How TCFD Became the Foundation for IFRS S2

Over the past decade, a quiet but powerful shift has transformed the way businesses talk about climate. What once lived in corporate social responsibility reports as vague environmental commitments now sits at the heart of financial filings, investor presentations, and board agendas. Regulators across five continents are either adopting or proposing mandatory climate-related financial disclosures. Institutional investors managing trillions of dollars are demanding to know how their portfolio companies identify, measure, and manage climate risk.

At the centre of this transformation is one framework that changed everything: the Task Force on Climate-related Financial Disclosures, widely known as TCFD.

Today, a newer standard is taking centre stage. The International Financial Reporting Standards Sustainability Disclosure Standard 2, known as IFRS S2, is becoming the global benchmark for climate-related corporate reporting. However, understanding IFRS S2 without understanding TCFD is a bit like studying a building without knowing its foundation. The two are inseparably linked.

This article explains what TCFD is, why it revolutionised climate reporting, how it directly shaped IFRS S2, and why African companies in particular should pay close attention to its enduring principles.

What Is TCFD?

The Task Force on Climate-related Financial Disclosures was established in 2015 by the Financial Stability Board (FSB). This is an international body that monitors and makes recommendations about the global financial system. The FSB created the task force in response to a growing concern. Financial markets were not pricing climate risk adequately because companies were not disclosing it consistently or usefully.

Mark Carney, then Governor of the Bank of England, famously articulated the problem in his landmark 2015 speech at Lloyd’s of London. He warned of the “tragedy of the horizon,” explaining that the catastrophic impacts of climate change would fall beyond the typical cycle of business planning. This made it easy for decision-makers to ignore risks that were nevertheless real and material.

The TCFD, chaired by Michael Bloomberg, published its final recommendations in 2017. Those recommendations gave companies a clear, structured framework for disclosing climate-related risks and opportunities in their mainstream financial filings, not just their sustainability reports.

Importantly, the framework was designed to help investors understand how climate change might affect the financial performance of the companies they invest in. This made climate disclosure a financial matter rather than purely an environmental one.

Why Investors Embraced TCFD

Investors had long struggled with the inconsistency of corporate climate disclosures. Some companies published lengthy sustainability reports with minimal financial relevance. Others disclosed almost nothing. Furthermore, the data that did exist was difficult to compare across sectors and regions.

TCFD solved this by providing a voluntary but structured approach. One built around information that financial analysts could actually use. By 2022, more than 3,900 organisations across 101 countries had expressed support for the TCFD framework. That list included many of the world’s largest pension funds, asset managers, and commercial banks.

The Four Pillars of TCFD

The TCFD framework rests on four interconnected pillars. Each addresses a different dimension of how climate risk flows through a company’s operations and finances.

1. Governance

The governance pillar asks a fundamental question. Who in the organisation is responsible for climate risk, and how are decisions being made?

Specifically, TCFD requires companies to disclose the board’s oversight of climate-related risks and opportunities. It also requires disclosure of management’s role in assessing and managing those risks.

In practice, this means boards need to demonstrate active engagement with climate issues. It is not sufficient for a company to assign climate responsibility to a junior sustainability officer. Especially one with no access to senior leadership. Instead, TCFD pushes climate into the boardroom. It makes it a matter of corporate governance alongside financial and legal risk.

For example, a mining company operating in sub-Saharan Africa might disclose that its board receives quarterly climate risk briefings. And that climate metrics are incorporated into executive compensation. It could also add that a dedicated board committee reviews transition risk scenarios annually. This level of governance disclosure builds investor confidence.

2. Strategy

The strategy pillar requires companies to explain how climate-related risks and opportunities affect their business model, strategy, and financial planning across short, medium, and long-term horizons.

Critically, TCFD introduced the concept of scenario analysis as a tool for strategic planning. Companies are encouraged to assess how their business would perform under different climate futures. This includes a scenario where global warming is limited to 1.5 or 2 degrees Celsius. It also includes a scenario where current policies remain unchanged.

Consider an energy utility in South Africa. Scenario analysis might reveal that under a rapid energy transition, demand for coal-fired electricity drops sharply by 2035. Alternatively, under a delayed transition scenario, the company faces significant physical risks from flooding and extreme heat by 2045. Both findings are strategically important and financially material.

3. Risk Management

The risk management pillar addresses how a company identifies, assesses, and manages climate-related risks. It also checks how those processes integrate with overall enterprise risk management.

TCFD distinguishes between two broad categories of climate risk. Transition risks arise from the shift to a lower-carbon economy. These include regulatory changes, technology disruption, and shifting market preferences. Physical risks, on the other hand, stem from actual climate change effects. These include rising temperatures, changing rainfall patterns, sea level rise, and more frequent extreme weather events.

For African companies, physical risks are particularly acute. The African continent is warming faster than the global average. By 2050, climate change could reduce agricultural yields across sub-Saharan Africa by up to 20%(1). Companies in agriculture, real estate, tourism, and infrastructure therefore face significant material exposure.

