Navigating uncharted territory: exploring the drivers of climate-related financial disclosures in South Africa Open Access

Communities worldwide have started to experience the harmful consequences of climate change in their daily lives with an increased prevalence of wildfires, heat waves, floods and droughts (World Wide Fund for Nature, 2021a). The current impact of climate change has already led to severe detrimental effects on the physical and mental health of populations globally through damage to key infrastructure in urban settings and the increase in human vulnerability in rural regions (Intergovernmental Panel on Climate Change, 2022). Governments, the private sector, developmental organisations and ordinary civilians are in a race against time to prevent these effects from worsening into a cataclysmic environmental collapse. In addition to the effect on communities and nature, this outcome will lead to economic upheaval as growth rates stagnate, workers become less productive because of extreme conditions, power supply becomes increasingly unstable and global supply chains are disrupted (Myers, 2020).

In the global context, it is apparent that many multinational companies currently disclose inadequate information related to climate-related risks and opportunities (CROs) in their annual reports (Kouloukoui et al., 2019). While the impact of climate change, such as rising sea levels and extreme weather events, is recognized by many companies, these are often incorrectly considered as impacts manifesting over the long term instead of current challenges. However, various countries have begun to encourage the disclosure of CROs, while some companies have voluntarily disclosed these risks and opportunities without regulatory requirements (Myers, 2020). In several countries, companies are not obligated by mandatory requirements to disclose climate-related risks in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Instead, they depend on companies to make such disclosures voluntarily, surpassing the scope of regulated reporting requirements (Achenbach, 2021), as seen in the case of South Africa. While the National Treasury of South Africa has endorsed the incorporation of the TCFD recommendations, South African companies are not required to disclose CROs by law. Furthermore, the Johannesburg Stock Exchange (JSE) listing requirements do not oblige listed companies to adhere to the TCFD recommendations. However, the JSE published a climate change disclosure guidance in 2021, which advised companies in all sectors to follow a three-stage cyclical approach to disclosures, which involves identifying current disclosure practices, integrating CROs and, lastly, disclosing climate-related data and practices (Johannesburg Stock Exchange, 2022).

Although local companies have lagged in comparison to some international peers’ rates of CRO disclosures, South Africa is considered a global leader in integrated reporting and performs moderately well in disclosing CROs (Atleha-edu, 2021). Certainly, the uptake of the TCFD^[1] recommendations by publicly listed companies in South Africa has increased in recent years. This has particularly been observed in the banking and resource-extraction industries, where the recent public pressure has been concentrated. While it is encouraging to see that some large companies are voluntarily publishing climate-related disclosures in line with the TCFD recommendations, the small number of adopters to date remains a concern (World Wide Fund for Nature (2021b). According to the TCFD knowledge hub, there are only 37 South African companies that are listed as supporters of the TCFD (Financial Stability Board, 2023).

The literature on the drivers of sustainability reports varies, ranging from changes in the frequency of reporting associated with labour market unrest in South Africa (Dube and Maroun, 2017) to business cases covering strategic considerations as well as reputation, stakeholder and isomorphic pressures (Okereke, 2007; Haque et al., 2016; Klumpes et al., 2019). An extension of this literature, which relates to climate-related financial disclosures (in line with the TCFD recommendations), has also identified similar drivers of sustainability reports (Giannarakis et al., 2016; Kouloukoui et al., 2019) ^[2]. On the contrary, the scant literature on TCFD reporting has been limited to unpacking issues related to compliance ^[3] and drivers of the compliance with the TCFD recommendations (Achenbach, 2021; Dyakova, 2021; Andersson and Arvidsson, 2022; Principale and Pizzi, 2023; Gebhardt et al., 2024; Kraus, 2024). For instance, Achenbach (2021) identified corporate characteristics in organisational complexity and financial and human resource availability in addition to a broad set of intrinsic ^[4] and extrinsic ^[5] motivations as the driving factors for disclosure of CROs. Similarly, Dyakova (2021) identified legitimacy and stakeholder pressure as the primary factor driving TCFD reporting among Finnish companies. Principale and Pizzi (2023) used a quantitative approach to identify board and firm size and ESG integration risks as the determinants of Italian firms’ decision to adopt the TCFD recommendations. Similarly, Gebhardt et al. (2024) examined the effect of corporate governance mechanisms on climate-related financial disclosure quality and identified institutional ownership, board size and board gender diversity as the drivers of TCFD disclosure quality among financial and non-financial German firms. In a recent study on the sustainability-related risk disclosures by European banks and insurers, Kraus (2024) used a quantitative text mining technique to provide evidence to suggest that larger firms are associated with a higher rate of climate-related financial disclosures. Demaria and Rigot (2021) analysed the climate-related disclosure practices among CAC 40 firms in France, focusing on their compliance with TCFD recommendations from 2015 to 2018 using a Climate Compliance Index. The findings reveal a gradual improvement in disclosure levels, though with notable differences across sectors and management areas. On the other hand, Klumpes et al. (2019) investigated changes in climate-related risk reporting among 15 UK insurance companies and 15 pension schemes, finding limited alignment with the TCFD’s 11 recommended disclosures. The findings also revealed that alignment is most strongly influenced by reputation risk, particularly in larger and more publicly visible insurance firms. A study by Bingler et al. (2022) designed an algorithm that enabled the analysis of companies’ climate-risk disclosures along the four main TCFD categories and found that the arrival of the TCFD recommendations had no significant impact on disclosures of TCFD-supporting companies. Another study by Friedrich et al. (2023) examined climate disclosure compliance of 600 banks in the European equity market. The authors found that while reporting quality improved over time, significant gaps remain, particularly in forward-looking disclosures and the adoption of bank-specific guidance.

