Four steps for financials to meet climate disclosure requirements

18 February 2022 4 min. read

From the 6th of April 2022, the largest UK registered companies and financial institutions will be required to share climate-related information on a mandatory basis in their annual financial reports, in line with the guidelines set by the Task Force for Climate Related Financial Disclosures (TCFD).

With less than two months to go, financial services institutions should be prioritising their operational transition to climate related disclosures or risk penalties with regulators and shaken confidence from investors.

Nicolas Micheli, UK Country Manager at Projective – a consultancy and project management specialist to the financial services industry – shares four necessary actions institutions should be implementing now, before it’s too late.

Nicolas Micheli, UK Country Manager, Projective

1. Assess your supply chain
So far, the ‘Achilles’ heel’ of financial services institutions for tracing the carbon impact of their products or services is the vast supply chain from which materials or energy are often sourced.

TCFD guidelines will change this. Considerations now need to be made to assess scope 3 emissions (i.e. emissions resulting from activities and assets not owned or controlled by the reporting institution) and all environmental impacts associated with partner companies along a company’s supply chain.

Firms therefore should be changing the fundamentals of their climate reporting to address this. A holistic view to climate disclosures needs to be adopted, considering not just carbon emissions, but a broad spectrum of indirect environmental impact and their or their suppliers’ role at each stage.

2. Complete involvement and disclosure training
TCFD guidelines require reporting to span all aspects of a firm’s operations, meaning all departments should be taking a hands-on approach to supporting the firm in meeting these mandatory requirements. Climate disclosures can no longer be the sole domain of the risk and sustainability departments. To be effective, firms need a strategy which involves and produces data from all parts of the business.

An effective approach is top-down training initiatives on disclosures, beginning with board members and managing directors but ultimately trickling down through the entire firm. A senior team well-versed in sustainability reporting will help create a more effective strategy, in turn improving the quality of data collated and ultimately improving the report.

3. Aligning business and data strategy to create value
Common issues associated with the collection of ESG data include aggregating data from multiple sources, a lack of common terminology and a rapidly growing ESG regulatory environment.

By implementing solid a data management framework, businesses can help to combat these issues, in turn improving a company’s ability to better align with ESG values, while also profiting through increased revenue generation, improved regulatory compliance and enhanced reporting capabilities.

4. Planning for the long-term
Now that disclosures are mandatory under law, firms will have to take a long-term approach and incorporate measures into their five-year plans. This is especially vital as demands for greater efforts by companies to meet sustainability targets intensifies from stakeholders, politicians, and the public.

Firms should aim to demonstrate, through their disclosures, that their long-term goals consider sustainability regulation and that their operations have been adapted to meet these.

By modelling scenarios for improving sustainability standards or considering the impact climate change may have on operations will showcase active engagement. This will help to develop a robust plan for longevity and future-proof a firm for climate compliance, of which TCFD disclosures are just the beginning.

About the Task Force for Climate Related Financial Disclosures
The Task Force on Climate-Related Financial Disclosures was created in 2015 by the Financial Stability Board to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. With the new regulation, the TCFD aims to strengthen the stability of the financial system, contribute to greater understanding of climate risks and facilitate financing the transition to a more stable and sustainable economy.