We recently responded to the UK government public consultation seeking views on its proposals to introduce mandatory TCFD aligned financial disclosures from publicly quoted companies, large private companies and limited liability partnerships in 2022.
What are the TCFD recommendations?
The Taskforce was established by the Financial Stability Board after the global financial crisis with an objective to promote international financial stability and better understand the impact of the global climate on business and the financial system.
The purpose of the TCFD recommendations is to improve financial disclosure on climate-related risk and opportunities so investors can make better-informed decisions on where to deploy their capital as we transition to a low-carbon economy.
The recommendations framework consists of four pillars; governance, strategy, risk management and metrics & targets.
- The TCFD recommendations have been backed voluntarily by over 250 businesses worldwide, representing more than $6.5 trillion in market capitalisation.
- Investors use disclosures as an insight into their investments over the long-term and to mitigate risk clusters within their portfolios.
- The importance of ensuring both long-term stability of investment portfolios and long-term resilience of companies in the wake of climate change is going to continue increasing.
- TCFD disclosure will provide insight into the stability of portfolios and companies against the worst-case scenarios, such as emerging regulations leading to non-compliance, increasing insurance and liability costs, asset damage and stranded assets.
- The disclosures are now used by governments across the world as well as being spearheaded by the largest pension funds and investors globally.
Why is the government looking to introduce mandatory disclosure?
To support the transition to net zero, the Government considers it important to ensure that companies with a material economic or environmental impact or exposure assess, disclose and ultimately take actions against climate-related risks and opportunities.
This will in turn provide investors with more of the information they need to adequately understand and manage climate-related financial risks and provide other stakeholders with a greater level of information on climate-related matters.
Key takeaways from Carbon Intelligence’s response
- We feel the requirements on companies are too loose as the legislation doesn’t follow the specific TCFD recommendations which dilutes the reporting
- We disagreed that scenario analysis wasn’t mandated as this is at the crux of fully understanding the spectrum of how climate change could affect a business, especially given the uncertainty of climate futures
- Particularly, further governance requirements should be explicit to ensure the Board is held accountable on climate risk
- Assurance over risk processes and material risks should become an auditor’s job as they form part of any other financial risk sphere which they look at
“TCFD should be seen as more of an internal action framework rather than a compliance disclosure framework. Aligning to TCFD allows companies to drive cross-functional collaboration in order to better understand future climate impacts and build long-term resilience into their operations, finances and reputation.” – Lucy Hamnett, Senior Consultant, Carbon Intelligence
“There is increasing international recognition of the need to integrate climate and environmental factors into mainstream decision making and the TCFD is one of the most influential initiatives to provide a disclosure framework. This framework is now endorsed by institutions representing $118 trillion of assets globally and the UK is one of the first countries to build on the success of TCFD by proposing mandatory disclosures based on its recommendations.
This consultation presents an opportunity for industry and financial services to give their views on the government’s proposals to mandate the disclosure of the financial risks and opportunities presented by climate change.” – Alison Mungall, Compliance Director, Carbon Intelligence
Read our full response here.
Our TCFD experts have been supporting large complex organisations such as Vodafone, Britvic, Prudential and IPUT to understand and report to the TCFD recommendations and use their disclosure to drive long-lasting business model change. Contact us today to understand how we could help you firstname.lastname@example.org