Despite the clear need for research in this field, the climate-related financial disclosures have yet to be comprehensively explored within the financial literature (O’Dwyer and Unerman, 2020), with the few studies focusing on developed financial markets (Achenbach, 2021; Andersson and Arvidsson, 2022; Friedrich et al., 2023; Gebhardt et al., 2024; Kraus, 2024). While climate-related financial disclosures are gaining prominence across financial markets in Africa, compliance has largely remained voluntary, with scant documented evidence on the dynamics of compliance in such regimes. In the absence of mandatory reporting, high-quality disclosures are limited. This scarcity contributes to the dearth of literature on climate-related financial disclosures in emerging economies (Kouloukoui et al., 2019; Amran et al., 2014), thereby underscoring the need for this study. By understanding the drivers of climate-related financial disclosure, this study contributes to the literature by highlighting the value and practical implications of voluntary reporting regimes and offering insights into how emerging markets can strengthen climate-related financial transparency. As a result, this paper seeks to bridge the gap in the literature and uses an exploratory research approach to broaden the understanding of the drivers of climate-related financial disclosures in the South African financial services industry. This paper adopts a qualitative exploratory method to understand the drivers of climate-related financial disclosures in South Africa, using semi-structured interview data from experienced report preparers in South Africa.

The choice of South Africa is motivated by the following reasons. First, South Africa is the 13th largest greenhouse gas emitter in the world (Global Carbon Atlas, 2022), and therefore has a significant responsibility to reduce emissions and play its part in combating climate change. In a bid to support these efforts, South Africa ratified the Paris Agreement and submitted ambitious nationally determined contributions, which expected emissions to decline from 2025 onwards. As South African companies are both contributors to climate change and victims of its effects because of the environments that they operate in, it is critical for companies to understand CROs. This will enable them to adapt business strategies to mitigate climate risks while allowing them to seize opportunities such as the demand for new products and services. Second, the South African National Treasury (2021) clearly recommends South African regulators incorporate the TCFD recommendations in their risk management strategies. As a growing number of countries are requiring alignment with the TCFD recommendations, the likelihood of South Africa following suit increases. Therefore, understanding the drivers of TCFD reporting could be of significant practical value to policymakers and report preparers alike. Coupled with the above context, this paper is also partly motivated by the call from Kouloukoui et al. (2019) for further research to enhance our understanding of climate-related financial disclosures in emerging countries. While there is some understanding of the progress that companies in South Africa have made with TCFD reporting (DNA Economics, 2021; Worldwide Fund for Nature, 2021b), the understanding of the nuances that influence report preparers is yet to be explored. Although South Africa ranks high on the Climate-Related Financial Policy Index by D’Orazio and Thole (2022), it remains one of the jurisdictions in the literature ^[6] with limited understanding of the motivating factors for climate-related financial disclosures. Finally, the dearth of research on the drivers of voluntary reporting in comparison with mandatory TCFD reporting needs to be bridged. This paper therefore aims to bridge some of these identified gaps by focusing on the drivers of climate-related financial disclosures in South Africa.

The rest of the paper is organised as follows. Section 2 provides theoretical perspectives on legitimacy and stakeholder theories as well as a review of empirical studies on TCFD reporting. Sections 3 and 4 describe the analytical strategy and discussion of the thematic findings, while Section 5 concludes the paper by outlining some policy recommendations on how to enhance climate-related financial disclosures in South Africa.

The theoretical framework guiding this research combines the legitimacy theory and the stakeholder theory to explore the drivers of TCFD reporting. First, through the lens of the legitimacy theory, companies strive to uphold actions deemed acceptable within societal values to maintain legitimacy and support (Suchman, 1995). This is crucial for their continued operation, resource acquisition and growth (Alrazi et al., 2015). Consequently, if organisations act outside of the boundaries of this agreement, society could retract the organisation’s right to operate. An organisation’s continuation depends on having their operations perceived as legitimate by meeting society’s expectations. Therefore, the legitimacy theory supports the notion that organisations could be driven to publish climate-related financial disclosures to establish their legitimacy within society (Kouloukoui et al., 2019). Secondly, the stakeholder theory emphasizes the need for companies to balance the diverse demands of stakeholders, beyond just shareholders, to achieve strategic objectives (Ansoff, 1965; Freeman, 1984). As a stakeholder’s power increases relative to a company, so does the importance of meeting that stakeholder’s demands. Chen and Roberts (2010) note that the stakeholder theory can be used as a basis to study the impact of stakeholder power on the level of company disclosures. Therefore, the theory provides a valuable lens to examine the driving impact of various stakeholders on TCFD reporting.

