Get ready for climate risk reporting?

On 30 April we released the latest copy of our Energy net zero. The publication takes an in-depth look at the UK’s transition to a low carbon economy. The below is an extract from our Energy Perspective on Task Force on Climate-related Financial Disclosure (TCFD). The article was originally published in the April 2021 issue.

There have been plenty of attempts over the years to make companies consider as board level issues the consequences for greenhouse gas emissions from where, how and why they use energy. Climate Change Agreements (CCAs) have been a part of the landscape of most industries for the best part of two decades, while for commerce and the public sector the CRC Carbon Reduction Commitment has come and gone, among other initiatives. Most recently larger organisations have needed to follow the Streamlined Energy and Carbon Reporting (SECR) rules.

Large companies and financial institutions will soon need to grapple with a new annual report covering the recommendations from the Task Force on Climate-related Financial Disclosure (TCFD), if proposals currently out for consultation from BEIS are implemented. In summary they are aimed at large organisations and will take effect from April 2022. They will add to the SECR disciplines with greater coverage of indirect emissions plus, critically, scenario-based assessments of the future impacts, opportunities and risks to them from climate change.

As with SECR, the TCFD requirements will form a part of legally-required financial reporting. But they are also being positioned as an important new tool for investors to understand the businesses they are funding; in terms of the impacts, they are having through the emissions they create and expect to create in the future and also the opportunities they may be able to access as the world seeks to mitigate climate risk. The implication is that those businesses that perform well against these criteria should be more attractive to fund than those that do not. So those that do not will need to change their behaviours—and investment plans—to ensure that they do.

TCFD is the brainchild of the Financial Stability Board (FSB), the international body that monitors and makes recommendations about the global financial system. It introduced TCFD in 2015 to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks.

A set of recommendations followed in 2017 covering the disclosures that a wide range of users concluded are essential to understanding a company’s climate-related risks and opportunities. A progress report in October 2020 found there had been a steady increase in the take-up of TCFD aligned disclosures since its inception but with further improvement required given the need for consistency and comparability in reporting. By then, over 40% of companies with a market capitalisation of more than $10bn had disclosed at least some information in line with the individual TCFD recommendations. And nearly 60% of the world’s 100 largest public companies were found to be supporting TCFD, reporting in line with the TCFD recommendations, or both. A further progress report is scheduled for September 2021. There are around 700 organisations currently designated as “Supporters” of TCFD in Europe. While many leading industrial and commercial multi-nationals are among there number, the biggest single group is the financial sector and especially the investor community based from the City of London.

If you would like to access the rest of this article, please contact Robert Buckley, to receive a complimentary copy.

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