By: Chris Bennett, Founder and Managing Director, Evora Global
This month, 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 biggest businesses will reveal publicly how vulnerable they are to climate change as new legislation comes into force this month.
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 means businesses must start collecting ESG data from today (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. The rules have been issued by the Financial Conduct Authority (FCA).
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 the new law change will empower investors and could prompt some to start to take a longer term view.
“Investors are going to be able to gain a lot more information on British businesses as a result of these changes and that could mean some businesses will start to be viewed in a different light.
“We know the climate is impacting on how businesses operate. Floods, temperature changes and sea level rises can all seriously impact the bottom line, especially when they are considered as long-term trends.
“Markets haven’t really taken that into account previously. So it will be very interesting to see how investors react to the new information coming their way and how businesses respond, too.”
Mr Bennett says environmental, social, governance (ESG) has been steadily growing in stature as a topic over the past decade and the new law changes will aid its growth.
“A few years ago, you could have got away with asking: ‘What’s ESG?’, but not anymore. ESG is now a major boardroom topic and this legal change will make it essential.
“Businesses must now gather and disclose substantial ESG data in order to be compliant. There are huge reputational and market risks for a business which fails to disclose properly.
“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, it will lead to some substantial action.”
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.”
TCFD EXPLAINER: THE FOUR KEY THINGS COMPANIES NEED TO DO TO COMPLY
By enshrining into law the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, the UK government is asking businesses to prepare and supply a substantial amount of information to the markets.
To comply with the legislation, companies will need to disclose information on four key areas: governance, strategy, risk management, and metrics and targets.
Companies will need to explain the role of their boards in connection with climate risk. They must also explain how their management teams will assess and manage future risks and opportunities.
Plans and strategies
Companies must develop a strategic plan for action on how they plan to tackle climate risk and to provide a timetable for doing so. They must also outline how the business is likely to be affected under a number of different scenarios.
Companies need to show markets they have “end-to-end risk management processes” in place that show they know how to respond to climate change related events and scenarios.
Metrics & Targets
Complying with TCFD requires companies to supply a lot of climate-related data, including some environmental, social, and governance (ESG) data to markets and also to show how they are related to their performance.
Companies must also provide data on their own greenhouse gas (GHGs) emissions (scope one), those created via the company’s energy consumption (scope two) and also GHGs generated via the organisation’s supply chain (scope three), within a transition plan that contains targets to reduce those emissions.
About Chris Bennett and Evora Global
Chris Bennett is co-founder and managing director of sustainability services company Evora Global, whose clients include Legal and General, Hines and M&G.
Evora’s SIERA software enables its clients to make investment decisions regarding climate change and sustainability. Founded in 2011, the company has 160 staff and is a major proponent of the use of ESG data.