Why the TCFD Disbanded and How IFRS S2 Becomes Your New Global Baseline

Why the TCFD Disbanded and How IFRS S2 Becomes Your New Global Baseline

As of October 12, 2023, the Task Force on Climate‑related Financial Disclosures (TCFD) formally “fulfilled its remit and disbanded” after eight years of guiding voluntary climate‑risk reporting for companies worldwide. In its place, the International Sustainability Standards Board (ISSB) under the IFRS Foundation has assumed responsibility for monitoring and advancing climate disclosures through its newly issued standards—most notably IFRS S2: Climate‑related Disclosures, effective for annual periods beginning January 1, 2024. This transition marks a shift from voluntary guidance to a more structured, globally consistent baseline for sustainability reporting.

Origins and Mandate of the TCFD

In December 2015, the Financial Stability Board (FSB)—the G20’s financial watchdog—established the TCFD to develop “voluntary, consistent climate‑related financial risk disclosures” that companies could use to inform investors, lenders, and insurers about their exposures and resilience. Chaired by Michael R. Bloomberg, the Task Force worked under three primary objectives:

(1) improve transparency around climate risks,

(2) promote better risk management, and

(3) enable capital‑market participants to make more informed decisions.

TCFD’s Achievements and Global Adoption

By 2022, more than 7,000 organizations had publicly supported or referenced TCFD recommendations, including major financial institutions, insurers, and corporates across multiple jurisdictions. Adoption rates grew rapidly: the share of large companies reporting against at least five of the eleven TCFD recommendations climbed from 18% in 2020 to nearly 60% in 2022.

Many regulators then incorporated TCFD into national frameworks, embedding it in soft‑law and, in some markets, making elements effectively mandatory by 2025.

Why the TCFD Disbanded

After delivering its sixth Status Report on October 12, 2023, the TCFD announced that it had “fulfilled its remit” and would cease operations, shifting its website into archival mode with no further updates or monitoring. The decision reflects the Task Force’s original mandate: to establish a common disclosure framework and accelerate its adoption. With global momentum achieved and many jurisdictions codifying the recommendations, the FSB determined that an active task force was no longer needed in its original form.

The FSB’s Request and the Role of the ISSB

Concurrently, the FSB asked the IFRS Foundation’s newly formed ISSB to “take over the monitoring of the progress of companies’ climate‑related disclosures” beginning in 2024. The ISSB was created in November 2021 to consolidate various sustainability reporting initiatives and develop a unified global baseline. Its mandate includes not only climate but wider sustainability topics, ensuring consistency, comparability, and connectivity with financial reporting under IFRS Accounting Standards.

Introduction to IFRS S1 and IFRS S2

In June 2023, the ISSB issued IFRS S1: General Requirements for Disclosure of Sustainability‑related Financial Information and IFRS S2: Climate‑related Disclosures.

• IFRS S2 specifically mandates disclosure of both physical risks (e.g., extreme weather impacts) and transition risks (e.g., policy changes, technology shifts), plus related opportunities that could reasonably affect an entity’s cash flows, cost of capital, or access to finance.

• The standard is effective for reporting periods beginning on or after January 1, 2024, with earlier application permitted alongside IFRS S1.

Continuity and Enhancement: Building on TCFD

IFRS S2 explicitly incorporates the four pillars of the TCFD—governance, strategy, risk management, and metrics & targets—but goes further by:

1. Requiring industry‑specific disclosure topics, ensuring entities report on metrics most relevant to their sector (e.g., financed emissions for financial institutions).

2. Embedding scenario analysis as a mandatory practice to assess resilience under different climate pathways.

3. Aligning terminology and structure with IFRS Accounting Standards, promoting coherence between financial and sustainability reporting.

Key Enhancements in IFRS S2 vs. TCFD

Feature	TCFD Recommendation	IFRS S2 Advancement
Industry Metrics	Suggested	Required for key sectors (e.g., carbon intensity for energy)
Scenario Analysis	Recommended	Mandatory, with prescribed disclosure elements
Financed Emissions Reporting	Implicit	Explicit: Scope 3 Category 15 disclosure for investors/lenders
Connectivity with Financials	Separate guidance	Integrated into general purpose financial reports

These enhancements aim to reduce ambiguity and ensure that disclosures meet investors’ needs for comparability and decision‑usefulness.

Establishing IFRS S2 as the New Global Baseline

With its formal backing by the IFRS Foundation and endorsement by the FSB, IFRS S2 has rapidly become the de facto global baseline for climate‑related disclosures. Major economies—including the UK, EU, Canada, and Japan—are aligning their regulatory frameworks around ISSB Standards, often referencing IFRS S2 directly in national rules . As jurisdictions converge, companies benefit from a single, cohesive framework rather than navigating multiple, overlapping requirements.

Transition Steps for Companies

To align with the new baseline, organizations should:

1. Map existing TCFD disclosures to IFRS S2 requirements, identifying any gaps (e.g., industry metrics, scenario analysis details).

2. Update governance and risk‑management processes to embed mandatory elements such as board oversight of climate risks.

3. Integrate reporting platforms so that sustainability data feeds into general purpose financial statements.

4. Engage with auditors and assurance providers early to plan for external assurance under IFRS S2.

By treating the transition as a strategic initiative rather than a compliance exercise, companies can enhance stakeholder trust and unlock potential financial benefits from improved climate risk management.

The disbanding of the TCFD marks a pivotal moment in the evolution of climate‑risk reporting: its voluntary recommendations have matured into mandatory global standards under IFRS S2. By building on the TCFD’s legacy—while introducing industry‑specific metrics, mandatory scenario analysis, and integration with financial reporting—the ISSB’s standards offer a robust, coherent, and investor‑focused baseline. As the world’s jurisdictions and market participants adopt IFRS S2, organizations that proactively align their disclosures will not only meet regulatory expectations but also strengthen their resilience and competitiveness in a rapidly changing climate landscape.