New UK climate finance plan needs regulator follow-up

UK Chancellor Rishi Sunak has set out the country’s ambition for the future of UK financial services. This includes plans to be the first country in the world to make Task Force on Climate-related Financial Disclosures (TCFD) reporting mandatory across the economy by 2025.

Alongside this announcement, the UK Treasury and regulators published a roadmap for how to achieve TCFD reporting in the next five years – with certain requirements to begin from 2021.

TCFD-aligned reporting is widely seen as the global baseline for consistent climate-related disclosures. If implemented effectively, it would help both companies and investors manage and mitigate systemic climate-related risks, in all of our best interests.

While the Government’s new roadmap is welcome, our lawyers urge regulators to ensure it is followed up in three key areas. We hope to see:

• Disclosure obligations introduced on a clear mandatory basis, rather than a confusing ‘comply or explain’ or ‘as far as able’ basis;
• Explicit requirements that firms disclose strategies and targets that are aligned with the Paris Agreement goals to achieve ‘net zero’ emissions by 2050 (scopes 1-3); and
• Strong rules for implementation that ensure accountability and prevent greenwash.

Firms must get their house in order

ClientEarth Climate Finance lawyer Daniel Wiseman said:

“This updated roadmap for TCFD implementation from UK regulators is welcome and long overdue.

“The message is clear – all firms must urgently get their house in order to provide the required disclosures.

“To secure high quality reporting by companies, it is now critical that regulators set out detailed expectations, especially in relation to forward-looking strategies and alignment with the Paris Agreement.

“There also must be stringent supervision and enforcement of the new rules, to ensure stakeholders are not misled by greenwash masquerading as real action.”

Detailed and enforceable disclosures

Earlier this year, the Financial Conduct Authority held a consultation about mandatory TCFD reporting for companies. In ClientEarth’s submission, we outlined our concerns that certain proposals were not strong enough.

After reviewing the Government’s new roadmap, we remain concerned that a weak ‘comply or explain’ approach is still being considered.  If firms are able to simply explain non-compliance, there is nothing to oblige them to provide complete and good-quality disclosure. Furthermore, regulators have so far failed to set explicit expectations about firms’ alignment with the Paris Agreement goals or ‘net zero’ objectives.

The clear way to fix this is to mandate that all firms disclose a strategy aligned with the Paris-agreement’s goals, in order to satisfy the ‘metrics and targets’ pillar of the TCFD framework. This should include a credible plan for how firms will get to net zero emissions by 2050 – we’ve published a series of key principles for what Paris-aligned plans for companies should look like.

There should also be measures that strengthen the quality of disclosures to ensure that companies are held to account for greenwashing. Otherwise, we risk seeing climate disclosures that are merely a smokescreen.

Daniel added: “The UK has this pivotal opportunity to develop world-leading policies that ensure the country’s long-term economic resilience and financial stability.

“Mandatory TCFD reporting, if strong and enforceable, is a welcome step in the right direction. The roadmap must now be backed up by strong regulatory standards that prioritise forward-looking strategy disclosures, high expectations for compliance, and effective supervision and enforcement to mitigate the real risks of greenwash, which we are already seeing."