U.K. Set to Be First G-20 Member to Force Firms to Reveal Their Climate Risk
(Bloomberg) -- The U.K.’s biggest companies will have to report their climate-related risks starting next year, under rules laid before Parliament on Thursday that put the country on track to become the first in the G-20 to make such disclosures mandatory.
Under the legislation, public companies, banks and insurers with over 500 employees, as well as private companies with at least that headcount and turnover of 500 million pounds ($688 million) will have to disclose climate-related financial information for reporting cycles starting April 6, according to the Department for Business, Energy and Industrial Strategy.
The move, which comes two days before the start of a G-20 summit in Rome and three days before Britain hosts a key round of United Nations climate talks in Glasgow, is designed to show U.K. leadership in the battle against climate change as Prime Minister Boris Johnson seeks to carve out a post-Brexit identity for the nation. The intention is to force companies to understand the risks posed to their operations by a warming planet and to encourage them to set out emissions reduction plans, according to BEIS.
“If the U.K. is to meet our ambitious net-zero commitments by 2050, we need our thriving financial system, including our largest businesses and investors, to put climate change at the heart of their activities and decision making,” said Energy and Climate Change Minister Greg Hands. The U.K., he said, is “making our financial system the greenest in the world.”
An impact assessment published by the government suggests it will cost businesses 145.3 million pounds a year to comply with the new rules. Some of the U.K.’s biggest corporations have already started assessing how climate change will affect their operations. Unilever plc, for example, has assessed the impacts on its business in 2030 of scenarios leading to warming of 2 degrees Celsius and 4 degrees Celsius by 2100.
Its findings show that in the 2-degree scenario, the costs of raw materials and packaging will rise as a result of higher carbon prices and amid a move to more sustainable farming. When the warming level is doubled, Unilever estimates that chronic water stress and extreme weather will affect supply chain costs. “The impact on sales and our own manufacturing operations is relatively small,” the company says on its website.
The United Nations’ latest assessment shows that without more ambitious programs to fight global warming, the planet is on track to be at least 2.7 degrees hotter by the end of the century, a level UN Secretary General Antonio Guterres has called “catastrophic.”
Flora Hamilton, director of financial services at the Confederation of British Industry, said the government’s initiative was welcome. “Increased transparency and more comparability on corporate sustainability performance will be key for directing more money to sustainable projects across the whole economy,” she said in a statement.
“With COP26 on the horizon, it is great to see that the government is working hard to make the U.K. the greenest financial center in the world,” Hamilton said.
The U.K. rules will follow guidelines set out in 2017 by the Task Force on Climate-Related Financial Disclosures. The TCFD framework considers both the physical risks of global warming, such as forest fires and coastal flooding, and threats to operations and asset values from the transition to a lower-carbon economy. Michael R. Bloomberg, the founder and majority shareholder of Bloomberg LP, the parent company of Bloomberg News, is the chair of TCFD.
Ahead of Plan
The business department said that as well as Unilever, U.K. companies including Britain’s biggest supermarket, Tesco Plc and the insurer Aviva Plc already produce voluntary TCFD-aligned disclosures. But Thursday’s legislation will make such reporting mandatory for more than 1,300 companies, it said.
Chancellor of the Exchequer Rishi Sunak said last November that he would mandate the disclosures by 2025 with measures that go “further” than the TCFD proposals.
Thursday’s legislation shows the U.K. is accelerating that time-frame as other countries line up to make disclosures compulsory. Sunak in June secured the support of his G-7 counterparts for a move toward mandatory disclosure.
“Investors need high quality, comparable and reliable information on climate risks,” they said at the time in a communique. “We therefore agree on the need for a baseline global reporting standard for sustainability, which jurisdictions can further supplement.”
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