Published : 3 years ago, on 15/12/2021

By Andromeda Wood, Vice President of Regulatory Strategy, at Workiva. 

At COP26, the UK government became the first G20 nation to announce that it is enshrining recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) into law.

Chancellor Rishi Sunak announced that large UK-registered companies must disclose climate-related financial data starting next year. More than 1,300 of the largest UK-registered companies and financial institutions will need to disclose their climate risks to provide more transparency for stakeholders and support the overall drive to net zero.

The Financial Conduct Authority (FCA) aims to finalise these climate-related disclosure rules on or after 1 January 2022, with the new requirements coming into force from 6 April 2022. Change doesn’t happen overnight, but companies will need to take steps to comply with these financial disclosure expectations and consider the steps, technology and partnerships that will help them over the coming months.

The drive for transparent and trustworthy reporting

Financial reports must offer transparent information on each company’s climate-related risks. Ensuring this information is clear promotes trust and integrity.

The need for clear and measurable reporting on environmental, social, and governance (ESG) data is driven by both government mandates and stakeholder demand. Customers, employees, partners and particularly investors want greater clarity. A 2021 survey revealed nearly three-quarters (72%) of 18-34-year-olds want to know whether a company lives up to their social and moral beliefs before they invest in them, and this is indicative of a wider push from investors for more clarity on ESG.

Investors need to have access to information that enables them to clearly compare one company’s sustainability performance against another. They need to be able to easily comprehend how a company’s performance relates to its value creation. Without this knowledge, it’s almost impossible to make fully informed business and investment decisions that align with globally accepted climate goals.

In addition to investors, consumers and customers also benefit from this transparency. Knowing what companies are doing with their investments, profits, the environment, etc. enables customers to determine which products meet their needs, as well as holding organisations to account for their sustainability claims.

Following the launch of the International Sustainability Standards Board (ISSB) at COP26, standardised ESG compliance frameworks are being set. These will make a complex set of reporting standards simpler to compare and rely on for how companies are progressing against their ESG goals.

Businesses must report on ESG as each aspect can impact the finances of the company – industrial action halts production; association with a toxic supplier impacts reputation; a reliance on fossil fuels will ultimately result in fines. They can do this by gathering data from all those within the company’s ecosystem, from supply chain to channel partners and providers. By reporting on ESG, companies can cover all facets of investor demands and do so with transparency through data at the centre.

To transform financial reports first requires complete trust in data—transparency in where it came from, context into why it changed, and control over how it is handled. Transparency shouldn’t be elusive. For example, reports should clearly disclose low-carbon transition data: use of renewable energy sources, clean technologies, and measures to reduce carbon emissions.

Teams across the company must work together

To support the integration of climate-related disclosures into financial reports involves the development of strategies, organisational structures and tools to ensure all relevant parties can contribute. Feeding into annual reports is a mammoth task. It involves many stakeholders across multiple disconnected teams – from the sustainability and corporate communications teams to investor relations, auditors and more. Gathering and consolidating all this data from all the right parties can be a challenge if the right tools and processes are not in place.

The key is collaboration. Everyone involved must be able to work across silos and develop effective channels of communication for better collaboration. Making this possible often involves close partnership between IT and financial teams. By working together, IT teams can empower their business partners to pivot the reporting approach to bringing data into a centralised system, ensuring everything is tracked and linked correctly and having the confidence to know the data is up to date.

Ultimately, IT teams can support the data integration approach that works best for the company’s business and finance teams and its unique reporting requirements – enabling various departments to work together efficiently when identifying and reporting their climate-related disclosures.

Tools to enhance real-time collaboration capabilities

While different teams need to work together in a centralised system, the key to consistent data for climate-related disclosures is real-time collaboration. The collection of ESG data is often a time intensive part of annual reporting. Teams have to search across a multitude of unaligned systems to dig out the data required and send it manually to those creating the report. This is not only inefficient but introduces risk through version control issues.

By changing the approach to gathering data for the annual report within one centralised cloud-based platform, businesses can achieve greater control. This equates to new technology that integrates work streams and creates efficiency. The centralised platform ensures trust in the data collected.

Not only does all work take place within that one central platform, but all data within the platform can be linked. When it is updated in one place, it automatically updates everywhere. This ensures reporting teams can be confident in the consistency of the data, and they don’t need to spend as much time reviewing and correcting information.

Organisations must connect disparate teams and systems if they are to establish a single source of truth. Without this real-time collaboration, the trust that transparent data brings risks being lost.

The time to act is now

Dedicating time now to preparing people and processes for the FCA’s firmer rules on climate-related disclosures will ensure impacted companies can meet the mandate to “comply or explain” with the TCFD’s requirements on deadline.

To prepare, organisations need the right technology and partners that can help to ensure collaboration across the enterprise, reporting transparently across company ecosystems, efficiently integrating all teams involved with ESG, and enabling real-time collaboration. Ultimately, this will be key to making the reporting transition for climate-related disclosures in 2022, as well as providing the wider ESG reporting required to attract investors.