TCFD reporting: Everything you need to know

Task Force on Climate-related Financial Disclosures (TCFD) reporting is now mandatory for certain large businesses in the UK.

It was announced ahead of COP26 in Glasgow in 2021 that disclosing information in alignment with the recommendations of the TCFD would be mandatory for certain traded companies, banks and insurers, and companies in the private sector from 6^th April 2022. This is in addition to TCFD regulations in the Financial Conduct Authority’s Listing Rules.

This was done with the aim of increasing climate-related engagement between investors and the companies they invest in. The UK is now the first G20 country to make reporting according to the TCFD framework mandatory, when it is otherwise voluntary. But what do companies need to know about TCFD reporting?

What is TCFD?

The Task Force on Climate-related Financial Disclosures (TCFD) was set up by the Financial Stability Board. It issued its first recommendations in 2017. These guide companies in publicly sharing how climate change impacts their strategy and operations, as well as what actions they are taking to improve their response. TCFD provides investors, lenders, insurers, and other stakeholders with better guidance on the value of the company’s assets.

What are the TCFD recommendations?

The TCFD recommendations are structured around four core elements:

• Governance
• Strategy
• Risk management
• Metrics and targets

These four elements are supported by eleven recommended disclosures that create the framework companies should use when conducting their TCFD reporting.

Who is affected by the new mandate?

Reporting regulations have been introduced by both the Financial Conduct Authority (FCA) as part of the Listing Rules and by the UK Government under the Companies Act 2006 and Limited Liability Partnerships Regulations 2008.

For reporting periods beginning on or after 1^st January 2021, the FCA’s Listing Rules require premium listed companies to provide a disclosure aligned with the TCFD recommendations. From 1^st January 2022, this was expanded to issuers of standard listed shares and global depositary receipts (GDRs), asset managers, life insurers and FCA-regulated pension providers.

Disclosure requirements under the Companies Act 2006 and Limited Liability Partnerships Regulations 2008 apply to UK-registered companies and LLPs that are publicly listed and have over 500 employees or unlisted with over 500 employees and a turnover of more than £500m. These came into force on 6^th April 2022.

Non-compliance could damage your investor appeal and talent retention, risk government penalties and reduce supply chain opportunities leading to a loss of business.

The benefits of reporting

There are two main ways companies benefit from reporting according to the TCFD disclosures. Firstly, companies should be aware of the potential risks associated with climate change and factor these into their business planning. There may also be opportunities that businesses can capitalise on. Secondly, investors and stakeholders are increasingly interested in how companies are approaching the issue of climate change and the transition to a low carbon economy. The TCFD recommendations guide companies in how to integrate climate change into existing business processes and how to report on this to interested parties. 

How Inspired can help

Over 1,300 companies will be required to report on TCFD under the Companies Act 2006 and Limited Liability Partnerships Regulations 2008 from April 2022. Ensuring you have the right information and support is key for compliance. TCFD disclosures require extensive data collection and performing scenario analysis for short, medium and long-term horizons.

Ensuring your data processes are efficient is vital to avoid a drain on your business resources. Our data-driven approach means that you can benefit from an efficient, transparent, and repeatable service year on year. Even if you aren’t currently captured by the scheme, we recommend that you consider voluntarily reporting now to have greater transparency on climate-related risks and opportunities.

Beyond the mandatory TCFD reporting requirements, there is increasing demand from investors and customers for companies to provide information on what they are doing in relation to the environmental impact more broadly and on social topics. The work done on a TCFD disclosure can be used as the foundation for an Environmental, Social and Governance (ESG) report, as a TCFD report provides around 30% of a full ESG disclosure.