4. Metrics and Targets

The final pillar asks companies to disclose the metrics they use to assess climate-related risks and opportunities. As well as the targets they set to manage and reduce their climate impacts.

This includes disclosing greenhouse gas (GHG) emissions across Scope 1 (direct emissions), and Scope 2 (purchased energy). Also ideally Scope 3 (value chain emissions). It also means reporting on climate-related targets. Whether they align with international frameworks such as the Paris Agreement, and whether progress is being tracked and reported transparently.

This pillar brings accountability into climate reporting. Without measurable targets and consistent metrics, sustainability commitments risk becoming empty promises.

How TCFD Changed Corporate Reporting

Before TCFD, climate reporting was largely fragmented, voluntary, and inconsistent. Companies could report whatever they chose, however they chose, to whichever audience they pleased. As a result, investors received a patchwork of information that was difficult to compare, aggregate, or act on.

TCFD changed this in three important ways.

First, it reframed climate change as a financial risk rather than an environmental issue. This shift was profound. Once climate risk appeared alongside credit risk and liquidity risk in financial analysis, it became impossible to ignore.

Second, it provided a common language. TCFD gave companies a structured framework with four consistent pillars. Consequently, investors and analysts could begin to compare disclosures across companies and sectors. This comparability was exactly what the market needed.

Third, it moved climate accountability into the boardroom. By focusing on governance and strategy, TCFD made it clear that climate risk is not just a sustainability team problem. It belongs on the agenda of CEOs, CFOs, and non-executive directors alike.

Regulators took note quickly. The United Kingdom made TCFD-aligned disclosures mandatory for large companies in 2022. New Zealand, Japan, Hong Kong, and Singapore followed with similar requirements. Even where mandates were not yet in place, stock exchanges and institutional investors began asking for TCFD-aligned reporting as a matter of standard practice.

How TCFD Influenced IFRS S2

In 2021, the International Financial Reporting Standards Foundation created the International Sustainability Standards Board (ISSB). Its aim was to develop a global baseline for sustainability disclosures. The ISSB launched two standards in June 2023. IFRS S1, covering general sustainability disclosures, and IFRS S2, specifically focused on climate-related disclosures.

IFRS S2 was, by design, built directly on the TCFD framework. The ISSB acknowledged this explicitly. IFRS S2 incorporates the TCFD recommendations and is intended to supersede them as the global standard for climate reporting.

The Structural Alignment

The alignment between TCFD and IFRS S2 is not coincidental. It is structural and intentional.

Alignment Between TCFD and IFRS S2
TCFD	IFRS S2
Governance	Governance
Strategy	Strategy
Risk Management	Risk Management
Metrics and Targets	Metrics and Targets

Both frameworks require companies to disclose board oversight of climate issues under governance. They require strategy disclosures that include scenario analysis. Both address how climate risk integrates into enterprise risk management. Both require GHG emissions data and climate targets under metrics and targets.

What IFRS S2 Adds

While the structures mirror each other, IFRS S2 goes further in several important respects.

IFRS S2 makes certain disclosures more prescriptive. For example, it requires Scope 1 and Scope 2 GHG emissions disclosure as a baseline requirement. Whereas TCFD treated these as recommended best practice. IFRS S2 also requires more detail on transition plans and climate-related opportunities alongside risks.

Additionally, IFRS S2 sits within a formal international accounting standards framework. This means it carries the weight and authority of IFRS. This is the same body responsible for global financial reporting standards used in over 140 countries. Consequently, this formal backing gives IFRS S2 a regulatory credibility that TCFD, as a voluntary framework, could not fully achieve.

The Significance of the Alignment

The alignment between TCFD and IFRS S2 is significant for several reasons. For companies that already report under TCFD, transitioning to IFRS S2 is far less burdensome. The core structure and data requirements are largely the same. For companies that have not yet adopted either framework, understanding TCFD provides the fastest and most intuitive route into IFRS S2 compliance.

Furthermore, the alignment ensures continuity in the market. Investors who understand TCFD disclosures can immediately read and interpret IFRS S2 reports without starting from scratch. This continuity supports market confidence during what is otherwise a significant shift in global reporting requirements.

Does TCFD Still Matter Today?

The TCFD officially disbanded in October 2023, transferring its monitoring responsibilities to the IFRS Foundation. However, this did not make TCFD irrelevant.

Many companies, particularly those not yet subject to mandatory IFRS S2 requirements, continue to report using the TCFD framework. Investors and lenders, particularly those in Europe and North America, still frequently request TCFD-aligned disclosures in their due diligence processes.

Moreover, many national regulations that reference climate disclosure requirements specifically cite TCFD as the framework companies should follow. Therefore, even where IFRS S2 is not yet the mandatory standard, TCFD remains the operative framework in many jurisdictions.

In Africa specifically, where IFRS S2 adoption is still nascent, TCFD represents the most accessible and widely understood starting point for climate disclosure. Several major African stock exchanges, including the Johannesburg Stock Exchange (JSE), have encouraged or required TCFD-aligned reporting from listed companies.

