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TCFD reporting compliance for infrastructure asset owners

Out-Law Guide | 14 Nov 2022 | 11:03 am |

Infrastructure asset owners preparing to implement the requirements of the Taskforce on Climate-related Financial Disclosures (TCFD) will be at different stages on their reporting journey.

Our maturity matrix will enable these businesses to understand the maturity of their current climate risk practices; benchmark how they perform against peers and best practice; and identify the gaps they will need to address as they improve and develop their disclosures through the annual reporting cycle.

We have categorised asset owners as 'beginner' (limited disclosure), 'intermediate' (moderate disclosure) and 'leader' (full disclosure) for the purposes of this guide. Similar guides are available for consultants, contractors and suppliers.

  • Beginner: thinking about the issue

    Governance

    Disclose the organisation's governance around climate-related risks and opportunities

    Leadership

    1. Establish senior leadership/board sponsorship of climate-related risk.
    2. Demonstrate that the asset owner’s board has oversight of climate-related risks and opportunities (including how frequently the board is updated on climate-related matters).
    3. Introduce measures to increase board knowledge on climate-related risks and opportunities, e.g. compulsory training or use of an expert advisory board.
    4. Get buy-in from across the whole organisation to ensure the right level of connectivity, accurate disclosures and best approach to development of climate change strategy.
    5. Ensure at least one named individual is responsible for making climate and ESG-related matters woven into discussions of all items, investing time and money on it and reporting it to the board.

    Implementation

    1. Publish and communicate to employees a policy and/or a commitment statement on climate change.
    2. Support hybrid working for employees, enabled with collaboration technology, and change travel policy to limit emissions from business travel.
    3. Engage procurement teams in educating them on low carbon procurement best practice.

    Risk

    1. Demonstrate that the management team has a role in assessing and managing climate-related risks and opportunities.

    Strategy

    Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material

    Leadership

    1. Be open and honest about client change agenda with employees. Equip leaders with the information they need to be a proponent for change.
    2. Identify and measure operational greenhouse gas emissions and target reductions and identify areas for abatement and improvement.
    3. Include climate-related risks in risk management thinking and business planning.
    4. Collaborate closely with clients and supply chain to understand the impact of climate-related risks on their business and markets.

    Implementation

    1. Use the momentum of the UN climate change conferences to drive engagement and action across the business and supply chains.
    2. Become an active and committed participant in relevant climate change initiatives and build knowledge and networks across the business.
    3. Commit to understanding the potential of digital solutions and increased use of BIM and digital twins to increase and decrease the net-zero burden.

    Risk

    1. Begin to identify the climate-related risks and opportunities that are relevant to the business over the short, medium and long term.
    2. Begin to identify what could reasonably be expected to be the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning.
    3. Consider the impact of two key climate scenarios on the business:
      1. physical risks associated with climate change under a high-emissions scenario; and
      2. the transition to a low-carbon economy under a balanced 'net zero' pathway scenario.
    4. Commit to climate risk assessment across offices.

    Risk management

    Disclose how the organisation identifies, assesses and manages climate-related risks

    Leadership

    1. Publicly acknowledge the need to identify, assess and respond to climate-related risks to the business and operations.

    Implementation

    1. Identify who within the business will put in place the process for identifying, assessing and managing climate-related risks.

    Risk

    1. Begin to identify climate-related risks.
    2. Review all climate-related risks and identify transition risks (market and policy; technology; reputation) and physical risks (property and operations; network; assets) on the risk register.

    Metrics & targets

    Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

    Leadership

    1. Measure and report on scope 1 and 2 GHG emissions and related risks.

    Implementation

    1. Identify and plan for the most appropriate methodology for measurement of emissions and targets.
    2. Target an 'EPC B' rating on all developments (where permitted), as well as a minimum level of performance to be achieved on all major projects and refurbishments.
    3. Use UK government conversion factors for GHG emissions.

    Risk

    1. Begin to identify metrics for climate risks affecting operations.

  • Intermediate: planning, organising, getting ready for action

    Governance

    Disclose the organisation's governance around climate-related risks and opportunities

    Leadership

    1. Board to have strategic responsibility for climate risk and ESG matters, to be implemented through the executive function.
    2. Set up structures to enable board to have capacity and competence on climate-related risks and opportunities, including the use of expert committees or through a named individual appointed to the board who has previous experience on climate change risk management.
    3. Board to review, and consult on, climate-related strategy reports.
    4. Climate-related risks are listed on the risk register and subject to wider risk management and audit procedures.
    5. Consideration given to how effective 'bottom up' implementation of 'top down' climate strategy will be prioritised and achieved in practice, in an integrated way, working across functions.
    6. Begin to introduce standards, codes and policies, in relation to climate awareness, which the board use to govern any decision-making process.
    7. Board to drive culture of sustainability and understanding that ultimately reducing carbon, will also reduce cost, influencing the shape and strategy of the individual departments’ business planning processes.

