Government to mandate climate-related company disclosures

The UK government has announced it will pass legislation to mandate climate related company disclosures. The new requirements will come into effect on 6 April next year and will require over 1,300 of the largest UK-registered businesses to disclose climate-related financial information. This will include many of the largest companies, including banks, insurers and private businesses with over 500 employees and £500 million in turnover. The Treasury says the new legislation will force firms to disclose their climate-related risks and opportunities in line with the recommendations of the Taskforce on Climate-related Financial Disclosures. To that end, the relevant regulations – the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021 – were laid before parliament last week, on 28 October. The government plans to publish non-mandatory guidance to support those companies caught by the new rules. They say that will be issued before the end of 2021, following parliamentary scrutiny of the regulations.

This news is not unexpected. The government consulted on this back in March and following feedback they have made two significant changes. The first is the introduction of a requirement for a ‘qualitative scenario analysis’ designed to help companies in their assessment of climate-related risks and opportunities. Secondly, the requirements will be more closely aligned with the recommendations of the Taskforce to ensure coherence with associated requirements introduced by the FCA and the Department for Work and Pensions.

The Taskforce has a framework which has been designed to help companies disclose on a voluntary basis. It is structured around four core elements of how organisations operate, namely: governance, strategy, risk management, and metrics and targets, and there are 11 recommendations. However, in practice alignment with all 11 recommendations is rare with many companies making disclosures in their sustainability reports, rather than in financial or annual reports. That will change when reporting becomes mandatory. 

So clearly all this is highly relevant to the boards of the companies affected but where does HR fit in? As we see it, when it comes to climate change, the main challenge facing HR professionals is not so much the reporting of data as changing culture and getting buy-in at senior level. The government consultation recognises the importance of that culture shift. It states that it is ‘essential for appropriate behaviours to be embedded into organisational culture so that climate change is considered at all levels of an organisation’. So, what can HR do to help companies prepare for this change? Sarah Munro is currently helping clients with this and she joined me by video-link to discuss it. I started by asking whether this is seen as a priority issue for clients: 

Sarah Munro: “It's a really interesting area because climate change and sustainability was not really making boardroom agendas even just a few years ago but now, particularly since 2015 when the Paris Agreement was signed and sustainable development goals were set, it's now really easy for this to be on boardroom agendas not only because it's seen as the right thing to do, but also because businesses are realising that they have to really contribute somehow to the cost that we are  taking out of the planet and the interest from younger generations, and older ones, in what we need to do to make sure that we are acting in a sustainable and thoughtful way, really is now key for boards to look at. We at Pinsent Masons have actually been doing quite a lot in this area. We set up a Climate Change Mitigation and Sustainability Group in September last year and it’s a group of individuals from across the business and we're looking at how Pinsents can become greener and also how we can help our clients. We have tried to lead the way and as best we can, and we've managed to reduce our energy consumption by 30% in the last five years. We’ve also reduced our office space by over 100,000 square foot and we have reduced travel by 10% and, in fact, even pre-pandemic we had no travel weeks where nobody was allowed to travel across the business and we were saying to clients, I'm sorry, but we are doing this to be respectful and mindful of climate change so we're not travelling this week for meetings. Now that has slightly been overtaken by the pandemic with the obvious reduction in travel and really a way of working which is much more sustainable where we're not going into the office, we're cutting down on commuting, we're not travelling for business meetings, and simple things that we're not printing as much because people don't have printers at home. So, it's a really interesting area at macro-level where boards are looking at their businesses and how they can be more sustainable on small level, but also on a much bigger scale. For example, oil and gas businesses are moving into renewables and that energy transition is something that we are beginning to speak to her clients about an awful lot on a strategic level.”

Joe Glavina: “Just thinking about what in-house lawyers and HR professionals can do to help, Sarah. They do have a role, don’t they?”

Sarah Munro: “Yes, it's an interesting point, because you might think, what can we as employment lawyers or HR professionals really do? Is this not something that boards will look at, and it's strategic, and it's not for us to get involved in? But I think there is a lot in the terms of the cultural change. For us as employment lawyers, for a number of years we have been helping shape the way for businesses to be more diverse and more inclusive and that’s been the cultural change we've seen in recent years with gender pay gap reporting and a much heightened look at being a diverse and inclusive workforce and climate change and sustainability flows on quite nicely from that. This is the new thing that people are interested in. I've recently been involved in traineeship interviews for our next intake of trainees and at the end of the interview when they're able to ask questions of us one of the things that's been asked an awful lot is what are Pinsent Masons doing in terms of climate change? Do you feel it's a sustainable green business? It’s something that is at the forefront of a lot of individuals’ minds when they're looking as to where they want to work and quite a few of our clients have been speaking to us about that and saying how can we make our business more attractive to attract the best possible people to work for us and one of the areas that is coming up a lot is how can we show that we are sustainable, that we are mindful of our climate responsibilities and that we are willing to encourage our employees to embrace that. So, it goes to really small things that I've mentioned already, you know, encouraging not to print, encouraging not always reply to say thanks, encouraging flexible working so people aren't always having to commute, encouraging people to cycle to work, but also being mindful of other responsibilities under equality law because one thing a client pointed out is if we say, nobody's allowed to drive to work, everybody has to cycle, does that have an impact on disabled employees who may need to drive to work? So, there's a real interplay between trying to be more sustainable and mindful of our climate change obligations, but also being a responsible employer in terms of our equality law obligations, as well. So, it's a real mix of cultural change, very small little things that will make a huge difference, and making sure that if the board is talking about strategic plans to be more green and to think about climate change, that that filters down to the very bottom and that we don't have buzzwords and great aspirations without, on the ground, making sure that our employees, and any potential employees, are really aware of what we're doing as businesses to make sure that we are as sustainable as we possibly can be.”

The Task Force on Climate-Related Financial Disclosures has a website with a lot of helpful information for employers wanting to make effective disclosures on a voluntary basis, before the switch to mandatory disclosure. We have put a link to that in the transcript of this programme.

LINKS
- Link to TCFD website