Mandatory reporting on the climate risks for businesses is edging closer and closer. In fact, if you are not ready soon, you will be left, in the recent words of The Bank of England's Executive Director for Markets, Andrew Hauser, 'scrambling' when disclosure becomes mandatory.
Can you dodge this ball by thinking that you are a not a listed business or that you are a small company? Maybe for a little while, but it will mean that you are not ready and will be less resilient to coming changes in legislation and green business opportunities.
However, if you are one of those businesses that wants to stay the course, attract the right employees and make a difference to the future of the world we live in, we can help.
What are 'climate related financial risks'?
These are climate-related risks that have a financial impact on a company's bottom line. They affect all types of businesses including investors, insurance companies, and banks.
For example – (i) the banning of single use plastics altered the business plan of drinks companies overnight, affecting their investment profile and their supply chain; and (ii) increased flooding and weather events affects the value and insurability of property portfolios.
Rishi Sunak's proposal for a UK wide carbon tax will hugely increase the costs to all businesses and may put some energy users at risk.
Oil and gas companies are trying their upmost to avoid their assets being stranded, whilst battery storage technology is taking the renewable and decentralised electricity markets by storm. Stakeholder activism from institutional investors and social activists, and climate change litigation are also on the rise.
Why it's important that you do something now
The UK Government legislated in 2019 to become net zero carbon. That has consequences for the way we run business in the UK. For example, Barclays announced in March 2020 their net zero ambitions, but shareholders made it clear at Barclays's 2020 AGM that this ambition needed to be backed up by a fossil fuel phase out. Who would have guessed that a bank's annual report would be scrutinised so closely from a decarbonisation perspective and be at risk of future climate change litigation?
The Bank of England and Marc Carney have been instrumental in supporting the Task Force on Climate Change Related Financial Disclosures (TCFD) and there is no going back for the financial industry.
You need to be ready to tell your shareholders how climate friendly and resilient you are. If you prepare now, you can understand your profile, the impacts of future legislation and control the events. You can make the changes necessary, be ready, rather than taken by surprise.
Environment Social and Governance (ESG) reporting is snowballing
Listed businesses have been made to report for a number of years on the environmental and social impacts of their businesses. However, a few things are happening with the new UK legal obligations regarding net zero targets. Regulators and pension funds are now watching much more closely, and so disclosures need to change from offering lip service to being more meaningful.
The FCA's Stewardship Code proves that ESG has gone mainstream for investors by requiring that 'reports systematically integrate stewardship and investment including material environmental, social and governance issues and climate change issues'. ESG issues are becoming material for investors when making investment decisions.
How we can help?
We can help so you're not left scrambling and can take advantage of the new opportunities by helping you create a sound ESG policy, making yourself more attractive to investors and helping you to understand how further climate related disclosures will affect your business.
We have simplified the TCFD disclosures so it can apply to any business and can help you make your board climate literate and resilient.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.