TCFD: how to align your business with mandatory disclosures

In April 2022, the UK government implemented mandatory Task Force on Climate-related Financial Disclosures (TCFD) requirements. These recommendations apply to the UK’s largest companies and financial businesses.

Companies must work with the resources available to them, and get their strategies in place now. Not only will this ensure that they are in a strong position for imminent changes, it will also help businesses to navigate changes within the broader ESG landscape.

Let’s take a look at how you can organise your company to align with the new requirements.

What is the TCFD?

The Task Force on Climate-related Disclosures was established in 2015, by the international Financial Stability Board. It is based upon the growing consensus that climate change has immediate effects on economic decisions. Investors are growing more aware of climate-related risks and turning towards those organisations that are planning ahead in this regard.

As part of a package of environmental measures from the government, Chancellor Rishi Sunak announced plans to make the TCFD guidelines mandatory for businesses. This fraction of the green recovery plan aims to bolster the UK’s position as a global leader for green finance.

To that end, the TCFD is a reporting framework with the aim of achieving consistency in terms of the level and quality of climate-related disclosures. Setting a consistent standard will increase transparency and allow for comparability between organisations, in terms of their impact and effects on climate change.

The TCFD reporting framework spans four key areas: governance, strategy, risk management, and metrics and targets. In terms of governance, companies must describe how the board maintains oversight of climate-related risks and opportunities. With regards to strategy, they must identify climate-related risks and opportunities in the short, medium and long-term and how this will impact the organisation’s businesses, strategy and financial planning.

In terms of risk management, companies must demonstrate their processes for identifying and assessing climate-related risks, and how these risks are managed and integrated into their overall risk management. Businesses should also disclose the metrics they have used to assess climate-related risks and opportunities. They should disclose Scope 1, Scope 2 and Scope 3 greenhouse gas emissions and climate-related performance targets.

Know where to start

The mandatory TCFD requirements now apply to large businesses, for accounting periods beginning on or after 6 April 2022.

Starting early is key in implementing TCFDs efficiently and effectively. While points may be altered in the strategy as time goes on, having a roadmap to achieve your TCFD goals within a future business plan is essential in understanding the potential gains, as well as risks. Board members may require training, and communication with stakeholders throughout the process will be key.

Reporting on risk management is also very important when starting out with TCFDs. The starting point is to consider the existing processes within your organisation and build upon these. As well as understanding the tools you already use to help collect and report climate-related information, and consider which additional tools are required.

All information required to meet the disclosure obligations must be included in the company Annual Report and Accounts. Third party information used to assess climate-related risks – such as from data providers – may be included.

Set targets

Identifying targets is a good start when figuring out a strategy. Measuring and reporting on progress, peaks and troughs, can help businesses to understand exactly where they can improve, and how. There are several initiatives that can assist businesses in this regard.

Science Based Targets , as well as industry projects promoting net zero targets for specific sectors, can help businesses to understand exactly how to create ambitious but reachable targets for the future. Emissions must be cut significantly for the UK to reach net zero, by 2050. A ‘science-based’ emissions target stays in line with the scale of reductions required to meet these objectives. These goalposts track progress and give the private sector a clear idea of how quickly they need to reduce their GHG emissions, to prevent the worst impacts of climate change.

You should also consider carrying out a materiality assessment, which will help you to decide which climate-related issues within your organisation are significant enough to report on, and in turn, set targets for. Climate-related targets should be quantifiable and granular, linked to metrics, clearly specified over time and periodically reviewed. They should be understandable and contextualised.

The TCFD recommends using metrics that are ‘decision useful’, clear and understandable, reliable, verifiable and objective, and consistent over time. Categories of metrics include GHG emissions, transition risks (such as credit exposure to carbon-related assets or revenue from coal mining) and physical risks (such as investment in flood zones).

Follow available guidance

Understanding the ins and outs of the TCFD requirements may seem confusing, but there are many forms of guidance that are available to you. The TCFD Hub, BEIS and the FRC have published guidance to help companies with approaches, examples of disclosure and how the mandate interacts with existing requirements. Including SECR and ESOS.

The Department for Business, Energy and Industrial Strategy (BEIS) has recently published guidance for businesses that now need to make TCFD-aligned disclosures. You can access the guidance here.

