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26 May 2022updated 27 May 2022 10:05am

Is your business ready for corporate climate reporting?

Companies should use the new legal duty on Climate-related Financial Disclosures to show they are serious about the climate

By Eleanor King and Laura Brankin

The Task Force on Climate-related Financial Disclosures (TCFD) are globally recognised as best practice in climate reporting by investors, the financial community, governments, and, increasingly, the wider public.

In the UK, reporting against the TCFD through the Financial Conduct Authority (FCA) has been a requirement for banks, building societies, and FCA premium listed companies.

On 6 April of this year, however, the Department for Business, Energy & Industrial Strategy (BEIS) made reporting against the TCFD a legal requirement for all UK listed companies, large asset owners, limited liability partnerships (LLPs), and large private companies. To be fully aligned, companies must include climate-related information in mainstream annual financial filings (the location is slightly different for LLPs). The government will extend the TCFD-aligned reporting requirement to all UK companies by 2025.

Last year, AECOM conducted research to find out if firms were ready for this new duty.

Our research shows that UK companies are unprepared

In March 2021, we conducted a review of climate-related reporting by large, private UK-registered companies on behalf of BEIS. The research revealed that a staggering 56 per cent of the 150 companies assessed had little or no disclosure on climate-related matters, while only 27 per cent had a “reasonable” or “strong” alignment with TCFD recommendations in their disclosures.

In general, stronger disclosure was identified in the TCFD pillars of “Governance” and “Metrics and Targets” rather than for the TCFD pillars of “Strategy” and “Risk Assessment”, suggesting that the forward-looking, future perspective of the TCFD as well as embedding climate risk into business strategy and financial risk appraisals may be less mature.

Drivers and barriers to corporate climate reporting

In the research, companies interviewed cited several common barriers to climate reporting regardless of size, sector or maturity of reporting: lack of time and resources; costs associated with disclosure; data collection issues; and insufficient internal expertise or knowledge. The government’s recently published non-binding guidance is welcome; however, the extent of unreadiness highlighted in our research suggests many companies will struggle to overcome these barriers without significant organisational change, external support, and learning from others.

“Requests from stakeholders and investors” and “a regulatory requirement” were identified as two of the four most common drivers for reporting. The latter will only increase in importance as governments start to mandate.

However, companies that view the mandatory requirements as simply an annual report-writing exercise will be missing the point. Companies should view these new requirements as an opportunity to understand the benefits of incorporating climate into financial risk management and business planning, and to show stakeholders and investors that these risks are taken seriously.

Eleanor King and Laura Brankin are sustainability experts at AECOM. Find out more at: publications.aecom. com/sustainable-legacies

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