Both the legitimacy and stakeholder theories are prominent in the field of environmental accounting research and should be seen as overlapping rather than competing theories because of their shared ontological perspective, which sees reality as continually developed, replicated and reorientated. In addition, both theories are system-oriented and explain the bi-directional influences between organisations and the society in which they are embedded (Chen and Roberts, 2010). Chen and Roberts (2010) further expand on the appropriate use of these theories by proposing which types of social and environmental studies are applicable. These authors argue that the legitimacy theory is applicable to studies that focus on the methods that companies use to manage their reputation when the societal expectation is implicit and the target audience is not identified, such as voluntary environmental disclosures. The stakeholder theory, however, is applicable to studies that focus on the unanticipated activities undertaken by companies, such as voluntary actions that benefit the environment without explicit self-promotion. Therefore, both theories are applicable to this study because of the voluntary nature of TCFD reporting in South Africa.

Given that the objective of this paper is to explore the perspective of report preparers regarding the phenomenon (drivers of climate-related financial disclosures), including TCFD reporting in South Africa, the qualitative research approach is the most appropriate approach to achieve the objective. The approach is based on the constructivist philosophical worldview, which assumes that phenomena are continuously created through interactions between individuals and collectives (Creswell, 2014). It assumes that there are multiple realities experienced by report preparers from companies operating in various sectors. As such, this study is undertaken using a constructivist philosophical assumption (Bryman et al., 2017) and relies on the subjective opinions and experiences of report preparers. Through qualitative research, the descriptions of multiple individuals can be collated and lead to a greater understanding of the key drivers of climate-related financial disclosures in South Africa (Creswell, 2014).

As the research studies the drivers of climate-related financial disclosures by South African companies, the sample population consists of South African companies that have published reports aligning with the TCFD recommendations. At the time of writing, the TCFD website lists 37 South African companies as supporters of the TCFD recommendations (Financial Stability Board, 2023). One method of determining sample size is the rule of thumb, which is based on research methodology considerations and knowledge gained from previous studies in similar fields (Sim et al., 2018). A clear pattern emerges when examining sample size recommendations from prior phenomenology studies, as Morse (1994) suggests at least 6 participants and Dukes (1984) recommended a sample size of between 3 and 10 participants, whereas Ray (1994) proposes that phenomenological studies usually include between 8 and 12 participants.

Using the rule of thumb method to consider sample sizes of other phenomenological studies on the drivers of TCFD reporting (Dyakova, 2021; Achenbach, 2021) ^[7], this paper collected data until a point of saturation was reached (Onwuegbuzie and Leech, 2007). The point of saturation was reached after conducting semi-structured interviews with seven highly knowledgeable and experienced participants. The seven participants had 131 years of cumulative sustainability and risk management experience, with an average of 19 years’ experience per participant (refer to Table 1). Three of the participants were in middle-level management roles, while four participants were senior managers. The participants represented seven companies that conducted business operations in South Africa. These companies operated in two sectors, namely, financial services and the retail industry. All seven companies were listed on the JSE, while four of the companies were also included in the JSE Top 40 index at the time of writing. Participants were selected from representative companies that had published at least one TCFD report to ensure that robust data was collected from report preparers with practical experience. The representative companies had published 16 TCFD reports in total, with an average of two to three reports per company.

Participants were selected using a purposive sampling technique, which involves strategically sampling research participants to identify those most relevant and knowledgeable of the research question (Bryman et al., 2017). As this is a non-probability form of sampling, findings cannot be generalised to population. Yet, this sampling approach is appropriate for this study owing to the higher likelihood that sustainability and environmental practitioners in South Africa are connected to employees at other companies with similar roles because of their professional experience or attending related industry events (Yin, 2011).

The primary data consists of semi-structured interviews with TCFD report preparers in South Africa. Semi-structured interviews follow an overall guide with a list of topics relevant to the research questions while also enabling the researcher to adapt to the context and be flexible with their approach to interviewees’ responses (Farquhar, 2012). This approach allowed the researchers to structure the interview in relation to the drivers of TCFD reporting, while the interviewees had the freedom to express their subjective opinions. The interview protocol refinement (IPR) framework of Castillo-Montoya (2016) was used to develop the interview structure for this study. The IPR consists of four phases ^[9] that assisted the researchers to systemically create and refine the structure and content of the interviews. This framework enabled the development of robust interview procedures that improved the quality of data collected and increased the understanding of the participant’s perspective of past experiences (Rubin and Rubin, 2012).

This study used thematic data analysis to identify, research and explain the themes originating from the collected data. This method of data analysis is appropriate for analysing the meaning of a phenomenon in a specific context (Bryman et al., 2017). As this study focused on companies in South Africa, the thematic analysis using the process of coding was used to identify consistent themes regarding the drivers of climate-related financial disclosures in South Africa. The researchers implemented coding techniques to categorize data according to identified themes, which created a platform for the development of theories and constructs (Williams and Moser, 2019).

This study followed a coding process that consisted of three stages. Open coding is described as the first stage of coding and comprises the process of identifying and categorizing initially broad and prominent themes. Once the first stage of coding is complete, the researchers continue with axial coding, which refines themes by categorizing associations between codes. The final stage of coding, which is referred to as “selective coding”, allows researchers to connect the categories identified by axial coding into logical expressions. This further refinement of data permits the development of cohesive stories that align with the central theme to other categories (Williams and Moser, 2019).

