Mandating climate-related financial reporting: IEMA's response to Government Consultation

IEMA's Policy & Engagement Lead Nick Blyth addresses IEMA's response to the Government’s latest consultation and that companies should understand and report on their climate-related risks and opportunities.

In 2021, the World Economic Forum has (yet again) identified extreme weather, climate action failure and human-led environmental damage as among the highest likelihood risks of the next ten years. However, despite such awareness, climate change is still seen as a distant risk by many businesses, especially in difficult and challenging times. To help achieve economy wide net-zero and to support business transitions, IEMA believes that companies should understand and report on their climate-related risks and opportunities.

IEMA sets out this imperative along with recommendations in its response to the Government’s latest consultation, on proposals to mandate climate-related financial disclosures by publicly quoted companies, large private companies and Limited Liability Partnerships. The proposals build on the government’s 2019 Green Finance Strategy, that all listed companies and large asset owners should disclose in line with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations by 2022. The UK’s intention is to become the first G20 country to make TCFD-aligned disclosures mandatory across the economy.

Business risks and dependency impacts from Climate Change are well understood by sustainability professionals, with IEMA having developed guidance and evidence on the value of reporting and disclosure for supporting climate action. Following a roundtable with IEMA fellows and climate change professionals, IEMA has submitted a full consultation response with recommendations including:

• Support for climate related financial disclosure to become a mandatory requirement within strategic reports.
• Recognition that scenario analysis is fundamental to transparent risk disclosure and should be part of these requirements.
• Support for the principle to extend energy and carbon reporting into scope 3 emissions, after further consultation.
• A proposal to help businesses prepare by phasing recommendations and updating reporting guidance.

In 2019, the IEMA Board declared a Climate and Environmental Emergency and reaffirmed a need for Climate Leadership across society, recognising both the urgency and the business relevance of climate change. Although mandatory obligations may not be welcome by some businesses, especially during difficult economic times, these proposals can support businesses in better understanding and managing their real exposures and medium-term risks.

In other developments relating to the UK’s net-zero ambitions, the Environment Agency and Defra have published a review of the evidence behind carbon offsetting in order to help inform future strategy in this area. IEMA contributed to the development of this work and further details can be found here.