Independent report explores how TCFD recommendations should be implemented in the UK

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06 Apr, 2018

In September 2017, the government asked Sir Roger Gifford to chair an independent taskforce (“the Green Finance Taskforce”) to accelerate growth of green finance and the UK’s low carbon economy. The Green Finance Taskforce has now produced a report that sets out a series of recommendations on how the government and the private sector can work together to make green finance and integral part of the UK’s financial services.

Included within the report are proposals as to how the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) should be implemented in the UK. The report highlights that “the competitive landscape is changing rapidly” and “the time is right for the UK to move further on climate related disclosures and stay ahead of the curve”.

The report notes that although existing UK legislation “provides the foundation for implementing the TCFD”, it also includes “several gaps” and a number of market barriers that need to be overcome for the UK to implement the TCFD recommendations. These include:

  • Information failures
  • Financial stability risks
  • Trust in capital markets
  • Productivity 

The report makes the following proposals for implementing the TCFD recommendations in the UK:

  • Companies and investors should use the TCFD framework to develop their financial, corporate governance and stewardship disclosures on a comply or explain basis. The report notes that “there must be a comprehensive effort by the Government and relevant regulators to support successful adoption, implementation and enforcement of the TCFD recommendations, such as through public rankings, off-the-shelf tools and scenarios, and publicly available datasets”. It also recommends that the Government review disclosure in 2020 to “monitor and encourage market adoption” and take further action to encourage take up where adoption is deemed insufficient.
  • Relevant financial regulators should integrate the TCFD recommendations throughout the existing UK corporate governance and stewardship reporting framework. It recommends that the Government should publish guidelines by the summer of 2019 and “appropriately reference these guidelines in the corpus of relevant UK rules, codes and guidance by 2020”. The report proposes that the guidelines would clarify certain TCFD recommendations “to make them more readily implementable”. It also proposes that the guidelines:
    • Should define which corporate preparers are covered by disclosure requirements
    • Ensure that information is disclosed on a consistent and transparent basis
    • Ensure that preparers provide scenario-based disclosures of how their business strategies and financial planning may be affected by climate-related risks and opportunities and the associated time horizons considered
    • Ensure that preparers are aware of the requirement and are supported in the reporting of revenues from green business areas
    • Take account of different jurisdictional needs. 

The report also acknowledges the role of the private sector in providing knowledge development and training for preparers to “ensure sufficient organisational competence in relation to environmental risk, impact and opportunity”. It also recommends that the Green Finance initiative convenes sector-specific preparer forums to support guideline adoption and implementation.

  • Government and relevant financial regulators must clarify in their guidelines that disclosing material environmental risks, including physical and transition climate-related risks, is already mandatory under existing law and practice. The report indicates that “these recommendations would embed the TCFD recommendations for disclosing climate-related risks in all relevant UK corporate governance and reporting frameworks. With the requisite support from financial regulators this can be achieved without additional legislation”. Nevertheless the report highlights that revisions to relevant legislation will further integrate the TCFD recommendations into the corporate governance and reporting framework.

The report highlights that adoption of these measures will enable adoption of the TCFD recommendations in the UK and will enable investors to identify those companies that are aligned to the UK’s Clean Growth Strategy. For those companies the report indicates that this may lead to a lower cost of capital, higher productivity and better stock market performance.

The full report is available on the BEIS website here.

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