The majority of FTSE100 companies have now set a net zero emissions target, and for good reason. These businesses recognise the commercial benefits of taking action: mitigating risk, driving innovation, boosting stakeholder relationships and amplifying their brand.
Net zero has, up until now, been largely a voluntary, rather than regulatory corporate initiative, but with the UK’s 2050 target drawing closer, this is set to change. Project Net Zero explains.
TCFD-aligned reporting is now in force…. and it’s just the start
This month sees new climate reporting requirements for the UK’s largest firms; part of major government plans to give investors clearer information on the environmental impact of their portfolio.
An estimated 1,300 companies must now report in line with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), and this is likely to extend to all UK-registered companies in the future.
While TCFD-aligned reporting does not explicitly require companies to set a net zero target, it does require them to report on their greenhouse gas emissions and identify them as a source of risk to the company; set time-based reduction targets and report on progress made.
The future – mandatory net zero transition plans
Building on TCFD, the government’s Greening Finance Roadmap, published in October 2021, laid out plans for new, more ambitious Sustainability Disclosure Requirements, or SDR.
Described as “an integrated framework for decision-useful disclosures on sustainability across the economy,” it will, for the first time, bring together existing sustainability-related disclosure requirements under one integrated framework – and go further with new requirements.
While we don’t yet have the full details, the Greening Finance Roadmap makes it clear that companies will be required to disclose their net zero transition plans: “Initially, certain firms will be required to publish transition plans that align with the government’s net zero commitment or provide an explanation if they have not done so. As standards for transition plans emerge, the government and regulators will look to incorporate these into UK regulation and strengthen disclosure requirements as appropriate. This will encourage consistency and comparability in published plans and support more widespread adoption.”
When? The government plans to consult on the SDR framework, with the goal that all UK-registered companies will be subject to some form of disclosure in this regard by 2025 (it is likely to first impact only the most economically significant companies).
ESOS may be strengthened to include net zero reporting
We may also see net zero compliance brought into another well-established reporting framework: the Energy Savings Opportunity Scheme (ESOS).
In a consultation on strengthening the scheme, which closed in September 2021, the government proposed to add in a requirement for businesses to assess their greenhouse gas emissions and set out a plan for reducing them to net zero.
ESOS currently applies to “large undertakings”, but the scope may widen even further to include medium-sized enterprises in the future.
As momentum builds over the UK’s net zero target it is not surprising that net zero compliance will become mandatory in some form for businesses. Coupled with the commercial benefits, it makes sense for companies to invest in a credible net zero strategy that meets the demands of investors, customers and government.