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TCFD: is this just about compliance?

For many private businesses, mandatory reporting against the Task Force for Climate-related Financial Disclosure (TCFD) comes into effect from 6 April 2022. Interestingly, a considerable number of mid-sized businesses, not yet required to report under TCFD, are opting to put in place a proportionate response, recognising that TCFD disclosures are increasingly linked to investment and financing decisions.
TCFD: is this just about compliance?
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Our most recent UK CEO survey highlighted the trend towards more purposeful business practices, including transparency and personal accountability from CEOs on issues such as climate change and inequality. However, despite the momentum built by COP26 with net-zero and climate risk reporting thrust onto the global stage.

“Only 34% of UK CEOs are likely to be very or extremely concerned about climate change”
This drops to just 27% for private businesses.

In my view, this is not aligned with the focus of investors and banks who are being forced to consider the impact of climate change on their long term investments. This focus from investors, banks and in some instances, customers, is moving TCFD away from being a purely compliance driven agenda, to a place where a company's value can be enhanced through their disclosures. It is less about arbitrary reporting, and more about building trust and confidence in how a business is managed.

At this stage, I will revert back to a word I used in the opening paragraph of this blog, “proportionate”. As with all changes implemented in an organisation, the amount of resource and cost will be a consideration. At times, the need to implement TCFD has been linked to cheaper banking facilities, if that’s the case, it’s a simple case of economics, i.e. cost vs benefit but that will not apply in all instances.

The key to developing a proportionate response comes down to fully understanding the gap between your current processes and TCFD requirements, but also considering the appetite of the leadership team. Do we want to be “climate leaders”, or “climate followers”? There is not necessarily a right answer to this question, the important point is that you need to understand the answer before you develop your implementation plans, particularly, if they are to remain proportionate.

I have seen some organisations extend this consultation to broader stakeholders such as banks and investors, there is a risk here that the list of wants becomes too significant and leads to a disproportionate response, however; the principle remains that landing on a position in terms of appetite, is a key enabler in getting this right.

Understanding how climate change will impact businesses in terms of operations, customers and suppliers will be central to the business decisions that are made. I have seen examples of businesses taking u-turns on strategies as a result of implementing TCFD.

The more time I spend talking to businesses about TCFD, the more I am convinced as to the value that this can bring to an organisation. Compliance might be the driver for implementing TCFD, but the list of benefits is far wider. TCFD is not just about reporting, it’s also about a framework that can help us make better decisions, attract investment, impact financing facilities and importantly, can help build confidence with stakeholders that our businesses fit for a changing world.

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