Task force on climate-related financial disclosures (TCFD)

The climate-related financial disclosures landscape is changing, since the UK government has amended the Companies Act 2006 to introduce additional requirements for TCFD-aligned climate-related disclosures in the annual reports of a significant mainstream of companies.

Reporting in line with the TCFD is more than a mere compliance exercise. The TCFD is first and foremost a framework for embedding an understanding of climate-related risk into organisational strategy, and reporting is just the final step of the journey. The pivotal focus of the framework is on whether an organisation has a coherent and appropriate strategy that is resilient across an array of warming outcomes, and whether this is driven by senior individuals on the board.

The business case for considering climate-related risks and opportunities is extensive. We have never faced greater uncertainty regarding the future conditions in which organisations will be operating, both regarding the physical conditions on our planet, and the state of our economy. Those organisations failing to demonstrate that they are prepared may suffer limited market access and an increased cost of capital, while those that embrace the transition to a lower carbon economy are likely to enjoy reduced operating costs, improved operational resiliency and the attraction of new customers.

Our approach

In order to ensure that you not only comply with regulatory expectations, but also benefit from a business strategy which seamlessly integrates climate-related risk, our experienced team will assist you with the following:

Conduct a gap analysis of your existing governance, strategy and risk management systems against the 11 recommendations of the TCFD
Benchmark your current position against your peers and best practice, providing you with a clear direction of travel
Collaborate with you to create an implementation plan which will stand you in a strong position for reporting against the TCFD, while remaining cognizant of your maturity on your TCFD journey

At the crux of the TCFD’s strategic view of risk is scenario analysis, since it allows organisations to evaluate the most important risks and opportunities facing them under different future warming scenarios, adding weight to financial projections and assertions about materiality. Using our technology solution and modelling experience, we will identify the exposure of your key assets and business functions to physical and transition risk. In doing so, we will identify which risks recur in multiple scenarios, and so are low-hanging fruit for mitigation, and which risks result in the most detrimental impacts, making them crucial for prioritisation.

Finally, we will work with stakeholders at your organisation to draft a TCFD report which is robust, transparent, and aligned with the 11 recommendations.

Our TCFD implementation service is structured across three stages

Get in touch

To discuss your requirements, please don’t hesitate to get in touch with us using the details below.

FAQs

Which companies are in scope for reporting?

For accounting periods beginning on or after 1^st January 2021, the FCA required UK premium listed companies to produce TCFD-aligned disclosures on a “comply or explain basis”. This was extended to standard listed companies, global depository receipts, asset managers and certain asset owners for accounting periods beginning on or after 1^st January 2022.

For accounting periods beginning on or after 6^th April 2022, the UK government (through the Companies Act 2006) brought in mandatory Climate-related Financial Disclosure Requirements (CFD) for companies meeting the following thresholds:

All UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies (Relevant Public Interest Entities (PIEs));

UK registered companies with securities admitted to AIM with more than 500 employees;

UK registered companies not included in the categories above, which have more than 500 employees and a turnover of more than £500m;

Large LLPs, which are not traded or banking LLPs, and have more than 500 employees and a turnover of more than £500m and;

Traded or banking LLPs which have more than 500 employees.

What is the CFD and how does it relate to the TCFD?

The CFD refers to the climate-related financial disclosures added by the UK government into the Companies Act 2006. The disclosures are based on the 11 recommendations of the TCFD, and so there is significant overlap and comparability between the reporting requirements.

Disclosing in line with the TCFD’s recommendations on best practice is highly likely to fulfil the requirements of the CFD, but it should be noted that disclosure with the CFD is not on a “comply or explain basis” and so organisations are advised to confirm that their disclosures meet the requirements.

My organisation is new to TCFD reporting and conducting scenario analysis – where do I start?

TCFD reporting is a journey and organisations are not expected to be perfect in the first year. The key is to be transparent about what you have not yet done, the assumptions or proxies that you have used, and the timebound improvements that you intend to implement for future reporting cycles.

Providing users with an understanding of the potential financial impacts of climate-related risk on your organisation is the crux of the TCFD. As such, the first step is to conduct a materiality assessment of the climate-related risks and opportunities which are likely to be the most disruptive to your organisation.

Conducting quantified scenario analysis will help to inform your assessment of the materiality of these risks. Even if you have not collected the full suite of required data in-house, you should look to add some quantification to your materiality assessment by relying on proxies and industry benchmarks in your first reporting year, which can be substituted with internal metrics in later reporting cycles.

For further information contact us today.

How does the TCFD relate to other reporting frameworks?

There is a high degree of alignment between the recommendations of the TCFD, international reporting requirements and potential future UK reporting requirements.

The climate change standard (E1) of the Corporate Sustainability Reporting Directive (CSRD), which applies to many organisations in Europe, is heavily based on the recommendations of the TCFD. As such, reporting in line with the TCFD will help UK organisations to fulfil the requirements of European parent companies or European companies that they supply to.

The International Sustainability Standards Board’s (ISSB) Sustainability Disclosure Standard S2 also exhibits strong alignment with the TCFD, and given the possibility of this being embedded into UK law in the coming years, reporting against the TCFD now will prepare organisations for what is to come.