The Task Force for Climate Related Financial Disclosures (TCFD) first published a report in 2017 setting out its view on the core elements of climate related financial disclosures which are applicable to all business sectors and regions. For periods beginning on or after 1 January 2021 these disclosures are now mandated for the largest of UK entities, being those with a premium listing on a comply or explain basis.
The first financial statements to be impacted by this are those prepared to 31 December 2021, given how close we are to that date the FRC published a lab report TCFD: ahead of mandatory reporting to support organisations through their first required set of disclosures.
Although the size of your organisation may be some way away from these requirements being mandatory it does not mean that the core elements of the regulation are irrelevant to your business.
Below we summarise the high level requirements of the TCFD to enable you to consider the strategy of your business and how you can start to think about the impact of climate change.
The TCFD is made up of 4 key areas:
In this area a board should consider its approach to climate related challenges and opportunities. Key questions would be: What oversight does the board have of climate related impacts on the business and what is the role of management in reviewing this?
A board should have a clear understanding of what it believes the impacts of climate related challenges and opportunities to be and how this feeds into the strategy and finances of the business over the short, medium and long term? There should also be an element of scenario planning within this such as how would the business operate in a 2oC or lower situation.
3. Risk Management
All boards should be in tune with the risk profile of their business and seek to manage and control this. This should now include the risks associated with climate change and an understanding of how significant this is to the business as well as an idea as to what can be done about it.
4. Metrics and Targets
Like with all things in business we also need to be able to measures and assess the impact of climate change and track progress. This will require KPIs to be developed which link climate change and the performance of the business.
Once an organisation has worked through the above it should have a solid review and understanding of the impacts of climate change on the business.
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.