The credibility, dependability, confirmability and authenticity of the findings were assessed to provide evidence of the trustworthiness of the study (Lincoln and Guba, 1985). The credibility of findings which relates to the study’s participants (Elo et al., 2014) was based on identifying the sectors that participants are employed in, as well as the participants’ roles within their companies. Furthermore, their experience and practical involvement in the publication of TCFD reports are described to establish the credibility of the participants and the findings of this study. In addition, the credibility of findings was established through a process of triangulation with the findings of academic articles related to the drivers of TCFD reporting. The consistency of data over time and in different contexts establishes the dependability of a study’s findings (Elo et al., 2014). This study’s participants are experienced TCFD report preparers that work for companies in various sectors and companies that are at different stages of TCFD maturity. Although a future study could verify or reject the findings of this study over a different time period, the varying contexts that the participants operate in establish the dependability of this study’s findings. In addition, complete records of the research process and interview transcripts have been kept, enabling confirmation of the study’s dependability (Bryman et al., 2017). To establish the conformability (Elo et al., 2014) of this study, the findings were discussed with two independent parties with experience in the financial services and academic fields to corroborate the accuracy of the data collected as well as the interpretation of results. The authenticity of qualitative research relies on the extent to which a researcher demonstrates a range of possible realities (Elo et al., 2014). In this study, the researchers compared the data collected from participants to demonstrate the similar and opposing viewpoints of different TCFD report preparers.

From the thematic analysis of the interview responses, the drivers of climate-related financial disclosures in South Africa are broadly categorized into organisational influences and external factors. These drivers are ordered according to the number of related codes identified from the interviews with this study’s participants. The discussion of the two factors is described in Sections 4.1.1 and 4.1.2.

Organisational influences refer to internal factors that affect climate-related financial disclosures within a company. From the thematic analysis of the interview data, shareholders (institutional investors and activist shareholders), the board of directors and public commitments to TCFD reporting were identified as the organisational factors that influence iTCFD reporting in South Africa.

The Companies Act of 2008 defines a shareholder as the “holder of a share issued by a company” (Code for Responsible Investing in South Africa, 2022). The term “shareholders” can refer to a variety of institutions or individuals. Institutional investors are large entities such as financial institutions, pension funds and insurance firms that manage sizeable sums of capital on behalf of other investors (Ivanova, 2017), while activist shareholders aim to leverage their ownership to affect the actions and strategies of companies (Sjöström, 2020). Although both institutional investors and activist shareholders are categorised as shareholders, and while some institutional investors can be classified as activist shareholders, this study’s participants clearly refer to these as separate entities in relation to their influence on TCFD reporting. Therefore, in the context of this study, the influence of institutional investors and activist shareholders is discussed in the separate sub-sections below.

Institutional investors, being firms that manage sizeable sums of capital on behalf of other investors (Ivanova, 2017), have the power to apply considerable pressure on companies because of their large ownership stake (Flammer et al., 2021). If a company implements a strategy that an institutional investor disagrees with, then that investor could decide to withdraw their capital and look for an alternative opportunity that is more aligned with their objectives. Most participants agreed that institutional investors add substantial pressure on their companies to publish TCFD reports. In fact, one participant noted that their investors arranged meetings specifically to discuss their TCFD report and suggested that this type of pressure from investors was one of the primary drivers of TCFD reporting:

Another participant believed that without pressure from their institutional investors, their company would not have published a TCFD report at the time:

Another participant mentioned that they experienced more pressure to publish a TCFD report from their international investors in comparison to their South African investors and suggested that this was because of the international investors’ requirements for their own TCFD report publishing process. This indicates that companies that publish their own TCFD reports put pressure on other companies to do the same. This could create an enabling environment where companies that publish TCFD reports drive other companies to follow in their footsteps:

In contrast, one participant noted negligible pressure from institutional investors to publish a TCFD report. This is likely because of the sector in which the participant’s company operates, which generally emits less than companies operating in other sectors:

In summary, institutional investors are a primary driver of TCFD reporting in South Africa. This is particularly true for companies operating in high-emitting sectors. In some instances, particular companies would not have published TCFD reports if it were not for pressure from investors. Furthermore, companies that publish their own TCFD reports put pressure on their investees to do the same, which drives additional companies to publish TCFD reports. While one participant noted that their company did not experience significant pressure from their institutional investors, this was likely because of the relatively low-emitting nature of the sector in which they operate.

Shareholder activism can be defined as an investor’s response to its dissatisfaction with a company’s activities and performance. Such an investor uses their role as a shareholder to put pressure on a company to change course (Fisher and Nasrin, 2021). A prominent activist shareholder in South Africa focuses specifically on climate change issues and applies pressure on companies to improve the standard of their TCFD reports. This activist shareholder was named by all the study participants and therefore clearly has a significant impact on the South African TCFD reporting landscape. Some participants noted that they had numerous conversations with this activist shareholder and used the feedback that they received to enhance their TCFD report:

The participants also noted that they have developed good relationships with the activist shareholder over time, and that the opportunity to engage enabled them to proactively explain their position and address concerns:

While some participants acknowledged that they do not always see eye-to-eye with the activist shareholder and that the organisation adds additional pressure on their work, the participants recognized the value that the activist shareholder adds to the South African landscape. There was widespread support amongst the participants for the work that the activist shareholder undertakes:

The role of an activist shareholder can therefore be identified as a major driver of TCFD reporting in South Africa. While they added additional pressure on the participants, their willingness to engage allowed the activist shareholder to build trustworthy relationships with the participants. These engagements enabled the activist shareholder to improve their understanding of the representative companies’ position, and their subsequent feedback was used to enhance the quality of TCFD reports. The widespread support of the activist shareholder’s work, even by those that it seeks to pressurize, is a testament to its ability to drive TCFD reporting in South Africa.

