Aldersgate Group: UK must make TCFD reporting mandatory to reach net-zero

Globally

In a new policy briefing published in London today, the Group urges Ministers to make climate risk reporting in line with the Task Force on Climate-Related Disclosures’ (TCFD) recommendations a legal requirement by the early 2020s.

This new mandate, the report recommends, should initially apply to all investors and to all businesses currently required to report through the Streamlined Energy and Carbon Reporting (SECR) scheme – before being expanded by the mid-to-late 2020s.

According to the Aldersgate Group, mandatory disclosures in this format would “provide a level playing field across the economy, provide meaningful and comparable information to investors and ensure that business and investment strategies are aligned with the UK’s net-zero target”. This assertation, the body claims, has only been given after sizeable input from leaders in business, policy and civil society.

Launched in December 2015 by Bank of England governor Mark Carney, the TCFD recommendations call on companies to include impacts of different scenarios – including the 2C pathway of the Paris Agreement – and what this would mean for businesses.

Efforts to disclose TCFD-aligned climate-related data are currently being made by businesses and investors in the UK on a voluntary-only basis. The TCFD recorded a 50% year-on-year increase in organisations expressing their support for its framework this June but noted that expressions of support do not always amount to full disclosure. Moreover, the pace of uptake and the extent of disclosures continues to vary considerably between sectors.

“Mandatory disclosure of climate risks focused on improving business and investor decisions is essential to drive economy-wide action to cut emissions in line with the UK’s net-zero target and improve the economy’s resilience to the physical impacts of climate change and the risks associated with a disorderly transition to a net-zero economy,” the Aldersgate Group’s executive director Nick Molho said.  

“Mandatory adoption of the TCFD recommendations is also essential to ensure that best reporting practice is adopted across the economy and that investors are provided with transparent, meaningful and comparable information.”

Building firm foundations

The Aldersgate Group’s report, which has been published to coincide with the world’s first TCFD summit in Japan, also lays out some specifics regarding how its recommended legislation should be delivered and the benefits it predicts from such a move.

It states that any mandatory TCFD reporting requirement should prioritise the disclosure of “decision-useful” information which will “actually lead to a meaningful change” in the actions of businesses and investors. Such information, the report adds, will enable investors to play a more proactive role in shaping the sustainability efforts of firms in their portfolios.

Additionally recommended are more mechanisms to support businesses in completing the scenario analysis proportion of the TCFD recommendations. These mechanisms should come from central Government and include a forum for corporates, the report states.

The concept of scenario analysis is that it encourages businesses to explore uncertainty to create a “well-established method for developing strategic plans that are more flexible or robust to a range of future states”. It has additionally been touted as a useful “storytelling tool” for consumer-facing corporates in an era of digitisation and growing climate activism. But firms which have voiced report for the TCFD as a whole have continually struggled to complete this exercise, often claiming they are unsure which metrics to use or which scenarios to analyse.

The benefits of shaping new mandatory disclosure legislation in this manner, the Aldersgate Group argues, will be greater than incremental decarbonisation – it will allow the UK to “use its influential position as the host of the COP26 climate summit to encourage key international partners to follow suit”.

Additionally, the Group sees such a policy package as a natural extension of the Government’s newly unveiled Green Finance Strategy, which built on the TCFD recommendations with a multi-billion-pound pot for international climate finance and domestic green home finance projects.

In a recent interview with edie, the Green Finance Institute’s chief executive Dr Rhian-Mari Thomas said the Green Finance Strategy would serve to marry policy with the changing sustainability-related aims of investors and firms within their portfolios, ultimately leading to quality disclosure.

Similarly, ING’s global head of sustainability Léon Wijnands told edie this year that climate-related financial disclosures are set to become increasingly “mainstream”, due either to policy changes or to a growing belief that sustainability can act as a holistic driver for growth and value across a business.

The UK Government has, to date, argued against mandating disclosure by law. Speaking at The Economist’s Climate Risk Summit in London this summer, the UK’s then-Minister of State for International Development Harriet Baldwin said the Government viewed voluntary disclosure as “sufficient”, given “naturally growing” interest in the TCFD’s work.

TCFD co-founder Mark Carney, however, has this week warned that there is only a matter of time before all major regulatory bodies globally will require disclosure by law. 

Sarah George