Climate Change Catalyst

Much has changed in the last twelve months and business is scrambling to re-calibrate. Hybrid working patterns, new supply chains, cultural upheaval, and perhaps one of the biggest, unexpected impacts of the pandemic has been the movement towards lower carbon emissions.  

The Chancellor’s Mansion House Speech earlier this month was a catalyst for new climate related change.  

The announcement confirmed legislation will require UK companies to make climate-related financial disclosures aligned with the four pillars of the TCFD framework. Following on from the Treasury’s Roadmap published in November, and the Government’s consultation which closed in May, this came as no surprise. The aim is to finalise the legislation before the 26th UN Climate Change Conference, in Glasgow, in November.  

The purpose of the legislation is to support UK’s ambition to become a “global centre of excellence for green finance” on the basis that transparency on climate related risk, opportunities and dependencies lead to sustainable investment decisions - ‘The Efficient Market Hypothesis’. This acknowledges that the way investment decisions are made has changed rapidly over the past decade and TCFD disclosures will help secure greater long-term investment.  

The TCFD Status Report 2020 noted an 85% increase in companies in support of TCFD recommendations, but difficulty in identifying the proportion of companies yet to make TCFD aligned disclosures.  

Data published by sentieo.com shows TCFD alignment in the UK has continued to increase year on year since the TCFD framework was introduced by the FSB in 2017. However, just under one third of the UK’s 100 biggest companies still failed to align themselves with TCFD in 2020. The proportion of companies not yet TCFD aligned increases when extending consideration to the FTSE 250. And the gap is larger still between the FTSE 250 and ‘other companies’.  

One of the most pertinent observations is the substantive difference in disclosure segregated by industry, which sees the financial sector leaders in TCFD aligned disclosure with three times as many companies making disclosures relative to the Energy sector. 

However, even companies that demonstrate TCFD alignment, are likely to fall short of the new requirements. Most companies who currently make disclosures (57%), simply refer to their aspirations to disclose to the TCFD in the future, therefore big changes in the landscape on reporting are required.  

Not only do you need to have TCFD integrated into your sustainability strategies, but you need to consider the communication of targets and achievements to demonstrate transparency and integrity to investors. 

Legislation will come into effect for accounting periods beginning on or after 6th April 2022. It’s time to move quickly.