in 2015 by the Financial Stability Board (FSB), the TCFD set out to develop consistent climate-related financial risk disclosures for companies, banks, and investors. The framework aimed to improve transparency by focusing on four key areas: governance, strategy, risk management, and metrics and targets. Over time, the TCFD gained global adoption and became central to mandatory climate-related disclosures in several countries, including the UK.
However, as sustainability reporting became more complex, the need for a unified approach grew. In October 2023, the TCFD was merged with the International Sustainability Standards Board (ISSB) to streamline global sustainability standards. The ISSB, formed by the International Financial Reporting Standards (IFRS) Foundation, aims to provide a comprehensive set of sustainability disclosure standards, building upon the TCFD’s groundwork. This shift simplifies ESG reporting by integrating financial and sustainability standards, reducing the burden of navigating multiple frameworks.
Streamline your ESG framework reporting, including TCFD, CSRD, GRI and many more with IBM Envizi ESG Suite implemented and managed by Ikano Insight
What the ISSB means for ESG reporting
The merger of the TCFD into the ISSB signals a new era for ESG reporting. Companies will now follow a more standardised and cohesive approach to sustainability disclosures, focusing on global comparability and transparency. This move will benefit stakeholders—investors, regulators, and consumers—by ensuring consistent and actionable sustainability data.
For businesses, this change means adapting to ISSB-aligned disclosures, which incorporate and build upon TCFD’s core themes:
- Governance: How an organisation manages climate-related risks and opportunities.
- Strategy: The impact of these risks and opportunities on business strategy and financial planning.
- Risk management: Processes for identifying, assessing, and managing these risks.
- Metrics and targets: Quantitative data used to assess and manage risks, such as greenhouse gas (GHG) emissions.
Many companies still need to refine their reporting practices to meet ISSB standards, which emphasise integration with financial reporting and alignment across global jurisdictions.
Transitioning to the International Sustainability Standards Board (ISSB) standards
Companies can continue using the TCFD reporting and disclosure recommendations as a valuable entry point while transitioning to the International Sustainability Standards Board (ISSB) standards. Some businesses may still be required to follow the TCFD guidelines, but the new IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2) integrate and expand upon these recommendations. By adopting IFRS S1 and S2, companies not only meet TCFD requirements but also provide more comprehensive, comparable, and reliable climate-related information, supporting better decision-making for investors.
The ISSB Standards are built upon the familiar TCFD reporting framework, reducing the learning curve for companies. These standards focus on material and decision-useful information, improve transparency in governance, strategy, and risk management, and help streamline sustainability reporting processes. The integration also benefits companies by enhancing access to capital through improved comparability, reducing reporting complexity, and aligning with other sustainability frameworks.
Notably, IFRS S2 introduces additional requirements, such as industry-based metrics, disclosures on the use of carbon credits, and information on financed emissions. The ISSB’s incorporation of TCFD recommendations simplifies climate-related disclosures, setting the stage for improved reporting practices as the standards become mandatory for publicly held companies starting January 2026.
Industries most impacted by ESG regulations
The TCFD, and now ISSB, frameworks are particularly relevant to industries heavily impacted by climate change, including:
- Energy: Fossil fuel-based industries facing regulatory and market shifts towards renewable energy.
- Transportation: Automotive and aviation sectors adapting to low-carbon technologies.
- Agriculture: Vulnerable to climate shifts affecting water and crop production.
- Real Estate: Exposed to physical risks from extreme weather and rising sea levels.
- Financial Services: Banks and investors must assess the climate risks within their portfolios.
However, the global and cross-sector nature of the ISSB means that all companies, regardless of industry, must evaluate their climate-related risks and disclose these impacts transparently.
How companies can prepare for ISSB-aligned ESG reporting
The move to ISSB-aligned reporting means companies must focus on integrating sustainability into their overall financial reporting. Key areas to focus on include:
- Enhanced Governance: Boards must ensure they have oversight of climate risks, with clear roles for management in assessing these risks.
- Strategic Alignment: Climate risks should be embedded into long-term business strategies, considering different climate scenarios.
- Risk Management: Organisations need to continuously evaluate and disclose how they identify and manage climate risks.
- Clear Metrics and Targets: Transparent reporting on emissions and setting performance targets will remain critical.
The timeline for mandatory ISSB-aligned reporting will vary globally, but the trend toward stricter disclosure requirements is accelerating, making early adoption a strategic advantage.
Streamlining ISSB reporting with IBM Envizi from Ikano Insight
Navigating these evolving standards can be complex, but modules within the IBM Envizi platform, such as ESG reporting frameworks simplify data collection and reporting, ensuring that companies can easily manage disclosures and ensure accuracy across multiple frameworks, including the ISSB.
With the ISSB’s focus on global comparability, having an integrated ESG reporting tool will be crucial for businesses looking to stay ahead of regulatory demands while also improving transparency and stakeholder confidence.
Free demos of the IBM Envizi platform are available to book now, providing you with an opportunity to see firsthand how all your ESG data collection, including Scopes 1, 2 and 3, can be automated and integrated with your framework reporting requirements.
