Climate-related reporting: three common barriers and how to overcome them
AECOM-led research has identified common barriers to effective climate-related financial disclosures. Sustainability experts Eleanor King and Laura Brankin share the findings as well as practical steps companies can take to get the most value out of corporate climate reporting.
The Task Force on Climate-related Financial Disclosure (TCFD) recommendations are globally recognised by investors, the financial community, governments, and increasingly the wider public, as best practice in climate reporting. TCFD recommendations are designed to allow organisations to disclose consistent and decision-useful information on their exposure to transition and physical climate risks, and the strategy of organisations to mitigate these risks. Accordingly, more and more jurisdictions are mandating alignment, including most recently, the UK Government in April 2022.
Regulatory compliance aside, there are significant benefits to companies for making TCFD disclosures. In the first in our series of articles, we shared results from an assessment of climate-related reporting by large private UK registered companies, which we conducted in 2021 on behalf of the UK government’s Department for Business, Energy and Industrial Strategy (BEIS). Key benefits raised by interviewees included improved governance and integration of climate into strategy and decision making; reputation benefits; and helping raise climate change at senior leadership and/or board level.
In addition, there are financial benefits as good disclosures and climate risk management can reduce the risk of potential profit loss and regulatory and policy-related costs such as carbon taxes.
However, our research identified several key barriers to corporate climate reporting, which were raised by companies regardless of size, sector or maturity of reporting. In this article, we examine three of these barriers in more detail, and share some recommended actions that could help overcome them.
Three common barriers to corporate climate reporting and actions to take
1/ Insufficient internal expertise or knowledge
In the research, 50 per cent of large companies identified insufficient internal expertise and knowledge as a barrier.
Action: Build capacity. Building internal knowledge is key to embedding climate risk management into any business. One method of doing this is through interactive workshops that can help increase awareness, and train staff. For maximum effect, include roles that aren’t usually involved in sustainability, such as procurement, logistics, site managers and finance. These roles usually have a significant part to play in assessing risk but may not have the background knowledge of climate change issues.
Action: Use targeted support. External consultants can provide support and guidance targeted to the more complicated and developing technical areas of TCFD such as Scope 3 emissions and climate scenario analysis. For example, we use our bespoke impact assessment tool, aligned to TCFD risk categories, to assess climate scenarios and identify risks and opportunities across different timescales, locations and markets.
2/ Data collection
TCFD recommendations require companies to report on carbon emissions, and reliable and accurate data is essential for quantifying the financial and business implications of reducing emissions to net zero. However, data collection was identified as a barrier by companies, particularly around gathering information on Scope 3 emissions.
Action: Undertake screening exercises. An initial screening to understand the shape of a company’s carbon emission profile can be an invaluable step to target carbon emissions ‘hot-spots’. Screening exercises focus on gathering readily-available data – from procurement or sales dashboards, for example – to develop a high level understanding of which business areas or aspects of the value chain may be contributing most to overall emissions. Once done, it is possible to focus on the most significant contributors to collect data in more detail.
3/ Lack of resources
Lack of time and resources was the most commonly raised barrier, identified by over 60 per cent of interviewees.
Action: Utilise extra resources. External reporting support gives companies time to focus on delivering positive changes within their organisations, rather than on the reporting itself. An external consultant can work as an extension to existing teams to add capacity and technical expertise. This may be particularly effective for reporting across different jurisdictions, as well as aligning with other sustainability reporting frameworks.
A chance to demonstrate resilience
To reiterate what we said in our first article, companies who view mandatory requirements to align with TCFD recommendations (or similar) as simply an annual report-writing exercise will be missing the point. Any mandatory requirements should be viewed as an opportunity not only to understand the benefits of incorporating climate into financial risk management and business plans but to show stakeholders and investors how resilient your organisation is.
- Click here to read more insights into climate-related reporting from the research conducted by AECOM on behalf of the Department for Business, Energy & Industrial Strategy (BEIS), which was published in June 2021.
- This is the second in a series of articles on corporate climate reporting. Click here to read the first: Climate-related reporting: is your business ready?.