Blog
February 1, 2022

What businesses can learn from the UK legalising TCFD standards

The UK government recently revealed that it will implement new reporting requirements for certain businesses in 2022. Here’s what you need to know about them, and what they will mean for your business.

The UK government recently revealed that it will implement new reporting requirements for certain businesses in 2022. Here’s what you need to know about them, and what they will mean for your business.

 

The UK has announced that from April 2022 it will be a legal requirement for large companies and financial institutions to begin reporting on their climate-related financial disclosures. This announcement has arrived just before the UK hosts COP26 in Glasgow (read more about COP26 here), and will be a crucial part of the pathway towards the UK’s 2050 Net-Zero commitments.

The UK is the first G20 country to set in motion plans to mandate the disclosure of Task Force on Climate-related Financial Disclosures (TCFD) recommended climate-related risks and opportunities by large businesses, which gives UK businesses early insight into the rollout of potential future climate-related disclosures.

What are the new reporting standards?

The new reporting standards align with the TCFD recommendations. The TCFD was created at COP21 in 2015 (learn more about COP21 and its outcomes here), and its aim is to facilitate economic stability through climate-aware financial decisions.

With this aim at their core, the TCFD recommendations outlined 4 focus areas, from which the standards were developed. For each of these 4 areas, companies are required to describe:

Governance

Requiring management and board roles to complete climate-related risk/opportunity assessments.

Embedding Strategy

Embedding of short-, medium- and long-term climate-related risks and opportunities in business strategy and financial planning.

Integrated Risk Management

Ensuring identification and management of climate-related risks, and integrating this into the organisation’s overall risk management.

Metrics and Targets

Quantifying climate-related risks and opportunities to enable performance tracking based on Scope 1, 2 and (if appropriate) 3 emissions and associated risks.

Finally, the new UK reporting standards will require quantitative scenario analysis, which helps demonstrate the resilience of an organisation’s strategy under potential future warming conditions.

How will these new reporting standards affect your business?

For now, these new standards only apply to UK-registered companies trading on a UK-registered market that have over 500 employees, and also private companies with over 500 employees and £500 million in turnover.

For these businesses, the rigour of TCFD bring obvious benefits in risk management and climate preparation. However, we also see 3 areas that you should be preparing for:

Time and financial costs of reporting

  • The costs involved in reporting are not minimal because of (1) the new time commitment for reporting teams (2) up-skilling will be needed in the team, which requires investment (3) extra audit costs. The European Commission estimates that sustainability reporting will cost large companies EUR 1.2–3.6 million each year and the mandating of the TCFD recommendations is the beginning of a similar commitment within the UK context.
  • Aligning the board and management involvement on the company’s climate-related risks and opportunities

Completing GHG emissions baselines for your company

  • This task requires data on the scope 1, 2 and 3 emissions of your company to cover the upstream, downstream and direct emissions resulting from its functioning.
  • GHG baselines also require either a considerable time investment or the help of experts to turn this data into a reliable GHG emissions baseline.

Contact Altruistiq on insights@altruistiq.com to see how we could help your company with reporting and creating a comprehensive GHG baseline so that you can sell more, spend less, and save time.

Investment implications

  • With more standardised reporting requirements, it will be easier to embed those considerations within investment theses. This will mean that there is less room for interpretation or misunderstanding of requirements, and will ultimately make greenwashing less likely.

How might these standards change in the future?

The increase in sustainability reporting requirements is a trend which we expect to continue in the future. This expansion could come in two forms:

  • Expansion of business scope — Today the UK’s new reporting standards will only impact large business and financial institutions. However, along the journey to the UK’s Net Zero goal, we expect that reporting standards will expand to include a larger section of the economy in order to accelerate those aims.
  • Expansion of reporting scope — For example, read more here about the new Corporate Sustainability Reporting Directive, which is an EU directive, that, alongside the EU Taxonomy, includes a wider remit of sustainability reporting.

Therefore, even if your business is not impacted today, there is an opportunity now to be prepared for the incoming non-financial reporting standards of the future, whatever the size of your business.

For feedback on this article or questions related to how your organisation should approach sustainable reporting, drop us a line at insights@altruistiq.com.

Altruistiq is a sustainability SaaS and helps some of the world’s largest companies to sustainably sell more, spend less, and save time.