The UK is to become the first country in the Group of 20 major economies (G20) to require, by law, major companies to report their climate-related risks and opportunities. This requirement meets the recommendations of the international and industry-led Taskforce on Climate-related Financial Disclosures (TCFD). (The G20 is composed of 19 countries, including South Africa, and the European Union.)

“If the UK is to meet our ambitious net-zero commitments by 2050, we need our thriving financial system, including our largest businesses and investors, to put climate change at the heart of their activities and decision-making,” explained UK Energy and Climate Change Minister (equivalent to a Deputy Minister in South Africa) Greg Hands. “By mandating large businesses to disclose their climate risks and opportunities – the first G20 country to do so – we are showing global leadership by making our financial system the greenest in the world.”

A number of major British-registered companies are already providing, on a voluntary basis, TCFD-compliant disclosures. These include Aviva, Tesco and Unilever. But, with effect from April 6 next year, such reporting will become compulsory. The new legislation will affect more than 1 300 large companies and financial institutions and will cover both listed businesses (including banks and insurance companies) and privately-held enterprises with more than 500 employees and turnovers of £500-million or more.

“The government’s proposed framework for mandatory climate disclosures will help companies and investors better manage risks and opportunities resulting from climate change,” stated Confederation of British Industry director: financial services Flora Hamilton. “Increased transparency and more comparability on corporate sustainability performance will be key for directing more money to sustainable projects across the whole economy.”

This step follows the issuing by the UK government of Green Saving Bonds, and its raising of £16-billion in funding for green projects by selling ‘Green Gilts’ (sovereign government bonds) in two tranches last month. The new measure is intended to enable businesses and investors to have a clearer idea of the financial consequences of their exposure regarding climate change, to be able to more accurately price climate-related risks and to encourage the ‘greening’ of the British economy.

“It is very positive to see a scenario analysis requirement now included in the final regulations for companies, which UKSIF [UK Sustainable Investment and Finance Association] and others have called for,” highlighted UKSIF CE James Alexander. “This is necessary to ensure companies can provide to investors and savers a clearer and more meaningful picture of climate risks and the opportunities to support the transition in their annual reports and accounts.”