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Alasdair Hedger

The heat is rising on corporate transparency

Hardly a day goes by now without climate change being in the news. With heat waves across Europe being up to 100 times more likely than in 1900 due to climate change, businesses are feeling the heat with increasing pressures from regulators and investors to take action and be more transparent.  

With London Climate Action Week underway, a programme of events aim to show the UK and the rest of the world what practical changes can be made to tackle the climate emergency. The role of businesses is one of the central themes with events covering business leadership on climate, clean energy and energy efficiency, low emission transport, adaptation and resilience, and climate finance and investment.

TCFD disclosures - from voluntary to mandatory?

This week comes just after the UK became the first G7 country to legislate for net zero emissions by 2050. In its Green Finance Strategy launched on Tuesday, the government have recognised that achieving this goal will require ‘unprecedented levels of investment in green and low-carbon technologies, services and infrastructure. Green finance will be central to providing the flows of capital we need’.

In the Green Finance Strategy, the Government have stated their expectations for all listed companies and large asset owners to disclose in line with the TCFD recommendations by 2022. To evaluate companies progress in implementing the TCFD, a joint taskforce with UK regulators, chaired by the Government will examine the most effective way to approach disclosure, including exploring the appropriateness of mandatory reporting.

The Green Finance Strategy has also been endorsed in a joint statement by the Financial Reporting Council, Financial Conduct Authority, The Pensions Regulator and Prudential Regulation Authority. As part of the Strategy, the Government will work with these regulators and other initiatives to ensure they have regard to the Paris Agreement when carrying out their responsibilities and support quality corporate climate disclosures through providing guidance.

Increasing pressures from investors

In addition to changes in the regulatory environment, companies are increasingly under pressure from investors to provide more decision-useful climate-related information through resolutions, initiatives and litigation. As evidence of this demand, 340 investors with nearly $34 trillion of assets under management have committed to engage the worlds largest GHG emitters by implementing the TCFD as part of Climate Action 100+. However, our research shows the majority of companies are still in the early stages of adopting the TCFD. Our recently launched research ‘The Ecosystem of Authenticity’ looks at corporate reporting trends across the FTSE 100. We found that while 39% refer to the TCFD, only 18% outline how the company is responding to the impacts of climate change and 14% of companies’ principal risks include climate change.

In addition, we found that while discussing the physical risk and the transitional risks resulting from climate change, companies appear to be finding it harder to integrate these considerations into overall risk management and to evidence the resilience of their strategies in taking these considerations into account.

Are you challenged with integrating climate change information into your annual report?

Please contact Amanda Alexander if you would like to hear more about how we can help you with your investor communications.