    Implementation

    1. Plan and design comprehensive governance structures and priority systems to enable implementation of all elements of strategy across all functions and aspects of the organisation including risk management, technology and innovation and carbon abatement.
    2. Invest in competence and capacity within the executive function (including procurement) to ensure effective leadership and responsibility for enterprise, sustainability and innovation, to drive the innovation agenda.
    3. Raise climate awareness throughout the organisation including through training at all levels of the organisation, with the chief executive playing a role in ensuring the business understands the importance of climate awareness going forward.

    Risk

    1. List climate change as a principal risk in the risk register.
    2. Develop a governance system to manage climate-related risks and to ensure clear consideration of physical, transition and liability risks.

    Strategy

    Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material

    Leadership

    1. Identify short, medium and long term priorities, plans and activities identified to reduce the impact of climate-related risks and leverage the opportunity for climate-related opportunities and drive executive function to deliver this across the business.
    2. Keep targets consistent with the reductions required to keep warming below 2ºC.
    3. Set two carbon reduction goals, one for capital carbon and one for operational carbon.
    4. Participate in collaborative industry programmes to support innovation and green capacity.

    Implementation

    1. Implement short-term activities including:
      1. industrial level recycling/reuse/reduction in waste programmes;
      2. increased renewable energy sources;
      3. close working with key suppliers (of all tiers) to ensure end to end reduction in emissions and improvement in methodology; and
      4. investment and research into use of new technologies and methodologies.
    2. Identify plan for achieving medium-term activities including:
      1. improving capacity for recycling/reuse/waste reduction programmes;
      2. transitioning from fossil fuel to renewable energy (including supply chain); and
      3. piloting new technologies (including greener processes, materials and energy supply sources for process plants as may be relevant).
    3. Differentiate approach to new and existing assets.
    4. Consider if the assets/any residual waste can be used as a cleaner renewable energy source.
    5. Set a carbon reduction target for each project and involve the supply chain at an early stage so that there is time to work on a design which is more sustainable.
    6. Map out the level of investment needed to reach net zero target and which projects need to be prioritised.
    7. Work with an energy-efficiency rating scheme for in-use performance that helps commercial office developers and owners deliver and operate energy-efficient buildings and disclose their actual performance.
    8. Ensure any offsetting meets the eight principles laid out by the UKGBC to safeguard the environmental integrity and guarantee the quality of the offset.
    9. Selecting products that are certified to industry standards, e.g. FSC timber.
    10. Identification of technologies that may improve the resource efficiency of assets.
    11. Ongoing education of project and business teams on their environmental impact and how to improve professional and personal sustainability, at home and in the workplace.
    12. Ongoing engagement and interaction (through research, investment, education, support and activities) for process teams on best practice methodologies and performance measurement for improving efficiencies and lowering emissions within end to end processes.
    13. Undergo assurance for data and disclosures across sustainability programme, enhancing the integrity, quality and usefulness of the information provided.

    Risk

    1. Strategy to address climate-related risks and opportunities to span all areas of business including investment, development, operation and divestment.
    2. Assess climate risks when buying an asset.
    3. Consider acquisitions to enable company to be at the heart of the energy transition.
    4. Quantify the short, medium and long-term priorities, plans and activities identified to reduce the impact of climate-related risks and leverage the opportunity for climate-related opportunities and consider how they will impact the businesses, strategy, and financial planning.

    Risk management

    Disclose how the organisation identifies, assesses and manages climate-related risks

    Leadership

    1. Review climate-related risks and identify such risks on the risk register.
    2. Collaborate with the wider industry to collectively plan for the response to climate-related risks - in particular, to enable greater mobilisation on innovation in technology and investment in green capacity.
    3. Focus on energy efficient solutions, promote use of lower carbon materials and work with projects teams and suppliers to understand any cost, performance or operational impact of reducing embodied carbon and reducing emissions from their own operations.
    4. Invest in capability and skills in digital, technology, green materials and low carbon solutions.

