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Alfa Energy helping clients comply with new mandatory climate reporting legislation

Published April 26, 2022

Alfa Energy helping clients comply with new mandatory climate reporting legislation

Alfa Energy is helping clients comply with new legislation which requires the largest UK registered companies to demonstrate the extent to which they have considered the risks and opportunities they face due to climate change.

The reporting requirements came into force on 6 April and are aligned with recommendations made by the Taskforce on Climate-related Financial Disclosures. Broadly speaking, the new requirements apply to UK companies with more than 500 employees and a turnover of more than £500m (see full details below). The requirements cover the four pillars of the existing recommendations from the TCFD: governance, strategy, risk management, metrics and targets.

Last year, Alfa Energy’s sustainability team recommended https://alfaenergygroup.com/uk/2022/01/are-you-ready-for-mandated-climate-related-financial-disclosures/ that relevant companies engage with the guidance as soon as it is published and consider any existing processes they might already have in place that relate to the four pillars.

  • Under the first pillar, governance, companies must describe the company’s governance around climate-related risks and opportunities.
  • Under strategy, companies must disclose how their strategy will take into account the risks and opportunities presented by the impacts of climate-related risks
  • Under risk management, companies must set out how they will assess and manage climate-related risks
  • Finally, companies must disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

Alfa Energy’s sustainability team is already looking at how the rules might affect two client companies and has plans to extend the service more widely. According to Seyed Ebrahimi, Alfa Energy’s principal consultant, sustainability strategy, his team had carried out a systematic review of existing templates in advance of this week’s announcement. “Of the four themes, governance and strategy are quite generic, contextualised through the nature of an industry or sector. The most challenging area for our clients is the risk management side.”

Ultimately, says Ebrahimi, “the government expects a high-level strategy from C level managers or major investors setting out a chronology from where their company is and their ongoing transition. Many companies are still in the initial phases, providing only qualitative scenario modelling rather than quantitative modelling.”

The new regime for mandatory climate disclosures will sit alongside the existing Streamlined Energy and Carbon Reporting (SECR). Unlike SECR, however, which is restricted to scope 1 and 2 and parts of waste and scope 3, Ebrahimi describes the new rules as “very outward looking: you have to account for suppliers, customers, your key stakeholders.”

Alfa Energy’s corporate affairs officer, Jeremy Nicholson expressed concerned that the regulations do not create more red tape for companies: “There is a risk that this snowballs  beyond what needs to be disclosed at the company level to get the most climate benefits. Reporting on direct emissions makes sense, and to some degree supply chain, but beyond that I wonder whether more could be provided generically at the sectoral level. Surely the purpose of reporting legislation is to provide useful information without being unduly burdensome for the business. The more we can help with this the better.”

The new legislation will apply to:

  • UK companies that produce a non-financial information statement being those that have more than 500 employees and have transferable securities (i.e. shares) trading on a UK regulated market, or are banking or insurance companies
  • All UK companies listed on AIM with more than 500 employees
  • All other UK registered companies with a turnover of more than £500m and have more than 500 employees.
  • All LLPs with a turnover of more than £500m and more than 500 employees.
  • The turnover and employee numbers listed above will be applied at group level.