How can EIC help?

Implementing TCFDs comes with a number of benefits for larger businesses. A major one being that they will help companies to identify and assess the risks posed by climate change. They can then address their structural weaknesses, and implement mitigation and adaptation efforts to future-proof their business. Organisations that do this will have a competitive advantage over those that don’t when it comes to future funding and investments.

At EIC we are experienced in helping clients mitigate climate-related risks. Through our unrivalled energy management services, and cutting-edge technology, we can help you with TCFD compliance. Our aim is to guide you and interpret the legislation, keeping you informed and compliant. From resource efficiency and clean energy, through to your carbon compliance, our goal is to simplify your sustainability journey.

Get in touch today to find out more information on future-proofing your organisation.

What is the Targeted Charging Review (TCR) and how will it affect you?

Business owners up and down the country may have heard of Ofgem’s Targeted Charging Review (TCR). The new rules came into effect from April 2022, establishing a new system for non-commodity charges. This is effectively how network owners charge energy customers, for the use of electricity networks in the UK.

These changes will impact every business differently. So, it is essential that every business understands the effects the new rules will have on their bills, before they enter into their next electricity contract.

Here are some important points you should know about TCR and how it will affect you.

What is the TCR?

The TCR is an Ofgem-led project that assesses how network charges are set and recovered. It was launched to address concerns that the current mechanisms used to recover Distribution Use of System (DUoS) and Transmission Network Use of System (TNUoS) charges could lead to inefficient use. It is hoped that the TCR changes will help consumers avoid detrimental effects, and distribute the costs more fairly – particularly for those that consume energy during peak periods.

For customers that are metered half hourly, electricity transmission costs run according to Triads. Triads are the three half-hour settlement periods in the winter with highest system demand. National Grid determines these peaks to set electricity charges, and they are calculated retrospectively in March of each year.

Now Ofgem has introduced new rules, following concerns that the current system distorts the market and is detrimental to businesses of all sizes. It also comes amid concerns that more savvy businesses may try to avoid Triad periods, and not pay their share towards maintaining the grid year-round.

How will this affect you?

Triad periods usually provide larger businesses with an opportunity to make savings through flexibility, by reducing consumption during peak periods. Even those who aren’t able to be flexible in their usage can mitigate the impact of Triads by increasing their energy efficiency. However, under the new system there is less incentive for Triad avoidance and, where it remains, the benefits will be significantly reduced.

TCR changes introduced in April 2022 now mean that non-commodity charges will no longer be based upon peak-time consumption and will instead be based on a standard flat rate. All meters will be sorted into bandings and charges applied to each banding. These bandings will be reviewed every five years.

For some, the TCR will increase their energy costs, as they may fall within a higher banding, but this can be rebalanced within other areas of their budget. But those larger energy users who have not previously consumed energy flexibly and who have been hit with high Triad costs could see significant improvements, and reductions in non-commodity costs.

Where does EIC come in?

Keeping track of your energy usage is important at the best of times, but even more so under current circumstances. With these latest changes to electricity charges, keeping track of your energy costs can seem all the more confusing.

Reducing your energy consumption is a simple and effective solution to reducing costs – if you know how. Finding simple ways around constantly rising prices can often be confusing and time-consuming. But it doesn’t have to be.

At EIC, our goal is to help companies navigate the best routes for themselves and their business plan. We recognise that while there is a broad range of reasons as to why energy prices are rising, we can help our clients return their business strategies to normal.

Get in touch today to find out more. Also, keep your eyes peeled for our upcoming blog about how access to data could help your journey towards energy efficiency.

UK Energy Strategy targets new nuclear but misses opportunity to tackle energy crisis

The Government’s delayed energy strategy has now been released and it provides a look at how the UK’s long term energy security can be improved whilst attempting to meet net zero targets. However, the plan was widely criticised for ignoring targets on energy efficiency and onshore wind which are viewed as the best options to tackle the current rise in energy bills.

