Mandatory climate-related financial disclosures in annual reports and accounts have been introduced in the UK public sector. With the UK government now requiring all central government departments and some arm’s length bodies to apply the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, we explore the potential impact on the wider UK public sector.
What is TCFD?
The Task Force on Climate-related Financial Disclosures (TCFD) is a framework created by the Financial Stability Board (FSB) that provides guidance and a standardised set of recommendations for reporting and disclosing climate-related risks and opportunities in annual reports and accounts. Mandatory TCFD reporting was applied to large UK-based companies in 2022 and then rolled out to central UK government departments (ministerial and non-ministerial) and certain public bodies from 2024.
The TCFD framework assesses climate-related risks and opportunities that impact organisational finances. It guides reporting against four pillars: governance, strategy, risk management and metrics and targets. The government’s rationale for the public sector adopting climate-related disclosures is that they can help identify wider future risks and opportunities. It can help organisations to make the links between climate-related issues and wider organisational decisions.
What are climate risks and the implications for public sector organisations?
Physical risks (direct and indirect impact from specific weather-related events):
- Acute risks: Event-driven risks such as increased severity of extreme weather events (e.g., floods, drought, storms)
- Chronic risks: Longer-term shifts in climate patterns (e.g., sustained higher temperatures, sea level rise).
Implications:
- Infrastructure and building damage (e.g. from extreme weather)
- Disruptions to supply chains (e.g. impact on transport, manufacturing, etc)
- Shifts in market conditions (e.g. increased insurance premiums, public expectation changes, need for increased central government support)
- Widening wealth and health inequality (e.g. from increased air pollution and food insecurity)
Transition risks
- Policy and legal risks: Changes in regulations and legal actions related to climate change.
- Technology risks: Technological advancements that could impact the competitiveness of existing products or services.
- Market risks: Shifts in supply and demand for certain commodities, products, and services.
- Reputation risks: Changing customer or community perceptions of an organisation’s contribution to or detraction from the transition to a lower-carbon economy.
Implications:
- Increasing need for building energy efficiency improvements.
- Cost of building fabric upgrades and renewable infrastructure.
- Cost of technological advancements and implementation of new technologies.
- Productivity risks associated with extreme weather and higher temperatures.
- Reputational damage for missing key Net Zero milestones.
- Impact on investments valuation (e.g. pensions).
Explore the Climate Change Risk Assessment 3 (CCRA3) Technical Report by Climate Change Committee for a more detailed analysis of climate change risks and opportunities in the UK.
The potential for the wider public sector to lead on climate action
The Climate Change Committee’s recent report to parliament on climate adaptation highlighted that the UK is hugely underprepared for climate risks. Both the Skidmore Review, 2023 and the Environmental Targets Bill encourage wider public sector reporting on climate action. A recent Local Government Association open consultation has sought wider opinions on statutory duties on climate reporting.
Public sector organisations, particularly local authorities, are uniquely positioned to lead on climate action. Their influence often extends beyond their organisation to local areas, businesses, communities and supply chains. Factoring in climate-related financial disclosures can help the public sector to plan and build resilience as well as improve their climate risk management. Using the TCFD framework places climate risk and management at the heart of an organisation, reflecting the fact that climate change and its associated risks affect every part of the organisation. For local authorities specifically, bringing together existing plans from across the area with a climate risk and opportunity lens helps build a robust and unified future strategy.
The roll-out of TCFD disclosures highlights the pressing need to embed climate risk into core decision-making. Failure to proactively assess and manage climate risks could lead to significant long-term costs – both financial and social. Without robust adaptation and mitigation planning, public sector bodies risk exacerbating inequalities, placing additional strain on health and social care systems and leaving local communities increasingly vulnerable to the impacts of climate change.
Mitigation vs adaptation?
A robust and feasible Net Zero strategy and climate action plan should consider both climate mitigation and adaptation strategies:
Mitigation refers to interventions to 'reduce emissions or enhance the sinks of greenhouse gases (IPCC, 2018). Mitigation focuses on reducing or preventing the release of greenhouse gases (GHGs) to minimise climate change.
Adaptation to climate change is the process of adjustments to action or expected climate and its effects, in order to moderate harm or exploit beneficial opportunities (Intergovernmental Panel on Climate Change [IPCC], 2018). Adaptation seeks to address the impacts from climate change that are already occurring will occur.
Our work in TCFD and climate risk assessment and management
The Carbon Trust has been helping public and private organisations to identify and manage climate-related risks and opportunities for over 20 years. We have experience helping organisations comply with climate disclosures such as ISSB (International Sustainability Standards Board), the EU’s CSRD (Corporate Sustainability Reporting Directive), the US SEC (Securities and Exchange Commission) or other localised disclosure regulations aligned to TCFD.
Explore our work on identifying climate risks and opportunities:
- Tackling mitigation and adaptation together with Hampshire County Council
- Stepping into a more sustainable business case with Dr. Martens
How we can help
We approach climate risk and opportunity analysis through:
We can help produce mandatory and voluntary TCFD disclosures and integrate climate risks and opportunities into Net Zero action plans.
We encourage all public sector organisations to:
- Ensure your organisation has a robust sustainability strategy and climate action plan that takes into account climate risks and considers both mitigation and adaptation.
- Ensure monitoring and reporting for future progress is implemented into your climate action plan/Net Zero Strategy.
- Engage stakeholders and review sustainability within your organisation and consider climate risk assessments to understand the potential wider impact.
- Share best practices and utilise spaces such as the Carbon Trust Public Sector Network Forum to share knowledge, experiences and best practices and spaces for potential collaboration.
- Stay up to date with the latest developments in climate policy from the UK government and independent bodies such as the Carbon Trust, Climate Change Committee, and international standard-setters like the IFRS Foundation, ensuring your organisation remains aligned with evolving climate risk disclosure expectations.
