Last reviewed 2 November 2021
The Government has announced new legislation making it mandatory for Britain’s largest businesses to disclose their climate-related risks.
Mandatory disclosure of climate risk follows publication of UK’s Net Zero Strategy and forms part of the government’s commitment to making the UK financial system the greenest in the world.
Announcing the plan, Energy and Climate Change Minister Greg Hands said: “If the UK is to meet our ambitious net-zero commitments by 2050, we need our thriving financial system, including our largest businesses and investors, to put climate change at the heart of their activities and decision making.”
The new rules will be based on recommendations set out by the Taskforce on Climate-related Financial Disclosures (TCFD) which sets out a framework of 11 overarching recommendations for disclosure over 4 thematic areas.
Governance — an organisation’s governance around climate-related risks and opportunities.
Strategy — the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
Risk management — the processes used by the organisation to identify, assess, and manage climate-related risks.
Metrics and targets — the metrics and targets used to assess and manage relevant climate-related risks and opportunities arising from climate change.
The new requirements are designed to help investors and businesses to better understand the financial impacts of their exposure to climate change, and price climate-related risks more accurately, while supporting the greening of the UK economy.
From April next year, over 1300 of the largest UK-registered companies and financial institutions will have to disclose climate-related financial information on a mandatory basis — in line with TCFD recommendations, including 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.
Commenting on the new rules, Flora Hamilton, Director, Financial Services, Confederation of British Industry (CBI) said: “Increased transparency and more comparability on corporate sustainability performance will be key for directing more money to sustainable projects across the whole economy.”
The new rules mean the UK will become the first G20 country to enshrine in law, mandatory requirements for large firms to report on climate-related risks linked to their activities and operations.
Further details are available here.