Green Finance Strategy: Companies expected to report on climate risks

The Treasury has published a new ‘Green Finance’ strategy looking at how the UK can lead the way in becoming a leader in this emerging area. The strategy includes some genuinely exciting policies and ideas (including a new institute and a recognition throughout on the role of tech) and is divided into three pillars:

  • Greening finance – Making sure the financial system understands its role in mitigating and adapting to climate risks.
  • Financing Green – Changing the policy framework, addressing financial barriers for ‘green tech’ and improving access to finance for green projects.
  • Capturing the opportunity – Consolidating the UK as a leader in green finance, with a special focus on data and analytics.

For business though a significant development is an expectation for companies to report against the ‘Taskforce for Climate Related Disclosures’ (TFCD) requirements by 2022. This is a major shift where listed businesses, banks, investors and pension funds must document and report how climate change will impact their finances and business in the short, medium and longer terms.

This means firms need to assess not only the physical risks to extreme weather, but also how it will affect future opex, capex, supply chains, revenues and customers. Doing so is hugely complex and goes far beyond just energy and carbon reporting. It is a huge undertaking and unless companies have plans to mitigate the risks, could be less investable as a result. Indeed the big investors are already demanding companies act more sustainably and this will help them decide where and where not to put their capital.

From a policy perspective this announcement surprises us. Last year BEIS decided it was too early to make reporting to TFCD compulsory (something we agreed with due to the sheer complexity), but the political circumstances have changed. The UK has made net zero emissions by 2050 a legally binding target, Parliament has declared a ‘climate emergency’ (which will impact future policy decisions) and business is facing pressure from stakeholders to decarbonise.

This development is part of a bigger global shift towards more non-financial / ESG reporting (see modern slavery, gender pay-gap and conflict minerals as examples) and this strategy further outlines potential new reporting requirements that will come in down the line. These are ‘nature related’ financial disclosures (the OECD is leading on this) and those being developed by the World Benchmarking Alliance to compare businesses wider sustainability performance and impact on the UN Sustainable Development Goals.

The lesson for all businesses is to take heed. There is no hiding away from new requirements to disclose more and large businesses need to act sooner rather than later in developing the methodologies and metrics for understanding their operational, financial and supply chain exposure to climate risks.

techUK will be considering this in the next Energy & Eco-design Group plus the new Climate Change and Resilience Group launching on 17 July.

  • Craig Melson

    Craig Melson

    Programme Manager | Digital Devices, Consumer Electronics, Export Controls and Environment and Compliance
    T 020 7331 2172
  • Susanne Baker

    Susanne Baker

    HEAD OF PROGRAMME | ENVIRONMENT & COMPLIANCE
    T 020 7331 2028

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