TCFD reports
How investors can assess a company or fund's climate-related governance, strategy, risks, and metrics
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Taskforce on Climate-related Financial Disclosures (TCFD)
The Taskforce on Climate-related Financial Disclosures (TCFD) framework enhances transparency on climate-related risks and opportunities. In the UK, listed companies, asset managers, and pension providers must publish annual TCFD reports.
TCFD standardises disclosures, allowing investors to compare data effectively and make informed decisions. The UK aims for net zero emissions by 2050, which requires high-quality information on climate management across the investment chain.
What is included in TCFD reports?
The recommendations are structured around four themes that represent core elements of how organisations operate: governance, strategy, risk management, and metrics and targets. Asset managers and pension providers are also required to publish product reports for ready-made investment portfolios which are managed by experts on your behalf.
| Section | What to expect | What good looks like |
|---|---|---|
| Governance | The organisation will disclose its governance around climate-related risks and opportunities, including board oversight and management’s role. | Clear documentation of board oversight and management's role related to climate risks. Regular updates to the board and integration of climate considerations into governance structures and strategic decisions. |
| Strategy | The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning. This will include an assessment of the resilience of the firm’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. | Detailed analysis of how climate risks and opportunities are integrated into business strategy and financial planning. Scenario analysis demonstrating strategy resilience under various climate conditions. Clear communication of impacts on business operations and financial outcomes. |
| Risk Management | How the organisation identifies, assesses, and manages climate-related risks. | Robust framework addressing climate risks with clear processes for identifying, assessing, and prioritising these risks. Integration into overall risk management and regular updates with actions to mitigate identified risks. |
| Metrics and Targets | The metrics and targets used to assess and manage relevant climate-related risks and opportunities. | Disclosure of Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas emissions. Specific, measurable, and time-bound metrics and targets. Regular tracking and reporting of progress. Alignment with broader sustainability goals. Transparent disclosure of methodologies and assumptions used. |
| Product Reports | The disclosure of climate-related risks, opportunities, metrics and, where appropriate, targets. | Clear disclosure of portfolio emissions, climate-related risks and opportunities, and, if appropriate, emission reduction targets. |
How to interpret climate-related data
When interpreting climate metrics for investment decisions, look at them collectively rather than individually. Each metric offers a unique perspective on climate risk.
TCFD reports typically include two types of metrics: current emissions and forward-looking scenario analysis. Current emissions metrics such as total emissions, carbon footprint, and carbon intensity provide a snapshot of a firm or product's emissions profile. Higher emissions may indicate greater climate risk, potentially exposing companies to regulatory fines, carbon taxes, or reputational damage.
Forward-looking scenario analysis metrics assess climate risk exposure and the preparedness of companies or portfolios for the transition to a low-carbon economy. Companies with high emissions but robust decarbonisation strategies may have lower Implied Temperature Rise or Climate Value-at Risk scores, compared to peers. This could indicate they are better positioned for the transition than those with low emissions but no clear net-zero strategy.
These forward-looking metrics are critical as they allow investors to understand the opportunities in higher-emitting companies. If high-emitting firms show strong commitments and plans to transition to a low-carbon future, it strengthens their investment appeal. Supporting such transitions is critical for facilitating a just and sustainable transition across high-emitting industries. For an exhaustive list of data definitions and calculation methodologies, please refer to HL's TCFD report.
| Metric | Purpose | Pros | Cons |
|---|---|---|---|
| Total Emissions | The absolute greenhouse gas emissions associated with a company or portfolio. This is typically expressed in tons of carbon dioxide equivalent (tCO2e). | Provides a clear measure of the overall emissions impact. | Metric is generally not used to compare portfolios because the data is significantly impacted by the size of each fund. |
| Carbon Footprint | Total carbon emissions for a company or portfolio normalised by the market value of the portfolio. This is typically expressed in tons of CO2e per $million invested. | Emissions are normalised by the market value, allowing for comparison between companies or portfolios. Metric may be used to compare portfolios to one another and/or to a benchmark. | Does not consider differences in the size of companies (e.g., does not consider the carbon efficiency of companies) and can be influenced by market value fluctuations. |
| Carbon Intensity | Volume of carbon emissions per million dollars of revenue (carbon efficiency of a company or portfolio). This is typically expressed in tons of CO2e per $million of revenue. | Metric may be used to compare portfolios to one another and/or to a benchmark. Metric takes into account differences in the size of companies (i.e. considers the carbon efficiency of companies). | Changes in underlying companies' revenue can influence carbon intensity. Higher revenues can lower carbon intensity, suggesting improved efficiency, even if actual emissions haven't decreased. |
| Weighted Average Carbon Intensity | Portfolio’s exposure to carbon-intensive companies. This is typically expressed in tons of CO2e per $million of revenue. | Allows for comparison across different companies and sectors. | Using revenue to normalise data can favour companies with higher revenues and be influenced by market value fluctuations, potentially distorting comparisons. |
| Implied Temperature Rise | Estimates the global temperature increase if all companies had the same investment alignment and transition preparedness as the company or those in the portfolio. This is typically expressed in ˚C. | Assesses future emission trajectories and climate alignment, providing insight into preparedness for the transition. | Relies on assumptions and models that may have varying degrees of accuracy. |
| Climate Value-at-Risk | Indicates the potential absolute loss the company or product may face due to the transition to a low-carbon economy. This is typically expressed as the % of the company’s market capitalisation or portfolio’s market value. | Quantifies potential financial impact, helping investors understand risk exposure. | Estimations can vary widely based on model inputs and assumptions. |
Where to find TCFD reports
Reports can typically be found on a company’s website. Company level disclosure may be included in the firm’s Annual Report and Accounts or Sustainability Report. Product reports should be referenced in the annual client reports.
Hargreaves Lansdown’s disclosures:
- Annual Report and Accounts – we provide an overview of our responsible business practices in our Annual Report and Accounts (Corporate Responsibility section). We also provide our annual Taskforce on Climate-related Financial Disclosures (TCFD) group level report as part of this section.
- Hargreaves Lansdown Fund Managers TCFD Report - HL Fund Manager’s climate-related governance, strategy, risk management, and metrics and targets for our assets under management. This TCFD Report also includes our product-level disclosures.
- Hargreaves Lansdown Asset Management TCFD Report - HL Asset Management’s climate-related governance, strategy, risk management, and metrics and targets for our assets under administration. This TCFD Report also includes our product-level disclosures for the products we distribute as an FCA-regulated pension provider.
- Climate Transition Plan – our decarbonisation targets and strategy for our assets under management.