“6th April 2022 represents a watershed moment for the UK’s climate disclosure rules, from which point large UK businesses will be required by law to include climate risks and opportunities in their regulatory reporting, aligned with the recommendations of the TCFD.”
We are witnessing a huge global shift in corporate climate disclosure policy and the timing couldn’t come soon enough. The recent IPCC report from Working Group II put into the spotlight that 3.3-3.6 billion people globally are exposed to the impacts of climate change. The physical impacts of climate change, and the economic effects of a significant transition of the economy towards Net Zero, present risks to the business operating environment that aren’t able to be appropriately considered with traditional business planning cycles.
The disclosure requirements, which capture large companies and LLPs, will apply to reporting for financial years starting on or after 6th April 2022. The Department of Business, Energy and Industrial Strategy has published this non-binding guidance to help organisations understand the scope, timings, and expected level of detail when making disclosures.
These regulations form part of another aspect of the government’s Net Zero Strategy (Oct 2021), with one of the objectives to give investors and others the information they need to integrate climate change and sustainability in all financial decisions. Mandating TCFD aligned disclosures is a central element of this and disclosure requirements are already in place through the FCA. More detail is provided in ‘Greening Finance: A Roadmap to Sustainable Investing’ (Oct 2021).
On the other side of the pond, the U.S. Securities and Exchange Commission (SEC) announced a new measure that will require U.S. listed companies to report detailed disclosures on climate risk similar to those outlined in the TCFD Framework and GHG protocol.
There is notable emphasis within the regulations on use of scenario analysis and a consideration of risk over short, medium, and long term time horizons.
Over 1300 organisations are expected to be directly captured by these regulations, the first of whom will be required to disclose in strategic reports starting from 2023. This does not leave a lot of time, if your organisation is making its first steps towards understanding and implementing. In purposely excluding mandating quantitative scenario analysis, the UK Government recognised there is a shortage in climate related risk expertise in the market. Organisations without the skills inhouse may face significant wait times if wanting to partner with external consultants.
Integrating the structure and process that sits behind the disclosure, particularly scenario analysis, can take many months of stakeholder engagement, analysis, and internal socialisation if wanting to realise the intended benefits of the framework.
CEOs and Board members need to understand that TCFD is not simply a disclosure framework or box-ticking exercise to be completed by the finance, investor relations and legal teams to compile the minimum information required for the Annual Report. There is an opportunity to protect and create value through reflection on the organisations resilience to the uncertainties presented by climate change. When embedded properly into an organisation, it is a strategic planning tool designed to drive internal change and allow better decision making in the context of climate risk scenarios and the transition to net-zero.
TCFD is not only about climate-related risk disclosures, but is an opportunity to use scenario analysis to fine tune, pivot or even reset business strategy for economic success in the context of climate change and the transition to net zero, and that has to be a good thing. Going through the process can provide opportunities to revisit whether core governance and risk management functions are operating effectively. These are essential elements of successful business and can be readily flexed to accommodate emerging risk issues such as biodiversity and nature. The Task Force on Nature related Financial Disclosures (TNFD) was beta tested in March.
It is through disclosure that an organisation can communicate to investors and other important stakeholders that they are aware of, and actively managing, material climate related risks. Since the TCFD was first released in 2017 as a voluntary framework, there has been significant advancement of the narrative related to climate related risks.
The setting of science based emissions reductions targets has exploded and investors now want to see credible, timely, costed transition plans for how these will be achieved. Through codifying the reporting of climate risk, the UK government is accelerating the resilience of the businesses that drive our economy.
- Demystifying the TCFD recommendations
- Register for our webinar on aligning TCFD to net zero as part of edie’s Engage Focus Week
- Britvic TCFD Case Study
- Join Carbon Intelligence in becoming a member of the TNFD forum
How Carbon Intelligence can help
TCFD experts at Carbon Intelligence use their experience and expertise in TCFD disclosures to help our clients produce TCFD compliant disclosures for their annual reports. We also set out and implement plans to manage climate related risks.
If you would like to find out more about how we can help with voluntary or mandatory TCFD reporting, speak to one of our experts, contact us today.