Using TCFDs to manage climate risk: next steps for UK government, investors and businesses

A key focus of TCFD aligned reporting should be to improve business and investor decision making

The UK’s Green Finance Strategy took an important step forward by setting the expectation that all listed companies and large asset owners should disclose their climate-related risks and opportunities in line with the TCFD recommendations by 2022. However, to ensure a level playing field, provide meaningful and comparable information for investors and improve decision making, TCFD aligned reporting should be made mandatory on a comply or explain basis by the early 2020s for all companies currently reporting to the Streamlined Energy and Carbon Reporting regime. These requirements could then be rolled out to smaller firms once best practice and meaningful reference scenarios have been established.

A key focus of TCFD aligned reporting should be to improve business and investor decision making. The implementation of this new reporting regime should include a requirement to report on how an entity is managing its risk. Following the creation of the Climate Financial Risk Forum for financial firms, TCFD implementation should be supported by the establishment of a Corporate Reporting Lab focused on corporate organisations and coordinated by government, to enable the development of sector-level guidance on scenario analysis, encourage ‘learning by doing’ and reduce near-term reputational risk for early movers.

In implementing the TCFDs across UK market participants, the government should continue to engage closely with key international partners such as the EU to ensure as much consistency as possible on disclosure requirements.