Climate-related financial disclosures in the public sector

18 March 2025

As climate-related reporting becomes more prevalent, driven by UK government requirements and heightened stakeholder expectations, it’s crucial for public sector organisations to understand what this means for them. We answer some of the key questions around TCFD disclosures, unpicking what they are, the challenges they present, and how they can add value.

What are the TCFD requirements for the public sector?

Disclosing in line with the Taskforce on Climate-related Financial Disclosures (TCFD) is mandatory for all central government departments. Arm’s-length bodies (ALBs) which meet the following criteria are also in scope:

Over 500 employees; or
Over £500 million operating income/funding received; or
Those that have been instructed to disclose by their sponsoring department.

Wider public sector bodies are not automatically in scope but may disclose voluntarily or be instructed to by their relevant authority.

What should organisations disclose?

The TCFD is made up of 11 disclosures across the pillars of governance, strategy, risk management, and metrics and targets. The mandatory disclosures for the public sector according to the UK government requirements are those relating to governance, risk management and metrics and targets disclosure (b) on Scope 1 and 2 Greenhouse Gas (GHG) emissions. The remaining disclosures are subject to materiality assessment.

The below provides an indication of what organisations should be thinking about when preparing disclosures under each pillar:

Governance: This is about tone from the top. If climate-related risk is not a priority for the board, it is difficult to properly embed it into the future strategic direction of an organisation. Consideration is given to how climate-related responsibilities are allocated at board member and board committee level, and how these are funnelled down the management pyramid to those managing climate-related risk at an operational level.
Strategy: Here, the focus is on how climate-related risks are integrated into strategic decision-making. This could include significant investment decisions and capital allocation. Scenario analysis plays an important role in this, challenging the resilience of organisational strategy against a range of different, plausible future warming scenarios.
Risk management: Climate-related risks do not operate in silos but instead are often intertwined with wider organisational risks. For example, operational disruptions, which may be caused by non-climate-related events like a pandemic or geopolitical tension, can be exacerbated by climate hazards, and therefore amplify the threat of business disruption. As such, an important facet of this bucket is not only how climate-related risk is identified, assessed and managed, but also how this is woven into wider risk management practices.
Metrics and targets: This area is about demonstrating to your stakeholders that you are monitoring the development of your climate-related risks and mitigating your environmental impact. This includes disclosing key metrics, such as Scope 1, 2, and 3 emissions, and setting relevant targets. This increasingly impacts license to operate in the public sector, with organisations expected to exhibit robust Net Zero targets which are aligned to the UK’s Nationally Determined Contributions.

What are the challenges public sector organisations may face?

One significant challenge is the historically fragmented approach to climate-related risks across different organisational functions. Sustainability has often been treated as a stand-alone function, something of an add-on to the broader organisation. However, TCFD disclosures extend far beyond sustainability in their remit. Their financial and strategic focus compels involvement from representatives across an organisation, including, at a minimum, finance, risk and operations. For organisations that previously viewed sustainability as a peripheral activity, getting buy-in to the reporting process from across the organisation can be difficult, as can aligning the perspectives of multiple stakeholders.

Additionally, it is not uncommon for the board to display some initial resistance to being involved in the process. This generally stems from a lack of cognizance of the importance of climate-related risk to organisational strategy. We have found board training, and involvement of the board in the scenario analysis process so that they are able to visualise the potential financial impact of climate-related risk, is effective in securing buy-in.

The final, and often most significant challenge is conducting scenario analysis. This is due to a lack of understanding of the methodologies, and the fact that often little data will have been collected for the purposes of modelling. We cover this topic in more detail, including the steps that an organisation can take to get started on the journey, in our article titled “An introduction to climate risk modelling”

How can climate-related reporting add value to an organisation?

While the challenges of climate-related reporting are significant, the increase in stringency around climate-related reporting requirements should not be seen as merely a burden for public sector organisations. When done properly, climate-related reporting is a driver of organisational value through improved risk mitigation and the ability to harness opportunities.

To report against the TCFD, an organisation must have identified its material climate-related risks and opportunities. This process encourages organisations to consider risks beyond the usual checklist of business risks and the typical risk planning horizons, diversifying risk management practices and enabling better planning for a changing operating environment.

Additionally, organisations that use TCFD disclosures to measure and report on their emissions can realise cost savings by identifying and reducing emission hotspots. For instance, clients have identified that minor behavioural changes, such as switching off lights, can lower both carbon emissions and costs.

Finally, TCFD disclosures drive transparency, which helps organisations to build credibility with their stakeholders. In an environment in which greenwashing proliferates, gaining the trust of stakeholders through clear reporting is valuable.

What are the key steps an organisation should take to get started on the journey?

Identify your current position

Unite stakeholders across your organisation to conduct a gap analysis of where you are against the TCFD recommendations. Clearly signpost in your reporting where you are compliant, and where you are still working towards compliance, including when you expect to be compliant.

Think about your ‘easy wins’

When it comes to your areas of non-compliance, consider where important changes can easily be made. For instance, if your board does not have the required expertise to oversee and manage climate-related risk, consider providing targeted training.

Assign responsibility and set tone from the top

Consider which individual or committee at a board level is best placed to provide effective oversight of climate-related risk. Ensure that it is embedded into the Terms of Reference of the relevant committee. Consider the reporting lines between the individual/committee and senior management, and whether updates are frequent enough.

Set long-term objectives

Develop a clear plan for compliance and own it in your disclosures. Outline the steps you are taking to address areas of non-compliance, and set realistic timeframes for completion.

To sum up, climate-related risk reporting is a valuable exercise for future-proofing public sector organisations in the face of a changing operating environment and ensuring that your risk management processes are resilient despite future uncertainty. Take the time to properly understand your climate-related risk exposures, integrate these into your risk management, and construct a meaningful report for your stakeholders, and the process will benefit your organisation.