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Out-Law News 1 min. read

New TCFD guidelines change greenhouse gas reporting requirements


The Task Force on Climate-Related Financial Disclosures (TCFD) has changed the way it wants companies to report greenhouse gas (GHG) emissions.

Its revised guidelines say that companies should disclose their carbon emissions independently of a “materiality assessment”.

A materiality assessment refers to the process of identifying, refining and assessing the potential environmental, social and governance issues which could affect a business and its stakeholders.

According to a TCFD statement, the revised version upgrades seven categories of cross-sector indicator as particularly important for assessing financial impact. They are scope 1, scope 2 and scope 3 GHG emissions, indicators of climate-related transitions and actual risks and opportunities, capital deployment, internal carbon pricing and remuneration, and disclosure on companies’ plans to ‘transition to a net zero economy’.

John Yeap of Pinsent Masons, the law firm behind Out-Law, said: “Reporting against the guidelines will involve not just compliance costs but also the availability of tools and agreed benchmarking standards. In this regard, the development of common standards such as on green taxonomy will help, and a wider base commitment will no doubt develop when companies are able to see closer correlation between market capitalisation and climate reporting.”

Scope 1 emissions are direct emissions from the company’s activities or those under its control, scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company, and scope 3 emissions include all other indirect emissions which occur in a company’s value chain.

A South China Morning Post report said that this would “[pose] a challenge for businesses in Hong Kong”. 

In December a cross-agency steering group established by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) announced that it aims to align listed companies’ climate-related disclosures with TCFD recommendations by 2025.

The TCFD’s guidelines were published in 2017 and say that companies should undertake scenario-planning for different levels of global warming and should disclose medium and long term emissions targets.

The TCFD was established by the Financial Stability Board (FSB) in 2015 to develop a set of voluntary, consistent disclosure recommendations for companies to use when providing information on climate-related financial risks to investors, lenders and insurance underwriters.

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