Government ponders mandatory TCFD requirements for businesses in 2022
The Government is considering creating a legal requirement for private UK companies to outline and disclose climate-related risks to their business in line with Taskforce on Climate-related Financial Disclosures (TCFD) recommendations, with a mandate potentially coming into force next year.
New proposals released by the Government this week would see any company with more than 500 employees and more than £500m in annual turnover in the UK disclose potential risks associated with climate change and the net-zero transition into annual reports.
The recommendations are in line with the TCFD and look set to impact more than 1,500 companies.
A consultation from the Department for Business, Energy and Industrial Strategy (BEIS) has now been launched with a view to enforcing the report approach from April 2022.
If approved, it would be an acceleration of plans from the Government. In November, Chancellor of the Exchequer Rishi Sunak unveiled a set of new climate disclosure requirements.
From 2023, all publicly listed UK companies with a premium listing will be required to “comply or explain” with the TCFD’s requirements. Rules will then be tightened and extended further in 2025. It now seems that this will be moved forward to 2022.
Vast swathes of the UK’s finance industry will be subject to these new requirements, including major pension schemes, life insurance providers and asset managers. In fact, the Government has this week sent a letter to the Financial Conduct Authority (FCA) and Prudential Regulation Committee (PRC), which supervise financial services firms, imploring them to account for the net-zero target as part of an update to respective remits.
That follows the publication of the updated remits for the Bank of England’s Monetary Policy Committee (MPC) and Financial Policy Committee (FPC) at Budget 2021, which again seeks to enshrine net-zero into financial decision making.
A survey of 17 of the UK's largest banks has found that just five of them have net-zero targets or science-based emissions targets, meaning they risk breaching their legal requirements on climate change.
More broadly, lawyers from ClientEarth have warned that the majority of FTSE 100 and the largest companies on the FTSE 250 are failing to disclose adequate climate-related data as part of annual corporate reporting frameworks, with some potentially breaching UK law.
The UK Government first confirmed its intentions to mandate TCFD-aligned through its Green Finance Strategy, published in 2019. Its finance strategy for COP26 includes plans to help businesses prepare for disclosure, alongside warning that stricter requirements on which organisations.
Commenting on the announcement, Dave Rome, director, bank industry at law firm Ashurst said: "Moves to formalise disclosure have to be encouraged. Statements of well-meaning intent are commonplace and good intentions are to be applauded but public disclosure will provide clarity and perhaps more importantly bring scrutiny and accountability – all three of these factors are key in the effective management of the risks that climate change continues to present."