UK TCFD Rules Should Align with EU’s CSRD – IIGCC

Investor group backs wider reach for UK corporate climate reporting, calls for disclosures to adhere to all 11 TCFD recommendations.

The UK’s Department for Business, Energy and Industrial Strategy’s (BEIS) incoming climate-related reporting requirements should apply to a much wider range of companies, according to the Institutional Investors Group on Climate Change (IIGCC).

The investors regard the current scope – geared towards publicly quoted companies, large private companies and limited liability partnerships (LLPs) – as too narrow.

The BEIS report sets out how it aims to adapt existing UK regulations to ensure the aforementioned groups are providing disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) guidelines. Requirements will be finalised by the end of this year, coming into force from April 6, 2022.

Responding this week to the consultation paper, which was published in March, the global investor membership body said BEIS should widen the scope of UK corporates required to provide TCFD-aligned disclosures.

The new rules should mirror recent changes made to the EU’s Non-Financial Reporting Directive – now known as the Corporate Sustainability Reporting Directive (CSRD) – the IIGCC said.

The CSRD applies to all large companies and listed companies with at least 250 employees and a net turnover of more than €40 million. IIGCC has asked BEIS to consider these new thresholds, adding that smaller companies with under 250 employees should also be included if they are operating in “material sectors”.

Acknowledging that smaller companies may need more time to improve their reporting capabilities, initially changes could operate under a ‘comply or explain’ basis before gradually introducing mandatory measures, IIGCC said.

“IIGCC’s position is that climate change presents material risks to all companies, irrespective of size, and hence we recommend a broader scope of companies be included in scope of the requirements, which will support coherence with wider climate-related disclosure initiatives.”

Further in line with CSRD, BEIS should consider introducing requirements for subsidiaries to publish the sustainability-related disclosures made by parent undertakings within their own reports, including “a reference in these reports specifying that they are exempted from reporting sustainability information”, IIGCC noted.

As well as this, all TCFD-aligned disclosures should be subject to limited assurance engagement by a statutory auditor, with a view to move towards “reasonable assurance as the market develops”.

Both of these changes would ensure disclosures are accessible for users, better supporting transparency and allowing for greater quality and reliability of TCFD disclosures over time, IIGCC said.

The IIGCC has also recommended that disclosures should be more detailed and made against all 11 TCFD recommendations, rather than solely against the four pillars: governance, strategy, risk management, and metrics and targets. BEIS’ proposed non-binding guidance that will be published alongside its final rules should clearly outline the best approach to reporting against the 11 recommendations, the body added.

This allows for more comprehensive detail that can be “more easily adapted as best practice and reporting capabilities evolve”, IIGCC said.

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