The TCFD has been a powerful framework for propelling the corporate world to identify their climate-related risks and opportunities. It has laid the foundations for how companies make informed decisions within this transitioning world. These disclosures are already mandated for the largest UK corporates, both listed and private, with guidance on what good TCFD reporting looks like.
While the TCFD recommendations were designed for the private sector, they are also now being phased in for the public sector.
Who's impacted under the new guidelines?
The guidance is applicable to:
- all central departments – ministerial and non-ministerial
- arm's length bodies (ALBs) with more than 500 average full-time employees, more than £500 million operating income and funding received, or if they have been instructed by their sponsoring department.
To get a sense of the scale, Government figures show that, as of 2020, there were 295 ALBs with gross resources expenditure of £224 billion and 1,080 employees on average.
The guidance doesn't apply to local governments, NHS, public corporations, and entities in the devolved administrations. Out-of-scope entities could still be directed by the relevant authority to undertake the disclosures.
Voluntary disclosures are encouraged for entities that are out of scope but with significant climate-related impact, or those that want to manage their approach to climate risk proactively. Doing so could assist with transparency with stakeholders, as well as providing a strong decision-making tool.
Entities required to provide this disclosure should comply with the phased stages explained below or explain clearly why they have not been able to do so.
A phased approach to reporting
In-scope entities won't need to comply with the full extent of the disclosures initially. Instead the disclosures build on the four thematic areas of TCFD – Governance, Strategy, Risk Management, and Metrics and Targets – in three phases. These are designed to span a high-level overview, followed by a qualitative analysis, making way for the in-depth, fully formed TCFD disclosures as part of phase three. The phased approach allows the public sector enough time to prepare to report.
Phase 1
Needs to be implemented for FY23-24 and cover the following:
1 General principles – including scoping
2 The Governance recommendation – disclose the organisation’s governance around climate-related risks and opportunities, and recommended disclosures (a) and (b):
- (a) Describe the board’s oversight of climate-related risks and opportunities
- (b) Describe management’s role in assessing and managing climate-related risks and opportunities
3 The metrics and targets recommended disclosure (b) where data is available:
- (b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks
4 The TCFD compliance statement requirements
Phase 2
Needs to be implemented FY24-25 and cover the following:
1 Metrics and targets recommendation – disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material, and recommended disclosures (a) and (c):
- (a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process
- (c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
2 The risk management recommendation – disclose how the organisation identifies, assesses, and manages climate-related risks, and recommended disclosures (a) to (c):
- (a) Describe the organisation’s processes for identifying and assessing climate-related risks
- (b) Describe the organisation’s processes for managing climate-related risks
- (c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management
Phase 3
Needs to be implemented FY25-26 and cover the following:
1 The strategy recommendation – disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material, and recommended disclosures (a) to (c):
- (a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term
- (b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
- (c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario
In-scope public bodies are encouraged to take time to implement these requirements, engage early, and scale up according to priorities, materiality and available resources.
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Public sector specifications
The end users of central government disclosures will be Parliament rather than investors, and given the increasing interest from lawmakers on climate issues, these disclosures could have a high level of scrutiny. The in-scope organisations in the public sector may also have broader impact beyond their entity level (for example, on local communities, the economy), and should consider this as part of their analysis and disclosure. Due to the current fiscal situation, the public sector faces challenges on resources, expertise, capacity and data, and hence will need to balance the requirements with Managing Public Money principles.
The disclosure should sit within the performance report of the annual reporting or the main annual filings for central government entities. The accountable officer will ultimately be responsible for the accuracy of this information, and appropriate internal review and assurance processes should be in place to ensure the accuracy of information. There's currently no requirement for independent assurance – beyond the scope of the auditor's opinion on ‘other information’ – on these disclosures. However, your organisation may find this valuable as your reporting matures.
How we can help you prepare
Our leading Net Zero and climate disclosures team has worked with several private sector and public sector clients on their transition and disclosure needs. Based on our experience, we suggest starting your TCFD preparations with the following four steps:
1 Establish a project working group and educate key internal stakeholders on the phased changes
2 Undertake gap analysis to your current state to identify areas for prioritisation and your ambition
3 Establish processes and controls for measuring GHG emissions, engaging experts as needed
4 Evaluate the effectiveness of your existing governance structures for considering climate-related matters
For more insight and guidance, contact Arti Bareja or Laura Gardner.
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