Tuesday 13 December 2022

UK government first to mandate climate-related risk and opportunity disclosures

Mandatory Climate Disclosure legislation can help unlock  environmental benefits for businesses and help them drive action to support the UK in meeting its 2050 net zero targets.

The new legislation came into force in April 2022 and requires all eligible businesses to include an assessment of climate-related risks and opportunities within their annual reporting.

Prepare to make detailed annual disclosures

It means that all UK-listed companies with 500 or more employees, and LLPs and non-listed companies with 500 or more employees and a turnover of more than £500m will need to complete new annual disclosures. It’s estimated that around 1,300 organisations will be required to comply.

While most climate-related legislation to date has required the reporting of figures for energy consumption, carbon emissions and other climate-related metrics, the new legislation requires companies to assess and describe their climate-related risks, opportunities, impacts and targets in narrative form. It means businesses need to begin preparing to make these disclosures now.

Wide-ranging reports

Among other things, the new legislation requires companies to report on:

• Key climate-related risks and opportunities arising from their operations.
• Governance-related arrangements and the processes in place for measuring and managing climate-related risks and opportunities.
• Actual and potential impacts on the company’s strategy and business model.
• Business resilience in a range of different global warming scenarios.
• Targets for reducing climate impacts, managing risks and maximising opportunities.
• Performance against targets to date.

 

These disclosures need to be made annually, as part of the company’s non-financial reporting. Non-compliance can result in fines of between £2,500 and £50,000.

Assess risks, impacts and processes

Businesses need to prepare to report on all of these factors at the end of their financial year. That means starting to think now about the climate-related risks posed to your business and the potential impacts. These can include risks relating to the transition to net zero, such as increased GHG emissions pricing, the costs of substituting existing products with low-emission alternatives, increasing costs of raw materials, and shifts in consumer preferences. They can include physical risks, such as those posed by extreme weather events and rising temperatures. There may be risks associated with shifting to more efficient modes of transport or more efficient buildings, as well as sourcing energy from lower-emission technologies.

Organisations also need to report on their governance arrangements, including the role of the board and management in assessing climate-related risks and opportunities, how they oversee these issues and how progress is monitored against targets.

First for climate risk reporting

The Mandatory Climate Disclosure legislation means the UK is the first G20 country to enshrine mandatory TCFD-aligned requirements in law for Britain’s biggest companies and financial institutions. TCFD (Taskforce on Climate-Related Financial Disclosures) is an industry-led group that helps investors understand their financial exposure to climate risk and works with companies to disclose this information clearly and consistently.

Constructive approach to climate change mitigation

The new legislation is not just another box-ticking exercise. The government’s intention is to force businesses to think seriously and constructively about the risks posed by climate change and how to mitigate them, as well as the opportunities for businesses in a changing climate.

Many organisations that must comply with this legislation are unlikely to have expertise in-house for assessing climate-related risks and opportunities. However, most will have been gathering data on climate-related metrics to comply with ESOS, SECR and other legislation – which provides a good starting point. In-house sustainability teams or facilities managers are likely to be gathering data and monitoring performance against energy and carbon targets. With this data as a foundation, businesses can begin to formulate strategies for addressing climate-related impacts.

Access specialist compliance support

Equans already helps many large organisations to comply with energy and carbon regulations, providing expertise to support monitoring, analysis and action planning. We help organisations draw up net zero carbon roadmaps, which provide a coordinated series of measures to improve efficiency, sustainability and competitiveness over the long term. These action plans can inform the disclosures businesses need to make under the new legislation.

Where processes and plans are already in place, businesses have a head start. But for many, there’s no time to lose in assessing the gaps in your climate mitigation strategy – so you can bring in the expertise required to complete risk and opportunity disclosures on time.

To find out more about climate-related compliance services from Equans, please contact carboncompliance.uk@equans.com