From April, over 1300 of the UK’s largest companies and financial institutions will be compelled to disclose information about their sustainability. Chris Bennett, MD of Evora Global, says this will ensure environmental, social, governance (ESG) becomes a key boardroom topic.
Britain’s banks and big businesses are preparing to publicly reveal how vulnerable they are to climate change as new legislation comes into force in April.
The UK will be the first country in the world to legally enshrine previously voluntary regulations created by the Task Force on Climate-Related Financial Disclosures (TCFD).
The TCFD was created in 2015 by the Financial Stability Board (FSB), an international body of bankers and financiers, including former Bank of England governor Mark Carney, to provide a framework for large companies to disclose climate related financial information.
The change which comes into force on April 6, 2022 affects many of the UK’s largest traded companies, banks and insurers, as well as private companies with over 500 employees and £500 million in turnover.
In order to comply with TCFD, businesses must report on the climate risks and opportunities which are material to their operations and describe how they are managing those risks and opportunities in their annual reports.
Chris Bennett, managing director of sustainability services company Evora Global, has been working with clients in the property investment sector to help them comply with the measures.
He says TCFD will make sustainability and reporting on climate risk key boardroom topics.
“There are huge reputational and market risks if a company fails to disclose or discloses improperly,” says Bennett.
“This is a substantial change as it enshrines into law what has been voluntary up until this point. It is likely to be one of many new laws and regulations coming through this decade as governments put pressure on businesses to do more to tackle climate change and risk.
“Now, in every major boardroom in the UK, business leaders will be asking big questions about how sustainable they are and what their climate risk is. Overall, this is a very good thing and, hopefully, will lead to some substantial action.”
Mr Bennett believes the majority of those caught under the legislation will meet their obligations. However, he expects some companies to keep disclosures to a minimum, at least to begin with.
“I’d expect many will initially only set out broad principles of their intent. Some will want to limit the disclosure of information, especially if it shows climate change poses a serious financial risk. However, there will be increasing pressure from investors for greater disclosure in the near future.”
Mr Bennett also predicts there will be knock-on effects further down the supply chain.
“We have clients expressing concern about disclosure, even though they are not captured by the mandate. Indeed, there is a strong possibility that, as large companies clean up their acts, there will be pressure down the supply chain.
“Investors, stakeholders and the public are demanding more transparency from businesses on how they are responding to climate change. It’s not something any business leader can afford to ignore any longer.”