A board of directors’ main tasks involve setting a company’s strategy and monitoring the execution of that strategy (Hillman and Dalziel, 2003). The board of directors’ decisions can therefore have a significant impact on a company’s day-to-day operations. However, all participants noted that their company’s board of directors was not an initial driver of TCFD reporting. Rather, some participants suggested that the increasing importance of the TCFD recommendations put pressure on their board of directors to react by establishing committees to address CROs. Following the establishment of such committees, the board of directors played a greater role in the publication of the TCFD report:

Participants suggested that the involvement of their board of directors in TCFD reporting was mostly in response to pressure from other stakeholders. This pressure originates from both internal and external stakeholders. Such bottom-up pressure results from direct involvement of internal teams in the compilation and publication of the TCFD report:

In cases where participants stated that there was pressure from the board of directors, this mostly originated from pressure applied by external stakeholders to publish a TCFD report.

Several participants recognized that, although the board of directors is not a significant driver of TCFD reporting, the presence of individuals who are TCFD champions and supporters on the board of directors helped to bring the topic to the forefront of discussions:

It is, therefore, clear that the board of directors is not a significant initial driver of TCFD reporting in South Africa. Instead, the board of directors is generally reactive in nature and drives the quality of TCFD reporting after internal and external stakeholders have convinced the board that a report is necessary. Finally, the presence of individual TCFD advocators on the board of directors can help to prioritise the adoption of TCFD reporting.

Making a public commitment to achieve an objective signals a company’s serious intent (Littlewood et al., 2018), but it also invites criticism in circumstances where the objectives are not achieved (Ramus and Montiel, 2005). Companies can signal their intent to publish a TCFD report by making public commitments to support the TCFD and its recommendations. Once a company has a public commitment, it faces additional pressure from external stakeholders to publish a TCFD report, as noted by one participant:

Another participant noted that they made a public commitment to publish a TCFD report without understanding the process or requirements of publishing such a report. Once they had made this public commitment, however, they were forced to publish a TCFD report to avoid damage to their reputation. The participant stated that they would do a full cost-benefit analysis in the future before making another similar public commitment.

One participant noted the duality of making a public commitment. While it leads to necessary change, it also opens a company to further scrutiny which it would not have faced otherwise.

These perspectives raised by participants indicate that making a public commitment is a clear driver of TCFD reporting. While companies that make public commitments already have the ambition to publish TCFD reports, a public commitment adds additional pressure to make this ambition a reality.

The overview of the first-order concepts, second-order themes and aggregate outcomes extracted from the interviews in relation to the organisational factors that drive climate-related financial disclosures in South Africa is shown in Figure 1.

External factors refer to drivers of climate-related financial disclosures that originate from outside a company. From the thematic analysis, policy and regulation, competitors, working groups and clients were identified as the external factors that could impact TCFD reporting in South Africa.

The role of regulators is to monitor a company’s compliance with policies and regulations (Alexander, 2006). As climate-related disclosures are not currently a mandatory requirement in South Africa, regulators are not tasked with monitoring compliance with the TCFD recommendations. However, the South African regulators have actively engaged with companies in South Africa to improve their understanding of TCFD because of the likelihood that climate-related disclosures will become mandatory in the country in the future.

None of the participants stated that their representative company experienced pressure from regulators in South Africa to publish a TCFD report. This is likely because of the voluntary nature of TCFD reporting in the country at this stage. Several participants noted that regulators were regularly engaging with companies on climate risk to improve their understanding of the related issues. This indicates that regulators are increasingly concerned with TCFD-related issues:

Furthermore, some participants supported the consultative nature of the regulators and the progress that has been made on TCFD-related issues:

The consultative actions of the regulators included engaging with companies to receive feedback on upcoming regulations. Several participants were involved in such conversations with the regulators and used the opportunity to raise issues that could hinder TCFD reporting in the South African context:

However, not all participants were supportive of the South African regulators’ approach. One participant shared their frustration about the lack of progress made on TCFD reporting regulations in South Africa and was of the opinion that the private sector was a more significant driver of TCFD reporting than the regulators:

While there was no pressure from South African regulators because of the current voluntary nature of TCFD reporting in the country, one participant whose representative company operates in multiple countries indicated that they did receive pressure from an international regulator to publish TCFD reports. This can be explained by the mandatory nature of TCFD reporting in the country in which this company operates. The participant noted that this regulation was a primary driver of their company’s TCFD report:

The feedback from participants suggests that companies in South Africa, even large publicly listed companies, do not experience pressure from local regulators to publish TCFD reports. Instead, the regulators are currently engaging with the private sector to improve their understanding of TCFD reporting and all local context-specific requirements likely to impact upcoming mandatory regulations. Not all participants were supportive of the regulators’ approach and were of the opinion that the private sector was a more effective driver of TCFD reporting. While South African regulators are therefore not currently drivers of TCFD reporting in the country, one participant noted that the pressure that they received from international regulators was one of the key reasons that their company first published a TCFD report. This indicates that the role of regulators as a driver of TCFD reporting increases considerably in the context of mandatory regulatory requirements.

