How should businesses prepare for new climate impact disclosures?

What can businesses do to prepare for the Chancellor’s new Sustainability Disclosure Requirements?

Chancellor Rishi Sunak recently announced new proposals that would require large businesses, along with investment and pension scheme providers, to disclose the environmental impact their business practices are having on the planet. Specific plans on reaching net zero will also need to be clearly set out.

The proposed Sustainability Disclosure Requirements (SDR) aims to combat ‘greenwashing’, where some businesses mislead investors or the general public into believing that their products, services and business activities are more environmentally friendly than they actually are.

The proposals and their specifics will be put to public consultation, after which it will become clearer how SDR will work in practice, including implementation dates and any potential penalties for non-compliance. 

Yet while there are as yet no legal obligations for businesses to disclose their environmental impact nor implement an Environmental Social Governance (ESG) framework, there is a clear business case to do so from both an ethical and business risk perspective.

AAT has recently issued new ethical guidance on sustainability which includes a checklist for businesses to follow. It includes:

• Asking how your organisation and client base can help society and sustainability
• Ensuring every new project or area of development is thoroughly explored and researched from a sustainability standpoint.
• Measuring everything, from KPIs and targets to outcomes and deliverables.
• Conducting regular risk assessments including supplies and third parties.
• Setting science-based targets.

We asked several accountants for their views on the new proposals and how businesses should prepare for them.

Start identifying key metrics, implement TCFD framework into business strategy and engage with stakeholders

Andrew Probert, accountant & Managing Director, Duff & Phelps’ A Kroll Business

The latest proposals build on commitments set out in the Green Finance Strategy in November 2020. It aligns with the current requirements of the Task Force on Climate-related Financial Disclosures (TCFD) Framework but also points towards the future developments of the newly-formed International Sustainability Standards Board (ISSB).

Given the nature of their work in measuring the financial impact of sustainability, accountants will play a critical role in preparing businesses for the new sustainability changes.

Next steps: There are several precautionary measures businesses can take now in advance of the enforcement of new climate regulations:

• Businesses can start identifying how they will collate, analyse and benchmark climate-related metrics.
• Businesses should also start embedding the TCFD framework into their organisations. Even though these requirements continue to evolve, the basic principles remain the same and therefore businesses can start preparing for how they are going to create appropriate governance structures, prepare clearly defined strategies, and build suitable risk management processes to help identify, assess and manage climate-related risks and opportunities.
• Businesses should start engaging with their key stakeholders to understand what they believe is material from a sustainability perspective. 

Verdict: Accountants can support businesses in taking precautionary measures such as identifying key metrics, engaging with key stakeholders and starting to embed TCFD framework in business strategy.

Track progress towards TCFD guidelines and implement a plan to meet objectives

Bal Gora, Director, Diamond Accounts

Some large businesses in the UK will have to start disclosing their environmental impact under the new sustainability disclosure requirements. A company’s sustainability claims will have to be justified “clearly”, and their net zero transition plans properly set out in a statement that accompanies their annual report. They need to meet TCFD guidelines, specifically around governance, strategy, risk management, metrics and targets.

TCFD reporting should flow through to the company’s financial statements to meet these objectives.

Many companies will therefore face the challenge of integrating the relevant, material information into their annual report and accounts (ARA) for the next tax year. Accountants who offer advisory support can help by incorporating this information into a company’s plan, business model and strategy.

Next steps: Companies should start transparently addressing the progress on how they’re meeting the TCFD’s recommendations, the actions needed to start closing any gaps, and the plan for achieving this before mandatory reporting becomes effective.

Verdict: Keep track of progress towards TCFD’s recommendations and implement a clear plan for achieving it.

Annie Makoff is a freelance journalist and editor.