- Today the UK became the first major economy to begin implementing TCFD into legislation – mandating climate related financial risk disclosures for large UK companies, beginning April 2022.
- BEIS released their response to the consultation – including two policy changes focused on qualitative scenarios and closer alignment to the language used by the Taskforce for Climate-related Financial Disclosures (TCFD).
- However, climate risk disclosure is not enough by itself. The next step is for the Government to require transition plans for all large companies across the UK – turning analysis into action.
On the 28th of October, the UK’s Department of Business, Energy and Industrial Strategy (BEIS) published the long-awaited results of its consultation on mandating climate-related financial disclosures by publicly quoted companies, large private companies, and Limited Liability Partnerships (LLPs).
Two changes relative to proposals made earlier in 2021 were announced:
- The introduction of a qualitative scenario analysis requirement
- And closer alignment of the regulations to language used in the TCFD recommendations themselves
The timeline for the roll-out of these regulations was reaffirmed. Subject to Parliamentary approval, this would see the regulations come into force on 6th April 2022.
However, BEIS’s consultation was conducted ahead of the TCFD’s own consultation and refreshed guidance on metrics, targets and transition plans, which encourage companies and financial institutions to publicly disclose transition plans as part of their disclosures, against the recommendations of the TCFD1.
In aligning regulations to the language used by the TCFD, it is vital that the UK includes a specific requirement for companies to disclose transition plans, requiring companies to go beyond disclosing on the risk and explicitly report on the strategies they are implementing in the short-, medium- and long-term to meet their climate targets.
There is growing appetite from the business and financial communities for net zero transition plans to be made mandatory and for the UK Government to provide clear guidance on what a good transition plan looks like. This was highlighted by a recent letter to the UK Chancellor and Secretary of State for BEIS from leading UK companies. Further ambition from Government on mandatory transition plans is imperative if companies are going to turn climate risk analysis into action.
Quotes on UK rolls out TCFD
Heather McKay, Policy Advisor, Sustainable Finance, said:
“An exciting development today with the UK Government finally implementing its commitment to be the first major economy to mandate climate risk disclosure for companies across the UK. However, the conversation is moving fast – Government had better get its skates on to ensure TCFD is rolled out swiftly and credibly. Otherwise, companies will not have the information they need to profit for the long term.”
Charlotte Slaven, Senior Researcher, Sustainable Finance, said:
“The Government’s response on TCFD legislation is a welcome development, but it’s clear that with COP26 on the horizon, companies must move from acknowledging climate risks to taking action. Rolling out mandatory transition plans across the economy is essential if we are going to transform our economy at the pace and scale required to meet 1.5 degrees – and businesses agree.”
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Notes to Editors
- E3G is an independent climate change think tank accelerating the transition to a climate safe world. E3G specialises in climate diplomacy, climate risk, energy policy and climate finance.
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