The UK government will be going further than the measures recommended by the TCFD, and is the first G20 country to mandate climate disclosures by 2025. New disclosure rules will apply to listed commercial companies, UK registered large private companies, banks, building societies, insurance companies, UK-authorised asset managers, life insurers, and pension schemes. It is therefore set to change the reporting landscape across the whole economy, including smaller companies downstream from the large institutions.
So how will businesses measure risk, where are the disruptive forces, and what do boardrooms need to do? Physical risk from rising temperatures, sea levels, and acute weather events present an immediate transitional risk, whilst future risk models for 30-50 years hence will be more acute and uncertain. The effects on margins, demand, and supply chains will need to be considered at all levels from portfolio summary, company level, through to individual physical asset level.
In order to support disclosure, the climate risk modelling industry is growing, with models currently able to analyse a range of impacts such as predicted energy transition trends, power usage, transport, carbon pricing, material and physical disruption, and company valuations. In parallel, within its Climate Financial Risk Forum guide, the UK government has set out its governance and strategy policy for business, with a requirement for firms to disclose where primary responsibility sits at board level, the frequency that boards discuss climate related issue (including climate risk training), how boards integrate climate-related financial issues into strategy-setting, and how boards oversee progress against climate-related metrics and targets. Therefore, companies will need to address skills gaps, identify boardroom responsibilities, and ensure the metrics are in place to provide full and transparent disclosure of threats to businesses.