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TCFD reporting in the UK: What you need to know

TCFD reporting is now mandatory for the UK’s largest firms. Here is what UK businesses need to know about this key ESG reporting framework.

01/08/2023

The Task Force on Climate-related Financial Disclosures (TCFD) reporting is now mandatory for the UK’s largest firms.

More than 1,300 organisations must now disclose climate-related financial information in line with this international framework.

Even if you are not currently obligated to disclose, it’s important to understand how TCFD reporting works, why it matters, and how it can impact your insurance and risk management strategies.

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TCFD reporting: At a glance

  • The Task Force on Climate-related Financial Disclosure (TCFD) was established in 2015 by the Financial Stability Board (FSB). This international body monitors and makes recommendations about the global financial system.
  • The TCFD’s reporting framework, first released in 2017, builds on the commitments adopted by national governments at COP21 (known as the Paris Agreement).
  • In April 2022, the UK government became the first G20 country to enshrine TCFD reporting into law.
  • The UK government estimates that more than 1,300 UK-registered companies, pension funds, and financial institutions now need to disclose climate-related financial information in line with the TCFD reporting framework.
  • As well as the reputational risk of non-compliance, there are also financial penalties and specific D&O risks for board members.
  • The hope is that TCFD reporting puts climate change at the heart of decision-making for UK businesses.
  • TCFD reporting will help businesses assess and monitor the risks and opportunities presented by a changing climate and how their activities impact the environment.
  • It will also provide consistency and transparency for investors, suppliers, employees, insurers, regulators, and other stakeholders.
  • TCFD reporting is new, so businesses are looking to outside experts for support and guidance on creating reports that are compliant and align with best-in-class practices.

TCFD reporting: Does it apply to my business?

TCFD reporting requirements apply to the largest UK-listed companies, financial institutions, and pension funds, as well as private companies with more than 500 employees or an annual turnover greater than £500 million.

TCFD reporting remains voluntary for other UK companies, but this will change soon. As the UK standardizes climate change policy, more businesses will be required to commit. Wider adoption of TCFD reporting is set for 2025.

In Ireland, following the TCFD reporting framework is recommended, but not mandated. In October 2021, the Irish government welcomed the news that 30 leading Irish firms had voluntarily committed to TCFD reporting. Reports suggest Ireland is considering similar legislation to the UK. As a member of the European Union, Ireland will also be affected by relevant EU guidance and directives.

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TCFD reporting: The four pillars

The TCFD framework is comprised of 11 disclosures split across four pillars:

Governance

1. What is the board’s oversight of the organisation’s climate-related risks and opportunities?

2. What is happening at the management level when it comes to assessing and managing climate-related risks and opportunities?

Strategy

3. What climate-related risks and opportunities has the organisation identified over the short, medium, and long term?

4. How have climate-related risks and opportunities impacted the organisation’s business, strategy, and financial planning?

5. How would the organisation’s strategy be impacted by particular climate-related scenarios?

Risk management

6. How does the organisation identify and assess climate-related risks?

7. How does the organisation manage climate-related risks?

8. How are processes for managing climate-related risks built into the organisation’s overall risk management framework?

Metrics and targets

9. What metrics does the organisation use to assess climate-related risks and opportunities in line with its strategy and risk management processes?

10. What are the organisation’s emissions and what are the related risks? Emissions should be split across Scope 1 (emissions from sources the organisation owns or controls), Scope 2 (emissions caused by the organisation indirectly), and Scope 3 (emissions up or down the organisation’s value chain).

11. What targets has the organisation set to manage climate-related risks and opportunities, and how is it performing against these targets? 

TCFD reporting versus other ESG frameworks

The most prominent ESG framework in the European Union is the Corporate Sustainability Reporting Directive (CSRD). This replaced the Non-Financial Reporting Directive (NFRD) in 2021.

The EU Climate Disclosure Standards Board (CDSB), the body responsible for the CSRD when it was first announced, states that the requirements apply to 49,000 organisations across the 27 member states, which includes Ireland, but not the UK.

The CDSB plans to review its framework to ensure it aligns with the TCFD.

An important difference between the TCFD and other ESG reporting frameworks is the emphasis on climate modeling and scenario analysis.

As the TCFD’s official guidance on the subject explains:

A key takeaway here is the confluence of risk and opportunities. The TCFD wants organisations to take a holistic approach to climate change. The framework should help businesses identify and mitigate threats to their profitability. But it should also make them better placed to spot opportunities.

TCFD reporting: What are UK firms required to do?

The TCFD aims to help organisations produce transparent, consistent, and high-quality disclosures. To that end, it has set out seven principles.

Climate-related financial disclosures from UK firms should:

  1. Represent relevant information
  2. Be specific and complete
  3. Be clear, balanced, and understandable
  4. Be consistent over time
  5. Be comparable with similar companies
  6. Be reliable, verifiable, and objective
  7. Be provided on a timely basis

Building on these principles, the UK government has set out eight requirements for firms covered by the TCFD reporting framework.

