TCFD, the key to our climate future

June 01, 2021

New Zealand has become the first country to introduce a law that will require banks, insurers and investment managers to report the impacts of climate change on their business. The updated law will cover about 200 of its largest companies, and will require companies to “comply or explain” for financial years beginning next year. The proposed penalties for knowingly failing to comply with climate standard obligations are significant, and go beyond announcements made by other governments and market regulators in recent years. This announcement does not sit in isolation. In the past year, several governments around the world have been launching similar mandates, while others aim to be more ambitious, by bringing forward requirement deadlines or expanding thresholds. Following Rishi Sunak’s announcement in November 2020 of the UK Government’s intention to mandate TCFD-aligned disclosures by 2025, the Government is now consulting to bring this date forward to 2022. New proposals would see any company with over 500 employees and at least £500 million in annual turnover in the UK, disclose potential risks associated with climate change and the net-zero transition into annual reports.

It’s evident that government action is needed to increase corporate action. The influence of financial institutions to impact climate change through portfolio alignment, directing financing toward low-carbon investments, is also key. In a recent memo to shareholders, BlackRock’s Larry Fink outlined the need for “private companies to be held to the same level of scrutiny” and supported the view for governments to play a “leadership role”. Having unified, co-ordinated action to increase and align with global climate ambitions is essential, if we are to mitigate the worst physical impacts of climate change. Alongside this, more climate data, greater transparency, and a general increase in climate-related financial disclosure, will allow investment decisions to be based on a company’s climate resilience. These movements have the opportunity to accelerate the transition to a low-carbon economy, and champion organisations that are committing maximum effort to align with a 1.5°C temperature pathway.

Author: Sarah Kehoe