Companies’ strategies are often impacted by their competitors (Gnyawali and Madhavan, 2001). This could be in the form of a reactionary strategy to address the actions taken by competitors or a proactive strategy to gain a position as a market leader. Several participants noted that they benchmark their TCFD report against their competitors to gain a better understanding of the quality of their report and that the desire to be a market leader drives them to improve their TCFD report.

Conversely, multiple participants suggested that they were actively collaborating with their competitors to improve their understanding of the TCFD requirements and the quality of their reports. Some participants were of the view that knowledge sharing was mutually beneficial to collaborators and that this increases their preparedness for a scenario in which TCFD reporting is mandatory in South Africa.

One way in which collaboration assisted companies to improve their TCFD reports was by benchmarking the quality of their own reports against their competitors’ reports to identify areas that require improvement.

The actions of competitors can therefore be categorized as a major driver of TCFD reporting. On the one hand, the quality of competitors’ TCFD reports drives companies to improve their own reports in a bid to gain market leadership. On the other hand, some companies take a more collaborative approach when interacting with their competitors. The ability to collaborate with their competitors was deemed to be mutually beneficial, as both parties could benchmark their own progress and share knowledge and expertise in areas that require improvement.

Working groups enable people that work in similar fields to collaborate and share knowledge that can foster skills development (D’Armagnac et al., 2019). Several participants noted the benefits of actively participating in TCFD-related working groups. A working group led by the United Nations Environment Programme Finance Initiative (UNEP FI) was identified as a prominent role player that informed companies of the TCFD framework and developed guidance that assisted newcomers with TCFD reporting.

Participants noted the willingness of others, even competitors, to share knowledge through working groups. This was a mutually beneficial exercise, with all parties gaining knowledge to further develop TCFD reporting skills. One participant noted that they were exposed to TCFD challenges and solutions in other contexts from international companies participating in working groups.

It is therefore clear that participation in a working group was a major driver of TCFD reporting for participants. Working groups successfully raised awareness of TCFD reporting and developed useful guidance that helped participants to improve their own reports. Furthermore, working groups provided an opportunity for companies to collaborate, develop skills and foster their understanding of international challenges applicable to the South African context in the future.

A company’s clients are often its main source of revenue, and meeting or exceeding their requirements is therefore critical to the company’s success (Zeithaml, 2000). Participants noted the impact of both large corporate clients and individual retail clients on their TCFD reporting activities. One participant noted that large corporate clients are aware of TCFD reporting, as these clients generally publish TCFD reports themselves and are therefore not surprised by the accompanying data collection requests. However, none of the participants suggested that large corporate clients drive TCFD reporting on any level.

Participants had mixed responses, however, regarding retail clients as a driver of TCFD reporting. One participant mentioned that they have not experienced any circumstance in which a retail client has not supported a company because of their sustainability practices. As mentioned in the literature review above, the publication of a TCFD report is an indication that a company is earnestly considering the impact of CROs (Eccles and Krzus, 2018), and such disclosures can therefore be linked to a company’s sustainability practices. This participant is, however, of the view that retail clients will increasingly make purchasing decisions based on a company’s sustainability practices going forward.

Another participant was of the view that retail clients are already responding to these matters and stated that their company had already seen clients threatening to move to other service providers because of the company’s sustainability practices. However, this participant noted that this was mainly experienced in international markets, although there was some evidence of this phenomenon taking hold in the South African market.

As the evidence shows, larger corporate clients are not currently major drivers of TCFD reporting in South Africa. While large corporate clients are aware of the TCFD reporting requirements, they are not a source of pressure; however, retail clients are exerting some pressure on companies to address climate change, including the publication of TCFD reports. This is more prevalent in international markets than in South Africa. Nonetheless, the feedback from participants suggests that pressure from retail clients is likely to become a greater driver of TCFD reporting in South Africa in the years ahead.

The overview of the first-order concepts, second-order themes and aggregate outcomes extracted from the interviews in relation to the external factors that drive TCFD reporting in South Africa is shown in Figure 2.

Although TCFD reporting is a voluntary market-led initiative in South Africa, the number of countries implementing TCFD reporting requirements is increasing (Financial Stability Board, 2022), and this should encourage the South African government to follow suit. A growing number of South African companies have published voluntary TCFD reports in recent years. It is vital to comprehend the motivations behind any company’s decision to publish TCFD reports and the barriers that they encounter in this process to facilitate broader adoption of high-quality reporting among companies. This paper therefore sought to explore the drivers of TCFD reporting in South Africa using qualitative data collected from a purposive sample of seven subject matter experts in South Africa. The thematic analysis of the interview data identified four organisational influences and four external factors as the drivers of TCFD reporting in South Africa. Under organisational influences, institutional investors, activist shareholders, the board and the public commitment to TCFD reporting were extracted as the drivers of TCFD reporting.

Institutional investors were identified as one of the foremost drivers of TCFD reporting, and the evidence indicates that they apply substantial pressure on companies to publish TCFD reports. Given their status as key stakeholders, institutional investors’ requirements hold significant importance, but the level of pressure exerted by these investors varies based on the company’s geographic location and sector of operations. Notably, international investors exerted more pressure compared to local investors, while companies within the financial sector faced greater expectations compared to those in the retail sector. Moreover, investors who publish their own TCFD reports are inclined to anticipate that their investees will follow suit. Evidence suggests that the actions of competitors are a significant driver of TCFD reporting in South Africa. Even though the current climate in South Africa does not mandate reporting, companies should publish their TCFD reports, as this would indicate that the company is taking considerable steps to identify and communicate the risks and opportunities of climate change. Such a company would be well placed to mitigate the risks and maximise the opportunities presented by climate change, and investments in this company are likely to result in a more favourable risk-return profile for investors (Flammer et al., 2021). Therefore, the interests of institutional investors as key stakeholders would be prioritized (Chen and Roberts, 2010), while the legitimacy of the company would be enhanced.

