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Climate Disclosure and TCFD in the UK

August 31, 2021

Mandatory disclosure of climate-related financial information is soon to be the reality for a large number of companies in the United Kingdom. The country is one of the first to codify reporting requirements built around the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and is certainly one of the most ambitious in terms of these rules’ scope and scale.

In November 2020, UK Chancellor of the Exchequer, Rishi Sunak, announced the government’s intention to make climate disclosures obligatory for big companies and financial institutions by 2025, with most measures to be in place by 2023. This was followed in March of this year with the launch of a proposed roadmap by the UK Department for Business, Energy & Industrial Strategy (BEIS) for turning this intention into reality.

The roadmap encompasses most publicly traded and privately held companies, as well as banks and insurance firms. If approved, climate disclosures would become obligatory for these organizations for accounting periods starting from 2022.

How does the UK TCFD roadmap apply?

The TCFD is built around four pillars: governance, risk management, strategy, and metrics and targets, which in turn house 11 recommendations on climate-related financial disclosure. Together, these provide a consistent framework for companies to report on their climate-related risks and opportunities, and a means to convey decision-useful information to investors and other stakeholders.

The UK roadmap would enact the TCFD framework as follows:

  • Applied to majority of publicly traded and privately held companies: Disclosure rules would encompass listed companies with more than 500 employees, limited liability partnerships (LLPs) with more than 500 employees and a turnover of more than £500m, and other UK-registered companies that meet this size threshold.

  • Disclosures to be housed in annual strategic reports: These are mandatory reports that provide a company’s shareholders with an understanding of its business model, strategy, risks, development, performance, position and future prospects. The roadmap says climate-related disclosures should be included in the non-financial information statement of these reports.

  • Alignment with TCFD: Climate-related disclosures will have to conform with the four pillars of the TCFD. The regulations will not prescribe disclosures aligned with these pillars’ associated 11 recommendations, although certain companies subject to specially tailored rules will have to report against these on a comply-or-explain basis (see below). 

  • Phased in from 2022: The UK government plans to finalize the regulations by the end of 2021, and make them applicable for accounting periods starting on or after April 6, 2022.

Other requirements

Certain companies may be incentivized to produce TCFD-aligned disclosures ahead of the roadmap’s schedule. The UK’s Financial Conduct Authority (FCA) introduced a new rule last December requiring the country’s near 500 premium-listed companies to include a statement in their annual financial reports for 2021 onwards either confirming they have made climate disclosures consistent with the TCFD or explaining why not. Significantly, these companies would have to report against all 11 recommendations that underlie the four TCFD pillars. This represents a ‘gold-plating’ of the rules drawn up by the BEIS.

And the FCA didn’t stop there. In June, it also put out for consultation enhanced climate-related financial disclosure rules for asset managers, life insurers, and FCA-regulated pension providers. These would require such institutions to publish annual entity-level TCFD reports and product/portfolio-level disclosures, including a core set of metrics. The disclosure regime would be phased in from 2022.

TCFD Reporting is a Business Opportunity

By bringing its roadmap into effect, the UK will become a global leader in requiring climate disclosure from companies. This offers the UK business community an opportunity to set the standard for consistent, decision-useful climate-related information and demonstrate its utility to investors and other stakeholders.

Wondering what the rules mean for your business and don’t know where to start? Already on your way and interested in improving your disclosure and your business approach to climate risk and opportunity? We at Manifest Climate regularly work with companies in a variety of sectors. We help companies understand what climate means for business, assess TCFD maturity, and guide them on their journey to deliver credible climate reporting that meets the needs of regulators and investors. Contact us today.