Government sets out plans to mandate climate-related financial disclosures

The Department for Business, Energy and Industrial Strategy (BEIS) is seeking views on mandatory climate-related financial disclosures for big businesses, as part of a consultation on the move, launched this morning.

The consultation on mandatory climate-related financial disclosures applies to LLPs, public and large private companies, and would require firms falling into these categories to report by 2022. 

Originally set out in the government’s 2019 Green Finance Strategy, the government proposes that all listed companies and large asset owners should disclose in line with the Task Force on Climate-related Financial Disclosure (TCFD) guidelines.

The government proposes a four pillar framework for the disclosures: Governance, Strategy, Risk Management and Metrics and Targets, reflecting those suggested by the TFCD and recommended by the Climate Change Committee, but assures that adjustments will be “made where necessary to make requirements coherent with UK company law”.

Established by the Financial Stability Board in 2015, the TCFD believes that “better information will allow companies to incorporate climate-related risks and opportunities into their risk management and strategic planning processes. As this occurs, companies’ and investors’ understanding of the financial implications associated with climate change will grow, empowering the markets to channel investment to sustainable and resilient solutions”.

Their recommendations are currently supported by over 1,400 organisations, representing a market capitalisation of over $12 trillion.

The government has repeatedly stated its desire to become “the first G20 country to make climate-related financial disclosures mandatory across the economy”. 

In their ministerial foreword, MP Anne-Marie Trevelyan, minister of state for business, energy and clean growth, and Lord Callanan, minister for climate change and corporate responsibility set out their expectations.

They said: “Over time, these climate-related financial disclosures will support investment decisions aligned with our transition to net zero, and the increased transparency such disclosures provide will influence the behaviours of companies and their stakeholders. This move will support investment in green technologies, services and infrastructure, and help to mobilise billions in private investment as set out in the prime minister's Ten-Point Plan.”

Sam Alvis, head of green renewal at Green Alliance, said: “Mandatory disclosures are an important first step, but they don’t necessarily drive behaviour change. Business needs the government to establish a policy framework and long-term funding that will drive that economic change and get business on track to net zero. The G7 summit in June is an opportunity for the UK to spread this action on greening business across the global economy.”

Dominic Burbridge, associate director of the Carbon Trust, said: “TCFD is a framework that helps businesses take a forward looking view on how to protect and grow business value, in this transition to a net zero economy. Early adopters, who are voluntarily disclosing, are already reaping the benefits of this, attracting cheaper capital to finance their transition to a low carbon economy, through green bonds and sustainability linked loans.

“Encouraging others by making this a mandatory requirement is needed if we are to meet the challenge of keeping global temperature rise to below 1.50C and therefore avoid the most dangerous impacts of climate change.”

“The disclosures should also create a better dialogue between large companies in climate exposed value chains. Use of a common framework, will facilitate the co-creation of solutions that build resilience, the joint recognition of opportunities, and accelerate the investment in transition.”