Along with institutional investors, activist shareholders were also identified as influential stakeholders that exert substantial pressure on the companies in which they invest by pressuring them to disclose TCFD reports. Despite the significant pressure exerted by activist shareholders, participants expressed support for their efforts and acknowledged the constructive working relationships and feedback opportunities they provide. This suggests that the strategies used by activist shareholders in South Africa are effective in driving TCFD reporting. Consequently, other organisations seeking to influence companies’ behaviour should consider adopting a similar approach. Publicly publishing a TCFD report would engage more activist shareholders to disseminate their constructive opinion of this action in the public domain and therefore enhance the reputation and legitimacy of the company.

In contrast to the organisational influences discussed above, the board of directors was not identified as a significant initial driver of TCFD reporting. The findings indicate that boards prefer a reactive approach to this matter and act in response to internal pressure from employees and external pressure from stakeholders to publish TCFD reports. Once pressure has been applied to the board, they are more inclined to provide support for the activities and resources required to publish such reports. In addition, individual board members who act as advocates for TCFD reporting were found to support the board’s prioritisation of assessing CROs. Therefore, the findings suggest that companies should not rely on the board to lay the initial groundwork for TCFD reporting. Rather, a focus on developing an internal business case for the board to showcase the value of assessing CROs and TCFD reporting, as well as ensuring that at least one board member is a strong advocate for TCFD reporting, would help to obtain the support of the board as a driver of TCFD reporting. This aligns with the findings of prior studies that suggest that the composition of board members influences voluntary climate disclosures. Specifically, foreign nationals and women directors were found to positively influence voluntary disclosures, while directors with civil service backgrounds had a negative influence. Therefore, board diversity is a key influence on board dynamics (Sanyal and George, 2025).

Companies make public commitments to communicate their goals and strategies to a wide range of stakeholders. Once a company publicly commits to a specific goal, there is increased pressure from stakeholders for the company to fulfil that commitment. Failing to achieve such a commitment can result in reputational damage and undermine the company’s legitimacy. This suggests that public commitments serve as catalysts for TCFD reporting, and therefore, an effort to push companies to make public commitments and to formalise this commitment within the company’s policies would further drive TCFD reporting. If a company publishes a TCFD report within the committed deadline, this can be a proactive legitimising action that would satisfy its stakeholders’ expectations and therefore enhance its reputation and legitimacy (Suchman, 1995).

Under external factors that drive TCFD reporting, this research found policy and regulations, particularly those of international markets, influenced TCFD reporting in South Africa. The empirical findings determined that international markets put pressure on South African companies to follow suit, as TCFD reporting is a regulatory requirement in some international markets. Therefore, logic dictates that policy and regulation would drive TCFD reporting in South Africa if such reporting becomes mandatory (Achenbach, 2021; Foerster et al., 2017). Once mandatory, companies impacted by the regulation would be required to publish a TCFD report to satisfy the expectations of the regulators (Financial Stability Board, 2022). If companies that are required to publish TCFD reports comply with this expectation to meet regulatory requirements, this would enhance their reputation and legitimacy, as stakeholders would view the company as compliant with the expectations of society (Chen and Roberts, 2010; Suchman, 1995).

The driving force of competitors can be explained by a duality of factors. On the one hand, companies seek to attain market leadership, which drives them to publish TCFD reports of superior quality compared to their competitors. On the other hand, some companies opt to foster collaboration with their competitors, facilitating mutually beneficial knowledge sharing and benchmarking opportunities. While companies essentially defer to their competitors to benchmark their reporting standards, participants raised concerns about the lack of clear guidance and documentation within the country, despite some climate disclosure guidance by the JSE. Closely tied to this challenge is the lack of TCFD reporting skills in the country, as noted by some participants. To address this, regulators should issue additional guidance focusing specifically on best practice TCFD reporting and case studies within the South African context.

Another instance of collaborative efforts among peers to publish TCFD reports is exemplified by the prominence of working groups. These working groups have demonstrated their significance in driving TCFD reporting by effectively raising awareness and disseminating guidance. These working groups contribute to the advancement of TCFD reporting by creating a platform for report preparers to enhance their TCFD reporting skills and gain insights into reporting challenges faced in international contexts. The recognition of competitors and working groups underscores the importance of collaboration and knowledge sharing in further enhancing awareness, fostering skill development and ultimately promoting increased adoption of TCFD reporting in South Africa. Despite the aid working groups provide in driving TCFD reporting, the research findings suggest that there was some conflict between the various regulators in the country, which has led to a lack of accountability and certainty. To address this, a designated primary regulator of TCFD reporting would help to streamline reporting processes and further drive adoption.