    Implementation

    1. Consider the potential long-term impacts of climate change on the essential services provided. Identify these impacts through a number of different forums such as risk workshops, risk champion forums and engagement with senior leaders and other stakeholders.
    2. Develop an asset owner company-wide integrated enterprise risk management (ERM) process for managing climate-related risks, combining a bottom-up operational review with a top-down strategic review and external perspectives to ensure comprehensive risk identification.
    3. Begin to develop and implement appropriate risk management strategies for dealing with identified transition risks.
    4. Develop processes for the asset owner to manage climate-related physical risks across its operating locations and with its major supply chain.
    5. Executive leadership team is supported by risk champions across the business, who are tasked with maintaining awareness of key risks and control measures.

    Risk

    1. Commission a robust and holistic third-party assessment of potential climate-related risks and opportunities and estimate the likely impact of the risks on the organisation's strategy and financial planning. This assessment should be broad and include internal stakeholder consultation, literature review, peer comparison and scenario analysis.
    2. Categorise risks into potential and current risk and identify controls and mitigation.
    3. Identify and assess climate-related physical risks across the organisation’s key operating locations and affecting the major supply chains.
    4. Identify key transition risks with potential to financially impact the business.
    5. Transition risk assessment includes increased unit costs within Emissions Trading Systems (both UK and EU) and a reduction in free allocation of CO2 allowances under those schemes.
    6. Analyse and disclose pricing impact of green materials/low-carbon solutions and potential negative future value of high-emitting solutions.
    7. Maintain a responsible property/asset investment policy and sustainability due diligence process.
    8. Assess climate risks and opportunities in potential acquisitions.
    9. Set up low-carbon materials working group to manage the perceived risk on using innovative materials/products.
    10. Complete a climate assessment risk against each key asset in the organisation’s portfolio.

    Metrics & targets

    Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

    Leadership

    1. Measure and report on Scope 1, 2 and 3 GHG emissions and the related risks.
    2. Commit to reducing GHG emissions to net zero by 2050 and develop and publish quantified targets to reduce GHG emissions in relative or absolute terms (Scopes 1, 2 and 3) and report on performance against these.
    3. Include a weighted percentage for capital carbon in all tenders and ensure that appointed suppliers report back values against each stage of the construction.

    Implementation

    1. Obtain independent verification of the calculation of 2021 GHG emissions assertion, in accordance with industry recognised standard ISO 14064-3.
    2. Engage with external scope 3 reporting experts to support the development of a reporting methodology and establish a scope 3 baseline; and to collect scope 3 emissions related data across all the asset owner’s supply chain.
    3. Obtain data from a wide variety of sources impacting the organisation’s operations, including:
      1. capital investment data;
      2. green capex forecasts;
      3. EU taxonomy KPIs;
      4. greenhouse gas emissions;
      5. climate change science data;
      6. costs of exceptional physical events;
      7. network reliability;
      8. climate transition pathways; and
      9. customer feedback.
    4. Develop and employ measurement methodologies in line with recognised guidance for organisations working in the same market.
    5. Where appropriate, follow the Greenhouse Gas Protocol and Airport Carbon Accreditation (ACA) standard which includes:
      1. emissions from infrastructure;
      2. travel to and from the airport;
      3. aircraft in the landing and take-off (LTO) cycle and cruise phase.
    6. Where appropriate, follow the best practice sustainability recommendations (sBPR) set by the European Real Estate Association (EPRA).
    7. Respond to the following indices and initiatives:
      1. CDP;
      2. FTSE4Good; and
      3. Global Real Estate Sustainability Benchmark.
    8. Use an environmentally extended input-output (EEIO) model to calculate scope 3 emissions.
    9. Calculate CO2 emissions from other activities using appropriate emission factors and in line with the World Resources Institute Greenhouse Gas Protocol (Revised Edition).
    10. Calculate scope 2 emissions from electricity in line with the location-based method of the World Resources Institute Greenhouse Gas Protocol Scope 2 Guidance (2015), using 'International Energy Agency (2021) Emissions Factors' (published in 2021) and eGRID2019 'Summary Table' for emissions factors (published in 2020) or any other best practice methodology for calculation of emissions from electricity.
    11. Ensure that the asset owner’s supply chain of all tiers calculate scope 3 emissions estimations in line with the GHG Protocol's relevant GHG Protocol's Scope 3 Standards using the UK Government 'GHG conversion factors for company reporting 2021' and other relevant emissions categories.
    12. Ensure that the organisation’s supply chain of all tiers provide life cycle assessment data and verified Environmental Product Declarations (EPDs) for products being supplied for the benefit of the organisation’s portfolio.

    Risk

    1. Provide metrics to include climate-related risks and opportunities associated with water, energy, land use and waste management.

