An Overview of Climate-Related Disclosures

3 October 2024

Climate-related disclosures are gaining importance in the business world. Various frameworks and regulations aim to enhance transparency and accountability in reporting environmental impacts, driven by growing pressure from investors, consumers, and regulators.

While many organisations in the UK are not yet required to disclose climate-related information, there are many benefits to voluntary reporting. The UK government plans to expand mandatory climate disclosures under the Sustainability Disclosure Requirements (SDR), so early preparation can ease future transitions. Monitoring climate-related data can help organisations to improve their environmental impact and resource efficiency, and early alignment with climate-related disclosure frameworks demonstrates a commitment to sustainability. With investors and consumers increasingly supporting climate-responsible organisations, proactivity is a competitive advantage for building trust and reputation.

Key Frameworks for Climate-Related Disclosures

TCFD (Task Force on Climate-related Financial Disclosures):

The UK's climate-related financial disclosure regulations currently apply to publicly listed companies, large private firms, and LLPs with over 500 employees and £500 million in turnover or assets, requiring them to report in line with TCFD recommendations. TCFD provides guidelines for companies to disclose climate-related financial risks, focusing on governance, strategy, risk management, and metrics/targets to help investors assess financial risks related to climate change. In 2023, TCFD fulfilled its remit and disbanded, with progress of companies’ climate-related disclosures now being monitored by the IFRS.

IFRS (International Financial Reporting Standards):

Companies applying IFRS S1 and IFRS S2 will meet the TCFD recommendations. IFRS S1 requires disclosure of sustainability-related risks and opportunities while IFRS S2 focuses on climate-related risks and opportunities. Both standards require organisations to disclose governance, strategies and performance related to risks and opportunities. Whilst IFRS disclosures may be audited, the IFRS does not provide a mechanism for scoring and/or benchmarking the quality of disclosures.

CDP (Carbon Disclosure Project):

CDP is a global platform helping companies, cities, and regions to disclose their environmental impacts, such as those related to climate change, water security, and deforestation. CDP questionnaires vary by industry, company size, and additional commitments.

The CDP questionnaire aligns with key frameworks and standards including TCFD and IFRS S2, as well as European Sustainability Reporting Standards and Task Force on Nature-Related Financial Disclosures recommendations. A CDP disclosure can therefore serve as a one stop shop for reporting in a way that meets multiple standards simultaneously and would naturally prepare growth enterprises for other sustainability disclosure processes should they be required.

CDP is also now applicable for SMEs, having introduced a simplified SME-dedicated questionnaire to streamline reporting for small and medium enterprises. It excludes certain data points relevant to larger companies but still covers forests, water, and climate-related indicators. While non-sector-specific, it encourages SMEs to assess their climate risks and impacts, and the scoring of disclosures enables organisations to benchmark themselves against peers whilst following an internationally recognised approach.

GRI (Global Reporting Initiative):

GRI Standards provide a comprehensive framework for any organisation aiming to disclose their ESG performance. They are globally recognised and designed to help organisations report their impacts on critical sustainability issues such as climate change, human rights, governance, and social wellbeing in a transparent and comparable manner. The GRI Standards are applicable to any organisation, regardless of its size, sector, or location, and are ideal for businesses looking to present a holistic view of their environmental and social impact.

SASB (Sustainability Accounting Standards Board):

SASB Standards are a set of guidelines designed to help businesses identify, manage, and report on the sustainability factors most likely to impact their financial performance. Unlike broader sustainability frameworks, SASB Standards are highly industry-specific, ensuring that companies report on the most financially material sustainability issues, avoiding the “one-size-fits-all” problem of broader frameworks. By aligning with the needs and expectations of investors, SASB Standards help companies communicate the ESG factors that are most likely to influence their financial performance.

Whether your organisation is currently required to meet mandatory disclosure requirements or not, voluntary disclosure using frameworks such as the above can help you track, monitor and report on environmental impact, risks and opportunities. While these frameworks each offer unique approaches to climate-related reporting, they underscore the growing importance of transparency in sustainability.

If you would like help in understanding what reporting requirements and disclosures are relevant to your company, please feel free to contact us at info@esgmark.co.uk or kayla.ellis@esgmark.co.uk.

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