Finally, clients can have significant impacts on business decisions as companies strive to satisfy their current and anticipated needs to grow. The research did not identify large corporate clients as significant drivers of TCFD reporting in South Africa in the current context. However, this could become more prevalent in the future as large corporations aim to improve the sustainability of their supply chains to meet their own sustainability reporting requirements. The research found mixed results on the influence of retail clients. While some retail clients make purchasing decisions based on a company’s sustainability practices, this was not identified as a significant driver in the current South African context. However, some participants with operations outside of South Africa identified this as a growing influence in international markets. Therefore, while neither large corporate nor retail clients are currently significant drivers of TCFD reporting in South Africa, evidence from international markets indicates that companies should expect increasing pressure from these stakeholders in the future.

The findings from developed markets indicate that companies are motivated by a desire to be perceived as climate strategy leaders relative to their peers and face considerable pressure from external stakeholders to publish climate-related financial disclosures. Dyakova (2021) found that, in Finland, pressure from broader society drives such disclosures, while evidence from the UK shows that stakeholders, including employees, communities, competitors and the government, expect disclosures (Spence, 2007). The findings of this paper suggest that, although climate ambition and competitive dynamics also drive climate-related financial disclosures in emerging markets, broader societal pressure remains limited. Instead, external pressure predominantly comes from TCFD champions, such as activist shareholders.

As this paper demonstrates, a range of organisational and external factors influence climate-related financial disclosures in countries with voluntary reporting regimes. Notably, local policy and regulation were not identified as significant drivers in the voluntary reporting context of South Africa. This finding aligns with Bingler et al. (2022), who suggest that voluntary reporting regimes do not effectively incentivise disclosure. The authors contrast this with France, where mandatory reporting regulations have led to higher rates of disclosure. Similarly, Eccles and Krzus (2018) found that in countries with voluntary regimes, the anticipation of forthcoming mandatory requirements alone can be sufficient to drive disclosure.

In this study, one participant remarked that while pressure from South African regulators was minimal, international regulators operating in jurisdictions with mandatory reporting regimes exerted significantly more influence, ultimately compelling the organisation to disclose climate-related financial information. These findings collectively support the view that voluntary reporting regimes are insufficient to ensure widespread disclosure. To increase overall disclosure rates, the implementation of mandatory reporting requirements appears necessary. Under such regimes, organisations subject to reporting obligations are required to publish climate-related financial disclosures, shifting the focus to the effective implementation of these requirements and the practical challenges faced by report preparers.

The recommendations put forth by the participants serve as a foundation for shaping policies aimed at fostering an enabling environment for climate-related financial disclosures in South Africa. A prominent concern raised by multiple participants is the lack of clear guidance and documentation within the country. Although the Johannesburg Stock Exchange (2022) has published informative climate disclosure guidance, it remains preliminary in nature and encompasses multiple reporting frameworks. To address this gap, regulators in South Africa should issue additional guidance that specifically focuses on climate-related financial disclosures to outline forthcoming reporting requirements and establish best-practice reporting approaches to apply in the South African context.

The impacts of climate change are far-reaching and are increasingly impacting life as we know it (Intergovernmental Panel on Climate Change, 2022). It is imperative that significant changes are made to the global economy in the coming years to mitigate the damage caused by this phenomenon. Large companies, which bear a significant responsibility for global emissions, have a crucial role to play in combating climate change. One approach that companies can adopt to control their contribution to climate change involves identifying, assessing and managing CROs most pertinent to their business operations and publishing climate-related financial disclosures. It is thus critical for companies to not only understand their CROs but also report on their climate-related financial disclosures. Understanding the drivers of climate-related financial disclosures is vital to promoting their widespread adoption. Against this background, this paper adopts a qualitative exploratory approach to understanding the drivers of climate-related financial disclosures in South Africa.

While providing valuable insights into the drivers of TCFD reporting in South Africa, with organisational influences and external factors being key drivers, this article acknowledges three key limitations. Firstly, the research was conducted within a voluntary reporting environment, and the findings may not fully apply to countries with mandatory TCFD reporting requirements, which potentially limits the generalisability of the findings. Secondly, the study predominantly involves participants from publicly listed companies in the financial services sector, potentially overlooking diverse perspectives from non-listed companies across other sectors. Finally, although the participant count aligns with similar studies, conducting more interviews could have revealed additional nuances and insights into the drivers of TCFD reporting.

Future studies can delve into several research questions to deepen the understanding of this topic, addressing notable gaps in existing literature. Firstly, while this study focused on South African companies, replicating research in other emerging markets would offer insights into geographic variations in drivers. Secondly, exploring the perspectives of report preparers in smaller non-listed companies could reveal differences in reporting experiences based on listing requirements or company size. Thirdly, expanding participant representation beyond financial services and retail sectors to include a broader range of sectors would enrich understanding of sector-specific drivers. Additionally, conducting detailed research on each identified driver could inform strategies for promoting TCFD reporting. Finally, analysing the drivers associated with emerging standards like IFRS S2 in comparison to TCFD reporting would provide valuable insights as climate-related disclosures evolve.

This paper helps to address the literature gap on the drivers of TCFD reporting in South Africa based on the practical experience of report preparers. The findings of the research provided much-needed exploration of climate-related disclosure standards in a setting where reporting is not mandated, and the recommendations provided offer a foundational framework for shaping policies to drive TCFD reporting in South Africa.

The authors appreciate the constructive feedback from two anonymous reviewers and grateful for the participants interviewed for the data collection part of the study. All caveats apply.