People and Planet in the Accounts: mandatory climate-related disclosures

Premium-listed companies, banks, building societies, insurance firms and occupational pension schemes worth more than £5bn could be the first entities subject to TCFD-aligned, climate-related disclosures, according to the roadmap set out by the UK Joint Government Regulator TCFD Taskforce.

The roadmap sets out a transition plan over the next three-to-four years, with the scope for mandatory reporting widening each year. 

The roadmap reflects the steps already taken by the Financial Conduct Authority (FCA), Bank of England (through the Prudential Regulation Authority) and the Department of Work and Pensions, to introduce TCFD-aligned disclosures for the aforementioned entities. 

The Department for Business, Energy, and Industrial Strategy plans to consult on measures for UK-registered companies. The FCA is proposing further measures for asset managers, life insurers and FCA-regulated pension schemes, while the Ministry of Housing, Communities and Local Government intends to consult on implementation in the Local Government Pension scheme by 2023.

“The Financial Services sector can play a critical role in the successful transition to the net-zero economy,” says Zsuzsanna Schiff, ICAEW’s Auditing and Reporting Manager. “Using its experience to assess, manage and mitigate climate change-related risks (think of general insurers modelling and underwriting weather and other nature-related catastrophes), it can also help establish what is the best transition pathway. 

“Banks, insurers and asset managers can contribute to finding the best mitigation and adaptation options, as well as influencing the policy choices. Through well-considered investments, they can also assist in transforming carbon-intensive sectors, provide sustainable infrastructure while considering the social impacts too.”

Former Governor of the Bank of England and UN Special Envoy for Climate Action and Finance Mark Carney spoke about the importance of embracing TCFD-aligned disclosures at the Green Horizon Summit this week. As of last week, over 60 countries and national authorities support the TCFD. New Zealand is leading the way in enshrining it in law.

“We have governments setting the goal of net-zero. We have over $100tn of capital demanding action,” he said. “At a minimum, companies must disclose whether the assumptions in their accounts are aligned with Paris. In other words, are they joining us on the road to Glasgow [COP26] or not?”

Almost half of companies with a market capitalisation greater than $10bn are disclosing in line with the majority of TCFD recommendations, Carney said. “But most isn't yet enough, we need full disclosure … particularly about forward-looking strategies. And this underscores the need to make climate-related disclosures mandatory.”

Investors representing over $140tn of assets are also demanding information and disclosure in line with TCFD. They are also calling on companies to disclose whether or not the assumptions in their financial statements are compatible with the Paris Agreement.

“The announced rise in regulatory expectations in this area has been long anticipated this year,” says Francesca Sharp, ICAEW’s Technical Lead on Climate Change. “It’s clear that while the 2020 pandemic has delayed the UK’s ambitions on climate it certainly hasn’t dampened them. We can expect further serious reporting commitments in the run-up to November 2021’s COP26 but reporting mustn’t be seen as the only tool in the box when it comes to tackling the climate emergency.”