  • Leader: doing, making a difference

    Governance

    Disclose the organisation's governance around climate-related risks and opportunities

    Leadership

    1. Climate action is an integral part of business strategy and risk management, driven by the board, with implementation through an organisation-wide governance structure.
    2. The board has capacity and competence (through the use of board committees or similar arrangements) to respond to climate-related risks and opportunities effectively (including connected issues of technology and innovation), involving senior members of the board and executive function. This enables the board members to set the organisation’s climate strategy, including targets and periodic progress reviews.
    3. The risk management and audit committee reviews group level climate-related risks periodically and oversees climate-related financial disclosures.
    4. The organisation acts as a positive agent for regulatory and policy change, playing an active role in environmental policy development forums, assisting the government in its rationale and responding on any policy consultations.
    5. Board and management are committed to transparency on climate lobbying activities, both in respect of direct advocacy and indirect representation via trade associations; and ensure alignment between those practices and expectations of the board and shareholders.
    6. Organisation leads and also participates in various cross-industry initiatives in connection with its climate-related risks and opportunities impacting its business.
    7. Where appropriate to the organisation, consider if a climate transition plan (i.e., a company’s commitment to get to net zero and when) should be presented to and voted on by shareholders.
    8. Remuneration and financial incentives for executives are linked to progress towards achieving short, medium and long-term climate targets.

    Implementation

    1. Cross-functional teams including members from across the asset owner’s functional groups work collaboratively on the detailed delivery of the climate strategy and to review implementation of projects.
    2. The asset owner has established governance structures focussed on carbon abatement across its portfolio of assets and projects and has developed systems for prioritisation of climate projects, carbon pricing and benefits.
    3. Active engagement with whole supply chain on carbon reduction and climate risk mitigation.

    Risk

    1. Climate-related risks and opportunities are integrated into standard board agendas and take into account all broad strategic fields which may be impacted: e.g. capital investment, financial planning, remuneration, mergers, acquisitions and divestures.
    2. Include within the company’s articles of association (perhaps as part of the company’s purpose), a reference to its commitment on climate change commitments, minimising climate-related risks and maintaining sustainable assets.
    3. Have a system in place for internal controls, to ensure any emerging risks and uncertainties are taken into account in the company’s accounting judgments, disclosures, processes, audit and financial statements.

    Strategy

    Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such information is material

    Leadership

    1. Have two targets – the first for reduction from a set period in the past to the near future and the second from now to say 30 years from now.
    2. Play active role in UN conferences: for example be a principal partner of COP27 and work closely with the UK government and other sponsors to create a successful and ambitious climate change conference in Egypt in 2022.
    3. Invest in research and development in accelerating hydrogen blending into the transmission infrastructure, working with laboratories, industry leaders and academic institutions.
    4. Work closely with the Science Based Targets initiative (SBTi) to increase the ambition of scope 3 target to cover emissions across entire value chain.

    Implementation

    1. Ensure the supply chain is behind the strategy, carrying out workshops in partnership with your supply chain.
    2. Install electrical vehicle charging points across asset portfolio.
    3. Work with a delivery partner to fund and develop innovative solutions around renewable energy (for example solar) such that energy on-site is from on-site renewable sources.
    4. Receive the prestigious climate change ‘A’ score from CDP Climate Change for actions in corporate sustainability for cutting emissions and moving towards a low-carbon economy.
    5. Partner with a battery storage/hydrogen specialist.
    6. Support the development of vehicle charging infrastructure in the UK, and low-carbon alternatives, such as hydrogen, for heavy transport.
    7. Operate an environmental sustainability policy which establishes environmental compliance and environmental sustainability performance requirements for all operational and non-operational activities.
    8. Work towards procuring all electricity from REGO-backed renewables, and look towards direct purchasing from renewable projects through power purchase agreements.
    9. Use of smart data to gather information from assets, including office occupancy, to help decide how to control energy-intensive service equipment.
    10. Develop an engagement programme with customers to increase collaboration on energy usage.
    11. Establish an internal shadow price of carbon to help them consider the cost of carbon emissions in their investment decisions.
    12. Measure supply chain against internal scorecard.
    13. Invest in improvements to active travel (cycle and walking routes) and public transport, deliver more electric vehicle charging points, and start work on designing a new zero carbon heating network and upgraded electricity distribution network to support the shift away from fossil fuels to renewable energy.
    14. Install water efficient fixtures in all refurbishment projects and identify further opportunities for rainwater harvesting.

    Risk

    1. Acknowledge that the energy system is transitioning from high to low carbon and coincide this change with a shift to more decentralised generation, including renewables and battery storage. As the volume of intermittent and distributed generation increases, acknowledge a more resilient and flexible system will be required.

