Climate-related disclosures – is your business aligned with the TCFD recommendations?

What are the TCFD recommendations? 

The TCFD’s 11 disclosure recommendations cover four themes: governance (how companies are governing climate-related risks and opportunities); strategy (the actual and potential impacts climate change can make on business, strategy, and financial planning); risk management (identifying the process an organisation uses to identify, assess, and manage climate-related risks); and metrics and targets (assessment and management of climate-related risks and opportunities). The specific recommendations and disclosures are detailed in the TCFD Report.

By way of example, under the theme of strategy, the first recommended disclosure is to describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term. LSHC companies could identify risks such as fossil fuel energy use or unsustainable packaging and opportunities could include any actions they are taking to mitigate their existing impacts on the climate such as investing in new technology, lower emissions manufacturing or designing sustainable and reusable packaging.

Are the recommendations mandatory in the UK, and how do they interact with national legislation?

On 9 November 2020, the UK government announced that it intended to make it necessary for large companies and financial institutions across the UK to make climate-related disclosures aligned with the TCFD recommendations by 2025. The UK government recognises the recommendations of the TCFD as one of the most effective frameworks for companies to analyse, understand and ultimately disclose climate-related financial information.

Sustainability reporting has already become mandatory for certain entities under the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (the “Regulations”). For financial years beginning on or after 6 April 2022, mandatory climate-related financial disclosures are to be included in a non-financial and sustainability information statement in the strategic report of certain UK entities. Companies and LLPs within scope will be required to include disclosures on climate change related risks and opportunities, where these are material. The disclosures should cover how climate change is addressed in corporate governance; the impacts on strategy; how climate related risks and opportunities are managed; and the performance measures and targets applied in managing these issues.

Under the Regulations, the companies / LLPs subject to the disclosure requirements, are as follows:

• all UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies (Relevant Public Interest Entities (PIEs)); 
• UK registered companies with securities admitted to AIM with more than 500 employees; 
• UK registered companies not included in the categories above, which have more than 500 employees and a turnover of more than £500m; 
• large LLPs, which are not traded or banking LLPs, and have more than 500 employees and a turnover of more than £500m; and 
• traded or banking LLPs which have more than 500 employees.

The Financial Conduct Authority Listing Rules also require commercial companies with a UK premium listing (LR 9.8.6R(8)), and companies with a UK premium listing to make disclosure against the TCFD recommendations on a “comply or explain” basis.   

Summary 

For companies in the LSHC sector, there is a requirement for effective and comprehensive green governance and policy. Already, there are more than 3,800 supporters of the TCFD recommendations, which spans 99 countries and nearly all sectors of the economy . LSHC companies should therefore seek to ensure that they are aligned with the TCFD recommendations, particularly since such reporting obligations are already, or will become, compulsory. Better information will allow the incorporation of climate-related risks and opportunities into risk management and decision-making processes, aligning the core ESG objectives associated with the health and social care platform with LSHC organisations’ business models.