Climate change is a key and highly relevant issue for companies, investors and individuals, given its current and potential impact.
There is an increasing understanding and recognition within the investment community of the importance of responsible investing and that the consideration of ESG factors should be part of investment decision making.
The Financial Reporting Lab’s recent report on climate-related corporate reporting outlines the gaps that investors have identified in current reporting by companies. It found that both companies and investors were focused on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, as a way to improve climate-related corporate reporting. The UK Government announced in July 2019, as part of its Green Finance Strategy, the expectation that listed companies and large asset owners should disclose in line with the TCFD recommendations by 2022.
The original starting idea of the TCFD recommendations was to establish disclosures on climate change that would create comparable and consistent information across different companies. This would enable investors to make judgements and decisions on which companies are most at risk from climate change and which companies are taking action. Climate change will most likely lead to significant impacts on the financials of companies and these disclosures will allow investors to take a view on how severe this impact will be. In order to ensure this outcome, companies from the investment industry were involved in the development of the TCFD recommendations.
The TCFD recommendations are based around four thematic areas, which are intended to represent the core aspects of how companies operate. These are governance, strategy, risk management and metrics and targets.
The Lab report on climate change reporting builds on the TCFD recommendations by outlining questions that companies need to ask themselves.
The TCFD recommendations are a great starting point when considering climate-related sustainability impacts and how the company manages them. However, it is important to remember that companies should consider their sustainability impacts to be broader than just climate change. There are social, governance and other environmental factors that companies need to consider when thinking about their sustainability impacts and what challenges and opportunities they present.
These broader considerations are covered by frameworks, such as the GRI Standards and Sustainable Development Goals. When looking at your company’s reporting it’s key to look at how these frameworks relate to your organisation and help you report on your sustainability approach, strategy and performance.
You can read the report from The Lab for more information on climate-related corporate reporting and to help you get started on your sustainability journey, our guide on Navigating the sustainability reporting landscape is available to download.