    Risk management

    Disclose how the organisation identifies, assesses and manages climate-related risks

    Leadership

    1. Ensure all climate-related risks are registered on the risk register, updated on an ongoing basis and fully integrated into the organisation’s overall risk management and governance processes (including, as relevant, at individual project level).
    2. Consider transition risks and ensure that they are factored fully and consistently into future financial long-term forecasts for those areas of the balance sheet whose recoverability is assessed based on expected future cash flows, including property, plant and equipment, expansion assets in the course of construction, intangible assets, investment properties and deferred tax assets.

    Implementation

    1. Introduce climate component to procurement processes with pre-acquisition due diligence and in vendor reports prior to exit.
    2. Implement ERM process for managing climate-related risks on an ongoing basis across the asset owner's operations, including through the training of staff and the integration of early warning indicators and mitigation strategies into risk management governance procedures.
    3. Outline in strategy plans, all-risk management actions and an execution plan for each of the identified climate-related risks.
    4. Ensure that the useful economic lives of existing assets are appropriate, particularly with regard to the physical risks identified as well as with regard to published net zero sustainability strategy.
    5. Operate all portfolio properties in line with ISO 50001 Energy Management System ensuring to measure, manage and monitor energy performance. Where this is not possible, outline financial impact of mitigation/no-mitigation scenarios.
    6. Develop properties using well-defined sustainability brief for developments and with consideration to the risks of climate change.

    Risk

    1. Identify ongoing approach for measuring how climate-related risks are prioritised using risk assessment tools.
    2. Complete risk analysis and continue to monitor specific climate change at key operating locations (covering major operating sites and major supply chain and logistics networks), using globally accepted climate change scenarios.
    3. Complete risk analysis and continue to monitor transition risks impacting the business (including green material and energy demand, impact on supplier pricing, risk of increased regulation and potential for non-compliance with net zero carbon operating environment).
    4. Identify climate change induced physical risks in the form of supply chain disruption including potential delays due to adverse weather conditions as well as capital project delays including unplanned costs and loss of production.
    5. Assess financial impact of executing actions for addressing climate-related risks as identified in strategy over time horizons that allow for appropriate financial planning.

    Metrics & targets

    Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material

    Leadership

    1. Adhere to the United Nations Science Based Targets initiative and follow guidance from Intergovernmental Panel on Climate Change (IPCC).
    2. Utilise metrics to assess climate-related risks and opportunities in line with the organisation’s strategy and risk management process.
    3. Use appropriate science-targets to manage climate-related risks and opportunities, which take account of the specific profile of the business and refine and update the optimum methodology to monitor performance against these targets.
    4. Report on comprehensive metrics. Examples include:
      1. energy use, including like-for-like performance for controlled assets;
      2. energy performance concerning the MEES regulations and EPCs;
      3. electricity purchased via renewable energy sources;
      4. water use in controlled assets;
      5. proportion of portfolio with sustainability ratings (e.g. BREEAM, Code for Sustainable Homes and SKA);
      6. Waste resulting from offices and buildings.

    Implementation

    1. Provide assurance of the organisation’s reported GHG emissions against International Standards on Assurance Engagements.
    2. Implement ISO 14001-certified Environmental Management System and Environmental Sustainability Standard.
    3. Measure and report in accordance with the World Resources Institute and World Business Council on Sustainable Development Greenhouse Gas Protocol.
    4. Regular verification of methodology for measurement of emissions against relevant best industry standard(s) applying to all aspects of the organisation’s operations.
    5. 100% of scope 1, 2 and 3 emissions independently assured against ISAE 3410 Assurance Engagements on Greenhouse Gas Statements.
    6. Collect and report data complying with the UK Government’s Streamlined Energy and Carbon Reporting (SECR) Requirements.
    7. Collaborate with supply chain and incentivise the tracking, collection and sharing of actual carbon data.
    8. Develop and implement systems to track, and report on actual carbon emissions data at scope 1, 2 and 3.
    9. Report on all operational and construction sites and both permanent and temporary offices.
    10. Obtain third-party certification of performance against targets on all projects.
    11. Use both location and market-based approaches to measure energy emissions depending on the circumstances.
    12. When renewable energy is used, use the market-based method to reflect the emissions from renewable electricity tariffs that a company has chosen to purchase that are backed by Renewable Guarantees of Origin (REGO) certificates.

    Risk

    1. Undertake further research and analysis to better understand and measure how climate-related issues translate into potential finance impacts for the business.

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