Back in November 2020 Rishi Sunak announced the planned launch of the UK’s sovereign green bond which, in 2021, is to be used to finance projects tackling climate change. It was the first of a “series of issuances as we build out a ‘green curve’ over the coming years” said the Chancellor.
Sunak made his announcement in Parliament and then at the Green Horizon Summit where he also set out another idea designed to ‘ensure a positive and fair transition to net zero’. His second plan was for the UK to become the first country in the world to make Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures mandatory for big business.
These steps will help investors to be fully informed when making decisions on a level-playing field, and they will also enable the UK to demonstrate global leadership in the climate change arena when it hosts the COP26 climate summit in Glasgow next November.
With momentum building around the world and calls for businesses to measure and manage the risks of climate change, last week the UK launched a public consultation on the proposal to require big companies to disclose the risks they face, as soon as 2022. This will make the UK the first major economy to make such disclosures mandatory.
Disclosures are currently voluntary but under the TCFD’s recommendations, companies will be required to disclose the actual and potential impacts of climate change on their business, as well as how they manage the risks. This is potentially a seismic advance towards the global climate change standards that UK business is aspiring to.
The risks which climate change poses to companies can be physical or transitional. Physical risks are those arising from the impact of higher temperatures, while transition risks arise from the changes in technology, markets, regulation and consumer sentiment which will result from the UK’s transition to a low-carbon economy.
A study completed by EY consultants said that by last Autumn fewer than half of the top UK-listed companies had adopted TCFD recommendations in corporate reporting, but momentum is gathering. An increasing number of companies are using the current voluntary framework to analyse how climate change presents strategic risks and opportunities for their business.
But while more companies are participating and reporting, the quality of the output needs to improve, according to EY. Understanding and analysing your energy consumption data will not only reduce your carbon footprint and potentially save your business money; very soon it will also help you to disclose the accurate and meaningful data required by the new legislation.
The upcoming rules will capture a significant section of the economy, including listed commercial companies, large private companies and financial institutions and this could present quite an opportunity for the companies which engage early in the process. The information which directors collect through complying with TCFD will help them to identify risks and opportunities, making it easier for businesses to manage and reduce their carbon emission.
In the meantime the government is undertaking its period of consultation with British business with a closing date of 5th May 2021. Read more here.
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