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One year on: how is the TCFD mandate faring with the industry?

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One year after the Task Force on Climate-related Financial Disclosures (TCFD) was imposed on some UK businesses, Nicola Stopps, chief executive and founder of Simply Sustainable, reflects on industry preparedness for a blanket mandate.

  • Certain large UK businesses are now required to include climate risks in their annual reporting using the TCFD framework.
  • This is indicative of an attitudinal shift, marking a significant step towards managing the global corporate impact of climate change.   
  • There is no excuse for stalling on action but, simultaneously, there is an understanding that businesses will refine reporting over time, though businesses should seek guidance if needed.

April 2023 marked one year since the TCFD was mandated for certain large UK businesses, requiring corporates to include climate risks in their annual reporting.  

TCFD helps public companies disclose climate-related risks and opportunities. However, the urgency of the climate crisis and the need to decarbonise have prompted the formation of more stringent measures and guidelines for businesses, resulting in the first mandatory TCFD-aligned reporting requirements being announced in October 2021.  

As the industry gets up to speed with the reality that a sustainability strategy is no longer a ‘nice to have’ but a necessity, last year’s update to the TCFD is indicative of an attitudinal shift, marking a significant step towards managing the global corporate impact of climate change.   

While the TCFD is one of the most important pieces of reporting regulation to be brought into force, questions remain about how impactful it has been in practice. With its remit expected to expand across jurisdiction and include more businesses by 2025, how is the corporate world currently responding?  

Reporting responsibly  

Currently compulsory for around 1,500 businesses, the industry has largely welcomed the mandating of TCFD guidelines. However, it is clear there is still much progress to be made when it comes to the quality and impact of reporting.  

Although most businesses are technically adhering to TCFD guidelines, a deeper dive into disclosures reveals shortfalls in some reporting instances, both intentional and unintentional. Illustrating this is a report from earlier this year stating BNP Paribas (PAR:BNP) – one of Europe’s largest financial institutions – would face legal action for continuing to finance fossil fuels, despite their TCFD disclosures being robust and technically sound.  

Cases like this raise questions to the wider industry around how these frameworks may unintentionally mislead if they are read in isolation. The value of reporting on climate risk is made redundant if businesses view it as a box-ticking exercise, rather than using frameworks to accurately reflect progress in their sustainability journey and depict material impacts.  

Industry shortcomings   

A recent report by the Financial Conduct Authority (FCA) warned that there is much to be done to improve reporting quality, highlighting a ‘significant increase’ in the number of companies reporting and the average length of a disclosure, but a slower increase in quality. While the engagement from corporates proves positive, many still have a long way to go before producing meaningful and high-quality reports that cover all key aspects of the framework.  

The most common reporting gap was found to be scenario analysis – a tool used in the TCFD framework to disclose the qualitative and financial consequences of future climate change. Businesses are asked to forecast the risks and opportunities to their operations and value chains at a range of global temperature increase trajectories – but the FCA found that most companies were not ready to unveil the metrics they were using to measure risks and, therefore, specific targets to reduce them.  

Without scenario analysis, metrics, and targets, the FCA is warning that businesses are not equipped to provide information on how risks and opportunities will differ between different parts of their business and geographies in the value chain.  

Data will continue to play a fundamental role in reporting, helping to improve our understanding of a company’s effort toward mitigating its individual impact on climate change. Yet there is often a lack of information on which to make informed judgements, which creates hurdles for the industry and highlights how vital access to a certain calibre of information is.   

Where should businesses look next?  

Integrating the TCFD’s recommendations in reporting and planning is a work in progress. Instead of viewing the first disclosure as a finished article, businesses should look at the areas that are most material and build on them. It is also beneficial to involve key stakeholders and be forthcoming in asking for guidance in areas that need more work.  

There is no excuse for stalling on action but, simultaneously, there is an understanding that businesses will refine reporting over time. Ultimately, with the guidance from third parties and key stakeholders – and the ability to ask for help when needed – the tools and resources are at our disposal, and it’s time for businesses to use them confidently and responsibly. 

The opinions of guest authors are their own and do not necessarily represent those of SG Voice.

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