One of the common criticisms levelled at EFRAG and the European Union is to not have openly embraced (unlike the ISSB) the TCFD's four pillars of reporting, but most corporate respondents to EFRAG's consultation said the proposed standards are TCFD compatible even if some would like greater alignment on terminologies.
The Task Force on Climate-related Financial Disclosures (TCFD) released climate-related financial disclosure recommendations in 2017 based on four core disclosure areas: governance, strategy, risk management, and metrics and targets. Countries such as Brazil, Japan, New Zealand, Switzerland and the UK have aligned their sustainability disclosure regulations with this framework.
Similarly, in April 2021, the European Commission issued a proposal that the development of sustainability reporting standards in the EU would be based on existing frameworks, including TCFD's four core reporting elements.
EFRAG's consultation asked stakeholders how well the draft standards align with the TCFD framework. Corporate Disclosures looked at 41 survey responses from corporates, 31 one of whom answered the question.
At the extremes, Repsol and EDF said they fully agreed that the standards were compatible with the framework and Covestro Deutschland AG were the only respondent reviewed for this article to say that they didn't agree at all.
Most corporates (22) responded that they agreed to a large extent but held some reservations and a sizeable minority (7 companies) held strong reservations on the current level of compatibility, saying that they agreed to a limited extent that the standards were compatible.
Part of those agreeing to a large extent, PepsiCo said: "While the structure of the framework is aligned on categories of reporting, the metrics to be considered within each category are not aligned which creates increased burden for companies already complying with TCFD to meet ESRS reporting requirements."
Likewise, Hugo Boss was encouraged by the current compatibility but also noted that the ESRS' three reporting areas of strategy, implementation and performance was different to the four core reporting areas of the TCFD framework and added that it was "necessary" for the framework to be fully reflected in the standards.
Companies who held stronger reservations on the issue, including Plastic Omnium and EnBW Energie Baden-Württemberg, also said that EFRAG should change its three reporting areas to match the TCFD framework.
This view was shared by corporates with a more negative view on the current level of compatibility, such as Krones AG, DMG MORI and BMW group.
French pharmaceutical company, SANOFI, said its biggest reservation was that "discrepancies remain such as financial materiality and time horizons". This concern was shared by STMicroelectronics and Renault Group among others.
But not all respondents agreed they should necessarily be a compatibility. For example, British consumer goods company, Unilever, said: "It would be helpful to have total alignment - using same terminology, definitions and structure", whereas Europe's largest manufacturing company, Siemens AG, said that the TCFD framework was limited to climate risk and opportunities and shouldn't be used automatically for the broader set of disclosures in the ESRS.
In an interview with Corporate Disclosures, Patrick de Cambourg, president of the ANC, and chair of the EFRAG Project Task Force on European Sustainability Reporting Standards, said the ESRS covered four pillars, and the disclosures could be reconciled in a TCFD format.
"Governance, strategy and risk management are covered by ESRS 1 and ESRS 2. And targets and metrics are covered for each topic by ESRS E1 to E5, ESRS S1 to S4 and ESRS G1 and G2," he said. "So what it comes down to is really along the lines of: I prefer a champagne flute versus a champagne coupe, does it make the champagne different?"
