The Task Force on Climate-Related Financial Disclosures (TCFD) and the Greenhouse Gas (GHG) Protocol are core elements in Environmental, Social, and Governance (ESG) regulations.

The TCFD and the GHG Protocol offer reporting frameworks for companies to shape and disclose data around sustainability. The TCFD focuses on how organisations report climate-related information and the GHG Protocol provides standards for measuring and reporting greenhouse gas emissions. 

TCFD

TCFD was launched by the Financial Stability Board to develop recommendations for more effective climate-related disclosures, which could promote more informed investment decisions.

The UK has made it mandatory for large businesses to disclose climate-related information in line with the TCFD. The government offers background and context to the need for regulations around TCFD. It says:

“Climate change is a significant crisis facing the global community, and one the UK will need to continue to confront head-on amid the greater chance of warmer, wetter winters and hotter, dryer summers, plus more variable rainfall and more severe storms. Sea levels are rising by approximately 4 millimetres per year around the UK coastline, increasing the risk to buildings and infrastructure close to the shoreline.

“Extreme weather – flooding, storms, heatwaves – already cause significant disruption in the UK every year, so we should not underestimate the challenges that a more extreme climate will have on our lives, the economy and our environment”. (1)

The TCFD offers 4 recommendations across 4 thematic areas:

• Governance

• Strategy

• Risk Management

• Metrics and Targets (1)

It also pinpoints 11 interlinked disclosures around the thematic areas, highlighting core elements of operations.

And it advises 7 key principles for effective disclosure:

1.        relevant

2.        specific and complete

3.        clear, balanced, and understandable

4.        consistent over time

5.        comparable across the sector, industry, or portfolio

6.        reliable, verifiable, and objective

7.        timely (1)

TCFD recommendations have been adopted by a broad range of organisations across countries, industries and sectors. The UK government has formally endorsed the TCFD framework and has mandated TCFD-aligned disclosure for large entities in the private sector.

TCFD and wider ESG reporting already applies to premium-listed companies for accounting periods beginning on or after 1 January 2021. For accounting years beginning on or after 6 April 2022, private companies that need to report as thresholds has been changed to include those with over 500 employees and £500 million in turnover. (1)

TCFD main points

• Requires disclosures around governance, risk management, metrics, and targets 

• Scope 1 and Scope 2 GHG emissions disclosures necessary in annual reports

• Sustainability strategy, metrics and targets are subject to “materiality assessment”

GHG Protocol

The GHG Protocol is an internationally recognised carbon accounting tool and has become the global standard for organisations to measure, manage, and report emissions.  

It has been developed through a 20-year partnership between World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), and works with governments, industry associations, NGOs, businesses and other organisations.

The GHG Protocol provides standards for specific purposes:   

• Corporate Standard  

• GHG Protocol for Cities  

• Project Protocol  

• Mitigation Goal Standard  

• Product Standard 

• Policy and Action Standard 

• Corporate Value Chain (Scope 3) Standard (2)

The standards offer frameworks for businesses and other organisations to measure and report GHG emissions, aiming to bolster wider sustainability goals. The GHG Protocol also provides guidelines on how to apply these standards in particular sectors, including the financial industry. (2)

The GHG Protocol advises: “Measuring and managing GHG emissions allows organisations to understand the extent of the impact of their activities on the climate, including across their value chain. By doing so, they can develop effective strategies to reduce their emissions, contribute to mitigating climate change, and benefit from the opportunities associated with transitioning to a low carbon economy”. (2)

GHG Protocol provides the most widely used greenhouse gas accounting standards. The Corporate Accounting and Reporting Standard provides the accounting platform for virtually every corporate GHG reporting programme in the world. (3)

Emissions classification

The GHG Protocol has categorised the various emission sources into “scopes” with full definitions.

Scope 1: direct emissions which originate from operations that are either owned or controlled by a company.  For example, any fuel used for company-owned vehicles.  

Scope 2: indirect emissions that occur following the generation of purchases or acquired electricity, steam, or heat. These emissions are a consequence of the energy consumed at a site owned or controlled by the business. For example, electricity usage in offices. 

Scope 3: all remaining emissions that occur in organisations supply or value chain. For example, lawyer fees would be included in Professional Services. (2)

The GHG Protocol underpins and endorses other climate-related international frameworks, such as the Partnership for Carbon Accounting Financials (PCAF), a comprehensive methodology to measure financed emissions accurately and consistently. (4)

PCAF Financed Emissions Standard is built upon the GHG Protocol and provides a detailed methodology for calculating financed Scope 3 emissions across a range of asset classes. 

The International Financial Reporting Standards Foundation (IFRS),  which helped to establish the International Sustainability Standards Board (ISSB) has recently taken over monitoring of companies' climate-related disclosures from the TCFD. (5)

SaveMoneyCutCarbon’s viewpoint is that businesses, governments, investors, stakeholders and employees will see this decade as decisive in terms of reaction to climate-change data and action to achieve Net Zero carbon emissions in both public and private sectors.

The Greenhouse Gas (GHG) Protocol supports the Task Force on Climate-related Financial Disclosures (TCFD) framework by providing metrics and targets for climate-related disclosures. The GHG Protocol also helps ensure consistent reporting across companies and industries. 

Bibliography

1 “Task Force on Climate-related Financial Disclosure (TCFD) - aligned disclosure application guidance” (Accessed January 2025) https://www.gov.uk/government/publications/tcfd-aligned-disclosure-application-guidance/task-force-on-climate-related-financial-disclosure-tcfd-aligned-disclosure-application-guidance

2 “GHG Protocol: About Us” (Accessed January 2025 https://ghgprotocol.org/about-us

3 “Corporate Standard” (Accessed January 2025)https://ghgprotocol.org/node/485/

4 “Enabling financial institutions to assess and disclose greenhouse gas emissions associated with financial activities” (Accessed January 2025) https://carbonaccountingfinancials.com/

5 “Connecting IFRS Accounting and IFRS Sustainability” (Accessed January 2025) https://www.ifrs.org/