UK businesses should ensure that their disclosures include:

  • Governance arrangements for assessing and managing climate-related risks and opportunities.
  • Methodology for identifying, assessing, and managing those risks and opportunities.
  • How this methodology fits into the overall risk management process for the organisation.
  • A breakdown of:
    • The key climate-related risks and opportunities associated with the organisation’s operations.
    • A time period in which those risks and opportunities are assessed.
  • An assessment of how climate-related risks and opportunities could impact the core business model of the organisation.
  • An analysis of how resilient the organisation’s business model would be in the event of different climate-related scenarios.
  • Targets the organisation uses to assess its performance in relation to climate-related risks and opportunities.
  • KPIs used by the organisation to track progress towards hitting or exceeding those targets.

TCFD reporting: Who is responsible?

TCFD reporting is a significant undertaking. Meeting its requirements will fall on different departments and levels of an organisation’s hierarchy.

  • Boardroom: TCFD reporting will impact annual reports and accounting procedures. The board will need to provide leadership on implementing the TCFD. Non-compliance with TCFD requirements will affect D&O insurance for individual board members.
  • Risk managers: Responsibility for risk management sits in different areas depending on the organisation size and structure. But whoever performs this role is likely to take the lead on up to three of the four TCFD pillars (risk management, scenario analysis, and metrics).
  • Climate working groups: These are becoming more common as businesses look to improve their ESG credentials. Dedicated internal teams will support the board in implementing TCFD reporting and related operational changes.
  • Climate lead: As well as working groups, some organisations are appointing senior-level managers or executives to focus purely on climate change.

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TCFD reporting: Risks and opportunities for UK businesses

The TCFD and the UK government want firms to see the reporting requirements as an opportunity, not just an obligation. The hope is that TCFD reporting will be useful to businesses and become a core part of their risk management activities, leading to positive change in governance, transparency, and accountability.

Here are some examples of the opportunities TCFD reporting offers:

Scenario analysis

Building resilience into core operations is a vital part of sound risk management in the face of a changing climate. Severe weather events and rising temperatures threaten buildings, communities, vehicles, supply chains, energy grids, digital networks, and other vital operational assets. The UK’s TCFD reporting requirements encourage businesses to give closer consideration to their preparedness for these and other types of climate change scenarios.

Stakeholder engagement

Meeting the UK’s TCFD reporting requirements should bring reputational benefits to organisations, especially if they commit to them before they are more widely mandated. Investors, suppliers, employees, and customers want to see UK firms responding to the climate crisis. TCFD reporting can play a role here.

Businesses complying with their TCFD reporting requirements and those choosing to adopt the requirements early can get ahead of their competition by making themselves more appealing to their key stakeholders.

Insurance, asset valuation, and assessing risk

Large insurers will be among those firms that need to implement TCFD reporting. Disclosures from TCFD-compliant organisations also will help insurers assess risk and price their products more accurately.

For an industry keenly aware of the disruptive impacts of climate change, insurers will welcome the transparency and consistency offered by the TCFD reporting framework. Some types of insurance, such as D&O, specialty, and property have already mandated it.

At the same time, businesses that embrace the TCFD principles – not just by producing the reports, but changing and improving how they operate – should see the benefit in the cost of their insurance and other risk management strategies.

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TCFD reporting: How Marsh can help

As a global leader in insurance and risk management, Marsh is a strong advocate of TCFD reporting. We want to help clients meet their regulatory obligations, and access the benefits and opportunities presented by TCFD reporting.

Here are seven reasons why businesses should make TCFD reporting a boardroom priority:

  1. Legal requirement: Reporting requirements are set to extend to more organisations in the UK, and similar legislation is likely in Ireland.
  2. Insurance: Insurers already require TCFD reporting for some types of insurance, and there is likely to be a positive benefit in other areas of insurance and risk management as the framework becomes more established.
  3. Investment: Investors are becoming increasingly interested in the “climate-friendly” credentials of organisations that want their money.
  4. Mergers and acquisitions: The same is true with mergers and acquisitions. Organisations can become more attractive to new prospective owners or acquisition targets by taking the lead on ESG.
  5. Consumers: This is another key stakeholder. Embracing TCFD reporting can help businesses prioritize climate change, which consumers care about.
  6. Employees: Positive engagement with the climate crisis can boost an organisation’s reputation with current and potential employees.
  7. Commercial opportunities: TCFD reporting – and ESG more broadly – is not just about regulatory compliance and risk. It is also about the growing demand for climate-friendly products and services.

Creating TCFD reports is a big undertaking. With the UK ahead of the pack when it comes to mandatory reporting, there need to be more examples and best practices to follow. This is why firms are looking to external experts.

What sets Marsh apart is the full range of services we offer. Marsh can assist clients in measuring and analyzing their operations against a framework like TCFD, and we can also help clients take action off the back of the findings.

This is our 6-step approach:

Understanding materiality
  • Screening and benchmarking
  • Risk assessment and strategic roadmap
  • Modeling, due diligence, and surveys
Taking action
  • Disclosure, KPIs, and governance
  • Adaptation and resilience
  • Risk transfer and pricing

If your organisation needs help meeting the requirements of TCFD reporting or another ESG framework, you can speak to one of our insurance and risk management specialists. We can provide you with holistic support and guide you through every step, so you can better manage your risks as well as realize the benefits and opportunities.

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