The UK’s Climate-related Financial Disclosure Regulations 2022, which became effective for periods beginning on or after 6 April 2022, represent the first major requirement for some businesses to provide detailed climate-related information in the annual report. The regulations have been drawn from the existing Task Force on Climate-related Financial Disclosures (TCFD) framework.

At the recent ICAEW Corporate Reporting Faculty conference, Burberry’s Helen Green, Group Financial Controller, and Aadam Nabi, Manager, Sustainability Finance, spoke about how they set about complying with the new regulations well before they came into force.

The build-up for Burberry began in 2019, when it set up an internal cross-functional working group, with full TCFD compliance achieved in 2022. But it remains on a journey, which is illustrated in the diagram below, as it continues to expand and refine its climate-related disclosures. Starting with the basics and building on them gave Burberry the time to get to grips with what is required, particularly the four thematic areas or pillars that the core elements of the TCFD’s recommendations are structured around: governance, strategy, risk management, and metrics and targets. 

Says Nabi: “This was us taking the first steps to implementing the TCFD’s recommendations, but it was also recognising that we still had gaps that we needed to work on.”

Burberry’s key learnings

1 Scenario analysis and TCFD disclosure is a journey

Burberry has built up its knowledge base over the years and refined the process with each iteration. But it’s not just the working group that needs to be involved, says Green: “When it’s your day job, you can get deeply involved in what your scenario analysis is doing, but trying to explain that in 15-20 minutes can be a big challenge. You need to bring the right people and senior leaders with you throughout the journey.”

As an example, Green talks about explaining the difference between transitional and physical risks and how these change over time and within the different temperature scenarios. Put simply, physical risks are those that arise from climate change itself – for example, extreme weather events impacting supply chain locations and production of raw materials. These are greater in the long term. Transitional risks are those that we face as we transition towards a lower carbon economy. Changing consumer attitudes such as increased demand for more ‘eco-friendly’ products and changing regulations are examples of this. 

2 Understand the data requirements for scenario analysis

The most obvious point about scenario analysis is that it’s hypothetical and by its very nature there will be a lot of underlying assumptions. Getting these assumptions consistent with the business strategy is key to producing meaningful analysis. The data going into this is vital, in Burberry’s case looking at physical risks such as heatwaves, drought, storms and so on in key locations, and on the transitional side what would happen if consumers changed their behaviour, and what the reputational impact of not doing enough would be.

Says Green: “We wanted to make sure we were using the best possible assumptions, so we had quite a few in-depth conversations with the supply chain team and the pricing team.”

Of course, lessons have been learned and refinements made. For example, with consumer preference risk highlighted as a potentially ‘high’ impact risk under a 1.5 degrees pathway, it was key that the information used, for example about fabric composition, in the digital representation of our organisation – our digital twin – incorporated the best available data and insights from experts in the business. This was a key focus area for the Burberry team, which has continued to enhance the quality of this input.

3 Having the right team in place is key

For the scenario analysis, as well as its internal TCFD working group, Burberry also used a third party. Says Green: “They came with the climate data and insights in terms of how consumers may potentially behave, for example. Using the appropriate third party to support the journey was definitely key in terms of both enabling us to quantify some of these risks and to gain assurance. It’s important for us that any assurance opinion that we got provided value. I think that was key, especially last year when we first disclosed, we were able to say that we’d used our internal knowledge and resources, but we’d also brought in external experts, and had that additional assurance and review.”

4 Understand your mitigations and opportunities

“Someone once told us that there are no opportunities in climate change,” says Green. But it is also important to think about risk mitigations that result in a relative positive impact even if they are not a new opportunity. “Is the reduction of a negative thing the same as a positive thing? If our strategy is designed to minimise risk, then does the TCFD requirement also want this to be disclosed alongside opportunities,” continues Green. “Burberry had a clear Climate Positive strategy already and we were thinking about our journey towards net zero and the corporate initiatives that were going to be required to achieve that, such as circular business models, or sourcing more sustainable materials.”

So how can you demonstrate that you’re integrating this with your business strategy? Says Green: “Showing gross risk (if we don’t deliver on our plans) versus net risk (if we do) is a good way of illustrating that you can deliver on sustainability requirements.”

However, this can be difficult to demonstrate in the longer term. In the first year, you can quantify a difference, for example, between moving to sustainable packaging and the cost of using the old packaging. From that point onwards though, it’s part of business as usual, so not as readily quantifiable. “It’ll be interesting to see how the requirements for disclosure in that space develops,” says Green.

5 Engage outside of the business

Talking to both investors and peers is essential. Before putting out its quantified TCFD disclosures, Burberry was keen to ensure that its “didn’t give people information they didn’t really understand”. Says Green: “For example, we had market risk in our 1.5 degrees scenario that we quantified as ‘high’ and we gave a value of up to £250m. That’s not a small number, so we had to ensure investors knew what that really meant.”

As all companies of a certain size are going through the same process, discussing the issues and trying to understand the solutions is also useful. “It’s really important just to talk to our peers and see how they’re using different interpretations of the requirements,” says Green. Bodies such as Accounting for Sustainability have proved to be a useful forum for facilitating this discussion. Burberry has also got involved with consultations in this area, ensuring that its experience can be of use to others in the future.

The final element to this is embedding best practice. Says Nabi: “The FRC thematic review is a key report – it’s a review of UK companies’ TCFD disclosures, highlighting the areas that are being done well or that need improvement. In terms of governance, they’ve highlighted a lack of consideration of climate-related performance objectives and that’s something we’ve been working on. Executive bonuses are already linked to our sustainability goals and from next year all employees in the corporate bonus plan will have an element of their performance-related pay linked to our responsibility goals.”