TCFD-compliant disclosures improving at UK companies, but Investment Association plans to increase pressure in 2021.
Slightly more than half (53%) of FTSE 100 companies are currently reporting against all four pillars of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), according to the Investment Association (IA), the trade body for UK investment managers.
In a review of company performance against its 2020 shareholder priorities, the IA found that the number of FTSE 100 firms making TCFD statements had more than doubled from 30 in 2019 to 77 his year, with the majority of firms now providing some climate-related disclosures.
Climate change disclosures is one of four priorities laid out by the IA, alongside audit quality, diversity and stakeholder engagement, in its ‘Shareholder Priorities for 2020’ document, issued in January.
Although 80% of FTSE 100 firms have disclosed climate change-related metrics and targets, the IA found variations in the extent of their disclosures. A total of 69% of FTSE 100 firms have described their governance of climate-related risks and opportunities, with 70% describing actual or potential impacts of risks, and explaining how these are assessed and managed.
Almost three quarters (73%) of firms explained this year how their strategies take account of climate change, but only 55% of firms overall made specific reference to impacts on capital management and allocation.
Andrew Ninian, Director of Stewardship and Corporate Governance at the IA, described this as a “relatively good response”, but said there remained “more to be done”. Speaking yesterday at the IA’s Stwardship and Governance Forum, Ninian said members were keen to improve access to “decision-useful” data.
“We were always aware that we’re on a journey to get better reporting. The real next step is getting companies to focus on decision-useful disclosures,” he said, adding that members were looking in particular for more insight into the impact of climate change on capital allocation decisions.
In November, the UK Joint Government-Regulator TCFD Taskforce set out a five-year plan for mandatory climate-related financial disclosures, starting from early next year.
‘Amber’ warning planned for high-risk sectors
Ninian said he expected the IA to continue to ask firms to report against TCFD recommendations in 2021, and to increase pressure by issuing firms in high-risk sectors that do not report on all four pillars with an ‘amber top’ warning using its Institutional Voting Information Service (IVIS) reporting system.
IVIS is used to monitor whether listed firms are meeting IA member expectations by checking the actions and announcements against IA guidelines and the UK Corporate Governance Code. It does not provide voting recommendations, but does highlight concerns shareholders should consider prior to voting and will issue a ‘red top’ notice to firms in the event of a clear breach.
“TCFD is a minimum requirement now and reporting on all four pillars is a minimum requirement,” said Ninian.
Ninian also flagged member concerns across governance, strategy, metrics and accounting issues related to climate change, including a wish for firms to identify a named director or committee responsible for governance of climate change issues. Asset managers also want more detailed information on how firms are aligning their business models with the goals of the Paris Agreement, including targets and timeframes for emissions reduction.
Ninian stressed that discussions are ongoing with IA members on shareholder priorities related to climate change and other topics for 2021.
The IA’s 2020 review of investor expectations considered progress on core priorities over last year, covering the 93 FTSE 100 firms with year-ends on or after 31 December 2019 that held an AGM between 1 January and 30 September 2020.
Last month, the association supported the publication of a new 20-point blueprint to improve stewardship standards among UK institutional investors by the HM Treasury-led Asset Management Taskforce.