UK announcements - TCFD and a Net Zero-aligned Financial Centre
Updated: Nov 4, 2021
TCFD Reporting Update
On 29th October 2021 the UK became the first G20 country to enshrine mandatory climate disclosure for large companies into law, with the rules set to come into force in April 2022.
“Large companies” include publicly traded companies with more than 500 employees and private companies with more than 500 employees and over £500 million in turnover.
This is the first step in the government’s commitment to have mandatory disclosure across the economy by 2025.
The primary objectives of this move are to assist businesses and investors in understanding their exposure to climate-related risk in a consistent way while supporting the “greening” of the economy through target setting.
The mandatory disclosure will be in line with the TCFD recommendations:
As mentioned in our last discussion on emissions, Scope 3 reporting is clearly the big challenge now for companies. Currently, the TCFD recommendations “strongly encourage all organisations to disclose their Scope 3 emissions”.
The recommendations refer to the 2021 Science Based Target initiative (SBTi) criteria. This criteria states that a Scope 3 reduction target is required if a company’s Scope 3 emissions account for more than 40% of their total Scope 1, Scope 2 and Scope 3 emissions, or if they are involved in the sale or distribution of fossil fuels irrespective of this %.
However, SBTi then specifically state that the oil and gas sector are (the only sector) currently not able to set their emissions reduction targets through the SBTi scheme.
SBTi are working on specific guidance for oil and gas companies, which may include revised Scope 3 criteria, but until this is finalised the sector will remain excluded from the scheme.
The SBTi is considered a “gold standard sustainability scheme” with tough criteria; while over 2,000 companies are currently in the process of setting net zero targets through SBTi, only 7 companies have had their net-zero targets validated to date, with Orsted the only energy company to make this elite list.
Mandatory Transition Plans for Financial Institutions
Things are moving really fast right now!
In another announcement yesterday, the UK Government stated that it intends to be the first Net Zero-aligned Financial Centre. Firms within the financial sector will need to be transparent about their “net zero transition plans”, and ensure they have a
“robust firm-level transition plan setting out how they will decarbonise as the UK meets its ambitious and legally binding net zero targets”
While mandatory reporting is expected by 2023, at the company-level net zero commitments are unlikely to be mandatory.
As part of this move, the government also announced formation of a Transition Plan Taskforce to develop a “science-based gold standard” to avoid inclusion of any green washing in published transition plans.
While the government states it will not prevent investment in carbon-intensive activities, the result of these new requirements for financial institutions will be that funding for oil and gas projects will become much more difficult. Investors will likely to be trying to rationalise their own portfolios to meet internal sustainability targets and therefore will be reluctant to increase their exposure to projects with higher emissions that don’t have credible plans for reducing their carbon footprint.
It is clear with the ongoing announcements this week, that it is becoming more and more critical for oil and gas companies to be on the front foot and proactive about transitioning their portfolios to meet this rapidly changing operating environment.
We would be really excited to help you navigate the rapidly changing recommendations and help you become more prepared with your transition and emission reporting plans - firstname.lastname@example.org or email@example.com