The plan is heavily focused on long-term supply-side measures and aims to make the UK’s electricity system 95% low carbon by 2030. To achieve this the following targets have been set:

  • Increase offshore wind capacity from 11GW to 50GW by 2030
  • Increase solar capacity from 14GW to 70GW by 2035
  • Increase nuclear capacity from 7GW to 24GW by 2050
  • Up to 10GW of hydrogen capacity by 2030

As well as these targets the Government have announced a licensing round this summer for new North Sea oil and gas projects as well as a review into whether fracking technologies are safe. Many of the targets contain the caveats of ’up to’ and ‘subject to affordability and value for money’ which in the midst of a cost of living crisis raises questions about how much of the new capacity will be built.

The graph below shows how the new capacity targets may shape the UK’s fuel mix over the next couple of decades. It is clear that, while ambitious, these targets are very much a long term solution. De-rated margins will be tight in the short-term and we will remain dependent on gas for a number of years. The forecast below is taken from EIC’s Long Term Forecasting Report which provides a 20-year view of future energy costs.

Considering the tight capacity margins over the next few years it is surprising there has been no intention from the Government to reduce demand by including energy efficiency measures in the energy strategy. In the past 10 years domestic installations of cavity wall and loft insulation have dropped significantly due to a lack of Government support. Schemes like these are seen as quick wins in terms of reducing domestic energy consumption which would help to lower bills.

Since the change in planning laws and the removal of subsidies for onshore wind in 2015 there has been a significant drop in the number of new installations. Despite initial hopes for an ambitious target for onshore wind, Boris Johnson has given in to pressure from Tory backbenchers who view wind turbines as an ‘eyesore’. This omission comes despite it being the cheapest method of generation and recent polls providing significant public support. The continued lack of planning and investment in UK energy infrastructure is finally catching up with the Government but it continues to be consumers who pay the price in the shape of increased energy bills. For more information please visit our website.

 

John Palmer, Director of Flexible Procurement gives his insight into the UK Energy Strategy Review.

 

Public Sector Decarbonisation Scheme: Time running out

The launch of the Public Sector Decarbonisation Scheme last week presents an opportunity for public sector organisations to reduce their emissions using government funding. Organisations should begin formulating applications now to have the best chance of being funded.

Subsidising Energy Efficiency

Salix Finance is backing the scheme and it combines two major funds. First, the Capital Grant Scheme (CGS) aims to support heat and electricity decarbonisation efforts in certain public sector buildings. The second will help create thousands of jobs within the green development sector.

Under the CGS, public sector bodies can apply for financing for up to 100% of the costs of capital energy-saving projects fitting certain criteria. The criteria are split into four categories, which, in tandem, take a holistic view of decarbonising building heating.

This scheme will act as a non-domestic version of the Green Homes Grant, helping to address the carbon footprint of heating in UK commerce and public bodies.

Since applications to the fund will be subject to Salix’ discretion, organisations must have a robust understanding of their current energy expenses as well as accurate means to estimate the savings they stand to make.

The technologies supported by CGS are all focused on driving down the CO2 emitted in building heating. Naturally, low-carbon heating solutions like heat pumps and heat networks are deemed eligible.

Technology able to reduce heat demand or offset energy from the National grid also qualifies. Solar PV, battery storage, and metering systems fall under this category.

Window closing fast

Organisations can use this fund to subsidise the cost of external support for decarbonisation projects in a variety of ways. This includes the employment of technical expertise in putting together applications for the fund, support for project delivery, and guidance on creating a long-term decarbonisation plan.

However, applications must be submitted by the 11th of January and any planned projects delivered by the end of March 2021. Organisations should take this timeline into account when considering the scale of any project they wish to undertake.

Four months is a considerably small window for an infrastructural overhaul. That means organisations with a decarbonisation framework already in place will have a head start over those that don’t.

However, that is all moot unless applications are in before the deadline in just over ten weeks’ time. It is important to note that the scheme has been open since September 30th and that there is no ceiling on how much of the fund individual projects can apply for.

£1bn might sound like a lot, but it is still finite and approvals are on a first-come, first-served basis.

Organisations are already in a race against time and will want to start approaching sustainability specialists as soon as possible.

At EIC, our 360° Strategic Review offers a variety of channels through which you can boost your decarbonisation efforts. Key amongst these is a focus on implementing appropriate infrastructure for your organisation. A comprehensive solution that includes sub-metering, lighting solutions, on-site solar generation and CHP.

For further information on how we can support your decarbonisation journey, contact us.