The saying goes that ‘all roads lead to Rome’. Fiona Donnelly, Director, Red Links, argues that the same sentiment could apply to the climate-related disclosure recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). 

Six years ago, the then governor of the Bank of England, Mark Carney, gave his landmark Breaking the Tragedy of the Horizon speech (see ‘Online links’ for this and other online resources referenced in this article). Carney’s ‘tragedy of the horizon’ is an adaptation of the more familiar ‘tragedy of the commons’ – where the short-term personal gain of individual actors leads to the destruction of shared environmental resources. In the ‘tragedy of the horizon’ scenario, the actors who are best placed to do something about the catastrophic impacts of climate change are, at best, being slow to take the necessary action because the predicted catastrophe lies beyond their traditional horizons – whether they be risk, business, timeframe or political cycle horizons.

Mark Carney urged the financial sector globally to address the current and prospective financial stability risks from climate change, principally by ensuring consistent, comparable, reliable and clear disclosures about the climate-related risks and opportunities of organisations. ‘With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers and a smoother transition to a lower-carbon economy. By managing what gets measured, we can break the “tragedy of the horizon”,’ he said. 

Shortly after this speech, the Financial Stability Board, chaired by Mark Carney, launched the TCFD. The TCFD was created to develop consistent climate-related financial risk disclosures for use by companies, banks and investors in providing information to stakeholders. Two years later, in 2017, the recommendations of the TCFD were released. These recommendations present an approach and recommended disclosures around systematically considering climate-related risks and opportunities in forward-looking business scenario planning. They are designed to help bring clarity, comparability and measurability to climate issues by showing a way to consider and present decision-useful, forward-looking information about the material financial impacts of climate risks and opportunities. They have spread across the world and are now gaining traction, not only by direct adoption, but also through their indirect influence on and integration with other codes and frameworks.

TCFD means different things to different organisations and sectors depending on their vulnerability to the impacts of climate change. Climate change also has more profound importance in different parts of the world. For example, those countries with low lying land masses are most at risk from rising sea levels. Even more will be impacted by the so-called transition risks – the wide-sweeping changes that will occur to aspects like legal policies and technological developments which will be required to support goals such as making the EU carbon-neutral by 2050. So while these specific factors will contribute to the uptake of TCFD, what seems to be universal is the broader, more deliberate and strategic consideration of climate change. 

TCFD uptake in Hong Kong 

While there are over 2,000 signatories of TCFD worldwide, as at March 2021, only 19 organisations in Hong Kong had officially registered as a Supporter. These comprise: six professional services firms, three asset managers, two utilities, two real estate businesses, and the remainder being financial services. It is interesting to note that not all Supporters are sharing any disclosures publicly, so what is not known is the extent to which they may be applying rigorous climate analyses in enterprise risk management and other business decisions. Conversations on such issues could be – and hopefully are – commanding more time with their respective boards.  

Other organisations, including issuers, are disclosing TCFD-inspired information despite not having signed up as an official TCFD Supporter, so TCFD adoption is more widespread than the registered number of Supporters would indicate. Suffice it to say, TCFD is less than four years’ old and will result in a profound change and new ways of thinking for many organisations.  Many suggest it could take upwards of five years to properly grasp the application in the spirit of the recommendations, so at present it is very much a case of many organisations getting up to speed.  

Other roads leading to TCFD

In Hong Kong, in addition to the broad encouragement to become an official Supporter, other bodies are also dovetailing their developments towards the TCFD too. Three initiatives are highlighted below. 

  1. The Stock Exchange of Hong Kong is steering its issuers towards TCFD in its new Environment, Social and Governance (ESG) Reporting Guide, which sets out mandatory ‘comply or explain’ disclosures.
  2. The Green and Sustainable Finance Cross-Agency Steering Group, comprising key regulators of Hong Kong’s financial sector, was set up in May 2020 to coordinate these issues while supporting international initiatives and alignment. Its first strategic priority is to strengthen the management of climate-related financial risks in order to consolidate Hong Kong’s position as a global risk management centre. 
  3. The Securities and Futures Commission’s proposed new Fund Manager Code of Conduct is likely to align with TCFD.

Who knows what further developments will transpire. Hong Kong may even follow Canada’s initiative to incentivise a more sustainable future and link finance to support the recovery from Covid to climate commitments and disclosures. It may take inspiration from Singapore – in December 2020, the Monetary Authority of Singapore issued Guidelines on Environmental Risk Management tailored to financial institutions that are generally aligned with TCFD. 

In terms of other jurisdictions of note, two stand out: 

  1. New Zealand was the first country in the world to make TCFD reporting mandatory. The new reporting requirements are likely to become effective in 2023. 
  2. The UK is aiming for mandatory TCFD-aligned disclosures across non-financial and financial sectors of the UK economy by 2025. In addition, disclosures such as those recommended by the TCFD are already being driven through other channels like the non-statutory guidance for the trustees of occupational pension schemes.  

These and other offshore changes could impact Hong Kong, depending on the territory’s relationship with and accountability to asset owners and investors, among others, in these and other climate-sensitised locations. The upshot is that compliance by Hong Kong organisations with local requirements and norms may not be adequate for all the stakeholders that matter.  

Moreover, other optional disclosure approaches and tools that have global application, and there are many, have been modified to include specific TCFD alignment in their frameworks – these include those of the CDP, Principles for Responsible Investment, Climate Action 100+, GRESB and the ESG disclosure requirements of stock exchanges around the world. 

There have also been a number of initiatives to promote greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements. Two of note are: 

  1. the Better Alignment Project of the Corporate Reporting Dialogue – a platform created by the International Integrated Reporting Council focusing on the alignment of global frameworks and standards, and 
  2. the proposed new global sustainability reporting standard-setting board to be established alongside the existing International Accounting Standards Board of the International Financial Reporting Standards Foundation. 

These initiatives propose to use the TCFD recommendations and other existing standards to create a comprehensive and harmonised reporting framework. 

The road ahead

It is very clear, then, that climate thinking and analyses are here to stay in terms of enterprise risk management, and at least for now, the TCFD approach provides a widely accepted and growing approach to driving that change. The adoption of TCFD-aligned climate disclosures is expected to grow exponentially, not only in Hong Kong but worldwide.

Fiona Donnelly, Director

Red Links

The Red Links Sustainability Consortium provides bespoke sustainability services. The author can be contacted at:


SIDEBAR: Online links

Breaking the Tragedy of the Horizon – Climate Change and Financial Stability – speech by Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board on 29 September 2015. 

The Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The Environmental, Social and Governance (ESG) Reporting Guide,The Stock Exchange of Hong Kong.

The Green and Sustainable Finance Cross-Agency Steering Group was set up in May 2020 and is cochaired by the Hong Kong Monetary Authority and the Securities and Futures Commission, with members comprising the Environment Bureau, the Financial Services and the Treasury Bureau, Hong Kong Exchanges and Clearing Ltd, the Insurance Authority and the Mandatory Provident Fund Schemes Authority.

Fund Manager Code of Conduct issued by Hong Kong’s Securities and Futures Commission.

CDP is a not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

The Principles for Responsible Investment (PRI) is an investor-led initiative providing a voluntary and aspirational set of six investment principles about incorporating ESG issues into investment practice.

Climate Action 100+ is another investor-led initiative to encourage the world’s largest corporate greenhouse gas emitters take necessary action on climate change.

GRESB is a membership organisation concerning sustainable real estate. Its Resilience Module, which is intended to address the information needs of investors, is aligned to TCFD.