Key difference between CSRD and TCFD
The key difference between CSRD and TCFD lies in their respective focuses and regulatory frameworks. The TCFD requires disclosures on governance, strategy, risk management, and metrics and targets. The CSRD requires reporting on CSRD ESG matters according to the ESRS-standards.
CSRD, the Corporate Sustainability Reporting Directive, is a mandatory reporting directive established by the European Union for large and listed companies. It emphasizes comprehensive reporting on environmental, social, and governance (ESG) factors. This is underpinned by detailed regulatory requirements aimed at enhancing transparency and comparability across the EU.
In contrast, the TCFD represents a global initiative focused specifically on climate-related financial disclosures. Developed by the Financial Stability Board, TCFD provides recommendations for disclosing climate-related risks and opportunities, primarily targeting financial sector organizations.
| Aspect | Corporate Sustainability Reporting Directive (CSRD) | Task Force on Climate-related Financial Disclosures (TCFD) |
|---|---|---|
| Scope | Mandatory reporting directive for certain large and listed companies in the EU. | Recommendations applicable globally, primarily targeting financial sector organizations. |
| Applicability | Applies primarily to large companies and listed companies in the EU. | Primarily aimed at financial sector organizations but encouraged for broader corporate use. |
| Focus areas | Primarily environmental, social, and governance (ESG) factors. | Focuses specifically on climate-related financial risks and opportunities. Also takes strategy and governance into consideration. |
| Reporting standards | Builds on existing EU regulations, with detailed requirements on sustainability reporting. | Offers structured recommendations for disclosing climate-related risks and opportunities. |
| Compliance requirements | Mandatory for eligible companies, with legal requirements for compliance. | Becoming mandatory in different countries such as Canada, Japan and New Zealand. |
| Level of detail | High level of detail required, with a focus on materiality and comparability. | Structured framework with recommended disclosures based on scenario analysis and metrics. |
| Assurance | External assurance is required for reported information. | Disclosure of governance around TCFD recommendations and potential assurance on disclosures. |
| Updates and revisions | Subject to updates by the European Commission, reflecting regulatory changes. | Recommendations evolve based on stakeholder feedback and emerging practices in regulatory requirements. |
A quick note on TCFD and SDS
The TCFD has fulfilled its remit and disbanded. The TCFD framework is transitioning to the sustainability Disclosure Standards (SDS). These new standards are developed by the International Financial Reporting Standards (IFRS).
Foundation and the International Sustainability Standards Board (ISSB), will offer a more detailed and comprehensive framework for international ESG reporting. Which includes enhanced guidelines for greenhouse gas (GHG) reporting.
In the UK, the transition to the Sustainability Disclosure Standards (SDS) will be phased in over several years. The new requirements will likely applying to financial years starting on or after January 1, 2025. This phased approach provides organizations ample time to implement necessary measures, standards, process changes, and reporting capabilities.
Reporting on CSRD or TCFD?
Mandatory compliance on CSRD or TCFD may vary based on your company’s main location. CSRD is required for large companies in the European Union. TCFD is used in other countries outside Europe, such as the UK, Canada, and Japan however since its remit will likely be replaced.
Reporting under CSRD for large EU Companies
If you’re a large or listed company operating within the European Union, you will be required to report on CSRD. These companies need to report on CSRD ESRS based on their material topics. This mandatory framework requires detailed and transparent disclosures aimed at enhancing comparability and accountability across EU markets.
As part of this directive, your company must adhere to stringent regulatory requirements, including external assurance of reported information. The focus is on materiality and comparability to ensure high-quality ESG reporting.
Mandatory TCFD reporting in the UK
For businesses operating in the UK, from April 2022, there has been a mandatory requirement for large companies to disclose climate-related financial information in alignment with TCFD recommendations.
This means if your company is UK-registered and falls under certain categories such as those listed on regulated markets, banking companies, or insurance companies, you must provide detailed disclosures. These disclosures should cover governance, strategy, and risk management.
This mandatory reporting is part of the UK’s effort to lead in the global economic sustainable transition. Also, it supports companies in adopting and implementing effective climate risk management practices.
Interfaces between CSRD and TCFD
CSRD and the Task Force on TCFD frameworks are distinct in their scopes and applications. However, they intersect in several key areas. These areas include reporting principles, materiality assessments, and phased implementation.
Scope emission reporting in CSRD and TCFD
Both the CSRD and the TCFD emphasize the critical importance of reporting Scope 1, Scope 2, and Scope 3 emissions. The CSRD mandates detailed disclosures on all three scopes of emissions. However some companies might to report more on their scope emission than others based on their material topics.
Similarly, the TCFD framework requires organizations to disclose their GHG emissions across all scopes to provide a complete picture of their climate impact. It emphasizes the importance of identifying risks within the defined scopes.
The concept of double materiality
One of the most significant interfaces between CSRD and TCFD is the concept of double materiality assessment. CSRD mandates that companies consider both financial materiality and impact materiality. This comprehensive approach ensures that stakeholders receive a full picture of the company’s sustainability performance and broader impacts.
On the other hand, TCFD focuses primarily on financial materiality, emphasizing the disclosure of climate-related risks and opportunities that affect the company’s financial health and performance. This includes how climate change impacts business strategy, risk management, and financial planning.
Interaction with phased implementation timetables
Both frameworks recognize the need for phased implementation to allow organizations time to adapt to new reporting requirements. CSRD sets a clear timetable for compliance, progressively increasing the scope and detail of reporting requirements over time.
Similarly, TCFD recommends a phased approach to implementation, particularly for public sector entities. The guidance is being released in phases, starting with general principles, governance, and certain metrics and targets.
Subsequent phases will address more complex areas such as risk management and strategy. This staged approach allows organizations to build their reporting capabilities gradually. It aligns with their priorities, materiality assessments, and available resources.
Broader considerations
Public sector bodies have wide-ranging responsibilities that extend beyond their immediate operational impacts. This includes influences on the broader economy, public welfare, and environmental sustainability.
Entities should consider the wider impact of climate-related risks on their responsibilities, policy settings, and regulatory roles. This broader perspective ensures that disclosures are not only relevant to the entity but also provide valuable insights into their influence on the wider ecosystem.
