5 January '24

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There are a number of organisations that exist in the sustainability space who either influence or work alongside the International Sustainability Standards Board (ISSB). An important one to note is the Task Force on Climate-Related Financial Disclosures (TCFD). TCFD reporting provides a common four-pillar global framework to help organisations disclose climate-related risks and opportunities.

The UK government presented draft regulations (separately for companies and LLPs) to Parliament in October 2021, and these proposed mandatory disclosures based upon the TCFD recommendations, have now been approved and are effect for financial periods beginning on or after 6 April 2022.

So what?

For December year-ends, 2023 is the first TCFD reporting period. Therefore, TCFD disclosure becoming business as usual from 2023 for the following companies:

  • Previously required to produce Non-Financial Information Statement
  • AIM-listed companies with over 500 employees or
  • Companies not included elsewhere that have more than 500 employees and turnover over £500m (including LLPs).

The disclosures are required at group level which means the scope thresholds and reporting apply on a consolidated basis.

The disclosure requirements need to be included in the Annual Report, within the Non-Financial Information Statement (NFIS) of the Strategic Report, to be re-named Non-Financial and Sustainability Information Statement. Where this statement is not currently required, then just the climate-related financial disclosure elements of that statement would be disclosed, or for LLPs the information could also be presented in the Energy and Carbon Report.

Other entities such as charities and public sector bodies are currently not in scope for these disclosure requirements, although this is expected to evolve.

What are YOU REQUIRED TO disclose?

The required disclosures are based on, but do not directly mirror, the recommendations from the TCFD. The TCFD’s recommendations have been adapted so that they are suitable for inclusion in UK legislation. Companies and LLPs are both required to disclose the following information:

  • A description of the governance arrangements of the company or LLP in relation to assessing and managing climate-related risks and opportunities;
  • A description of how the company or LLP identifies, assesses, and manages climate-related risks and opportunities;
  • A description of how processes for identifying, assessing, and managing climate-related risks are integrated into the overall risk management process in the company or LLP;
  • A description of – the principal climate-related risks and opportunities arising in connection with the operations of the company or LLP, and the time periods by reference to which those risks and opportunities are assessed;
  • A description of the targets used by the company or LLPs to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
  • An analysis of the resilience of the business model and strategy of the company or LLP, taking into consideration of different climate-related scenarios;
  • A description of the targets used by the company or LLPs to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
  • The key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and a description of the calculations on which those key performance indicators are based.

Requirements (a) to (d) are mandatory disclosures with no exceptions. However, if management identify that information in requirements (e) to (h) is ‘not necessary for an understanding of the businesses, then this may be omitted providing a reasoned explanation is disclosed.

Full BEIS guidance on disclosures can be found here.

While there is no specific requirement to disclose carbon emissions, all organisations reporting under BEIS will also be reporting under SECR—which already requires Scope 1 and 2 emissions (i.e.. everything but Scope 3, which covers supply chains). But as the targets and KPIs from points g) and h) will increasingly involve reductions to Scope 3 emissions, it’s best practice to begin measuring and including this extra data early.

And when it comes to SMEs, while TCFD is not affecting them that much into the direct reporting. However, SMEs will get increasingly affected through the supply chain. Organisations that will have to make TCFD disclosures (or ISSB in the future) will have to gather information from the supply chain. So SMEs might not have to report into the market, but they’ll certainly need to report up their supply chain.

If you need support with TCFD reporting or your business’s sustainability strategy, get in touch.