What African Companies Should Learn From TCFD

Africa faces a paradox. The continent contributes less than 4% of global greenhouse gas emissions (2). Yet it bears some of the most severe and immediate consequences of climate change. This reality makes climate risk disclosure not merely a regulatory exercise but a genuine business imperative for African companies.

Climate Governance Matters

African boards need to take climate governance seriously. Currently, many companies on the continent lack formal structures for board-level climate oversight. Building these structures is not just about compliance. It signals to investors, lenders, and partners that the organisation takes climate risk seriously at the highest level.

Board Accountability Is Non-Negotiable

Under both TCFD and IFRS S2, boards are accountable for climate risk. South African companies listed on the JSE have seen growing investor pressure to demonstrate active board engagement with climate issues. Boards that treat climate as a footnote rather than a boardroom priority increasingly find themselves questioned by institutional shareholders during annual general meetings.

Climate Risk Integration Is a Business Imperative

For companies in sectors such as agriculture, mining, energy, tourism, and real estate, climate risks are not theoretical. Drought, flooding, and extreme heat already affect operations and supply chains across the continent. Integrating climate risk assessment into enterprise risk management therefore protects not just the reputation of a company but its operational continuity.

East African tea producers, for example, have already experienced the financial impact of erratic rainfall disrupting harvests. Companies that identify and manage these risks through structured frameworks are better positioned to adapt and attract the long-term capital they need.

Investor Confidence Follows Disclosure Quality

Foreign direct investment and international development finance increasingly flows toward companies with credible climate disclosure. Development Finance Institutions such as the International Finance Corporation (IFC) and the African Development Bank (AfDB) have aligned their lending criteria with TCFD and, by extension, IFRS S2. Companies that cannot demonstrate climate governance and risk management risk being excluded from these capital pools.

Long-Term Resilience Is the Reward

Ultimately, the most important lesson from TCFD for African companies is that good climate disclosure is not a compliance burden. It is a tool for building resilience. Companies that understand their climate exposures, plan strategically for different climate futures. They set meaningful targets and are companies that can survive and grow in a changing world.

The Future of Climate Disclosure

The direction of travel is clear. Climate reporting is moving from voluntary to mandatory, from peripheral to mainstream, and from qualitative to quantitative.

As of 2025, over 30 jurisdictions globally are either implementing or developing mandatory climate disclosure requirements aligned with ISSB standards. The European Union’s Corporate Sustainability Reporting Directive (CSRD) represents another major framework in this space. Though it is closely aligned with the principles TCFD pioneered.

In Africa, momentum is building. The Nigerian Exchange Group and the Nairobi Securities Exchange have both signalled interest in enhancing sustainability disclosure requirements. South Africa remains the continent’s leader, with the JSE’s sustainability disclosure guidance incorporating TCFD principles since 2022.

For investors, regulators, and companies alike, climate disclosure is no longer optional. It is becoming as fundamental to corporate reporting as financial statements. Companies that invest now in building the governance structures, data systems, and strategic frameworks that TCFD and IFRS S2 require will be far better placed than those that wait for regulation to force their hand.

TCFD’s Legacy Is Written Into IFRS S2

The Task Force on Climate-related Financial Disclosures formally closed its doors in 2023. However, its legacy is very much alive. TCFD transformed the way the world thinks about climate risk. It moved the conversation from environmental compliance to financial materiality and from sustainability silos to boardroom accountability.

Its four pillars of governance, strategy, risk management, and metrics and targets provided the world’s first common language for climate disclosure. That language is now embedded in IFRS S2. A standard that is fast becoming the global baseline for climate-related corporate reporting.

For African companies, understanding TCFD is not an academic exercise. It is the most practical preparation available for a world in which climate disclosure will soon be non-negotiable. Whether a company is preparing for IFRS S2 adoption, responding to investor demands, or simply trying to build a more resilient business, the principles that TCFD established remain the clearest guide available.

The foundation was laid in 2017. The building is now going up. Understanding the foundation is how you make sure the building stands.

References

1. Liu, J., Wu, J., Jiang, D., Chen, S., Hao, M., Ding, F., Wu, G., & Liang, H. (2025). Research on the impact of climate change on food security in Africa. Scientific reports, 15(1), 31251. https://doi.org/10.1038/s41598-025-14560-5
2.  Friedlingstein, P., O’Sullivan, M., Jones, M. W., Andrew, R. M., Bakker, D. C. E., Hauck, J., Landschützer, P., Quéré, C. L., Li, H., Luijkx, I. T., Peters, G. P., Peters, W., Pongratz, J., Schwingshackl, C., Sitch, S., Canadell, J. G., Ciais, P., Aas, K., Alin, S. R., . . . Zeng, J. (2026). Global Carbon Budget 2025. Earth System Science Data, 18(5), 3211–3288. https://doi.org/10.5194/essd-18-3211-2026

[give_form id="20698"]