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TCFD can be launchpad for infrastructure climate resilience

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There are opportunities for infrastructure businesses to build their resilience against climate change and attract fresh investment as they adapt to and implement evolving climate-related financial disclosure requirements, according to experts at Pinsent Masons.

The move to embed climate-related financial disclosure requirements within regulations and guidance should benefit infrastructure companies because it should lead to better quality climate-related information being presented to customers, funders and investors, and better informed strategic decision making, they said.

Pinsent Masons, as part of the Net-Zero Infrastructure Industry Coalition, highlighted the evolution of infrastructure climate-related financial disclosures in a new guide that is designed to help infrastructure companies implement the recommendations made by Taskforce for Climate-related Financial Disclosures (TCFD) – and leverage opportunities from doing so. The new TCFD guide includes a maturity matrix that provides guidance on levels of disclosure for infrastructure asset owners and operators and their project supply chain.

The TCFD was established by the G20’s Financial Stability Board to improve and increase reporting of climate-related financial information. The standards it has developed are voluntary to adopt, though a growing number of policymakers and regulators globally have been using the TCFD’s recommendations as a baseline for legal or regulatory climate-related disclosure requirements, including in the UK.

Pinsent Masons said that more than 3,800 companies have published reports aligned with the TCFD’s recommendations but that UK adoption “has arguably been patchy”. They highlighted a lack of standardisation in the way data disclosures have been made and said this has made climate-related reporting “difficult to interpret” for funders or investors that are under growing pressure to respond to climate change.

Richard Manley, a member of the TCFD, and managing director, head of sustainable investing, at CPP Investments, said: “It is essential that investors gain a clear understanding of the future value of investments in infrastructure organisations and the investment needed to support resilient infrastructure. While the approach and recommendations of the TCFD do not provide all the answers they can be a very help framework through which infrastructure developers and investors can consider these issues.”

In the UK, the Financial Conduct Authority (FCA) introduced a listing rule in December 2020 for commercial companies with a UK premium listing on the Main Market of the London Stock Exchange to disclose, on a comply or explain basis, against the recommendations of the TCFD. The FCA then extended that rule in December 2021 to issuers of standard listed shares and standard listed global depositary receipts representing equity shares, excluding standard listed investment entities and shell companies.

The rule for premium listed companies came into effect for accounting periods beginning on or after 1 January 2021, and the rule for standard listed companies applies for accounting periods beginning on or after 1 January 2022.  However, a much wider range of UK companies are now subject to The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and must provide climate-related financial disclosures based on the TCFD standards, so there will be a large number of companies making climate-related financial disclosures for the first time in 2023.

Pinsent Masons said the introduction of TCFD as a regulatory requirement, along with the release of reporting guidance, should “be viewed as a welcome development” rather than as “just another framework with which to comply”.

“In helping to clarify reporting expectations TCFD will remove the opacity of past disclosure and help organisations properly evaluate climate-related risk, and identify and implement strategies for long term resilience,” they said.

The new guide highlights the benefits to participants in the infrastructure market and aims to support asset owners, contractors, consultants, funders, investors and suppliers regardless of how mature their organisation is in respect of TCFD compliance.

For beginners, the guide helps organisations prepare for TCFD reporting and take a phased and iterative approach to adoption. It advocates gap analysis exercises, building an internal taskforce and drawing on existing reporting and disclosure standards, among other things.

The guide also helps infrastructure businesses position themselves as leaders in relation to climate-related financial disclosure.

It said “leadership level organisations” will have well-established TCFD governance and reporting processes, but will also look beyond TCFD compliance to explore how the opportunities and challenges of climate change will influence strategy. They will do this by, for example, conducting scenario analysis and embedding outputs and integrating climate into enterprise risk management.

There is scope for raising capital more easily, standing a better chance of winning public contracts, and being better prepared to meet the challenges in decarbonising operations, for organisations that embrace the TCFD recommendations, Pinsent Masons said.

The guide also addresses companies that may be at a more intermediate stage of TCFD maturity. Recommendations for those businesses include building greenhouse gas emissions data and climate risk data gathering capability and leadership climate competence.

The new TCFD guide has been written and developed by Pinsent Masons with Mott MacDonald as a part of the Net Zero Infrastructure Industry Coalition.

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