As January rolls around and we collectively hide the Roses tins, start some exercise and plan for a new, improved version of ourselves, many financial services brands will be doing the same. And when thinking about how they position themselves as fighting fit for 2021, it is inevitable the question of sustainability won’t be far from their minds.
While the green agenda has been picking up pace and interest over recent years, 2020 seems to have crystalised it as an issue that needs immediate attention for businesses across the spectrum. And with an incoming president who is confident to put green at the heart of his agenda and COP26 being hosted in the UK in November, that interest and focus will only intensify over coming months.
However, many businesses are falling short of clearly and accurately reporting their ESG progress. When we look at the complex web of reporting structures, acronyms, and metrics available, it is easy to see why. Frequently referred to as an ‘alphabet soup’, there are several accounting standards that businesses might be looking to comply with: TCFD (Task Force on Climate-related Financial Disclosures), SASB (Sustainability Accounting Standards Board), IIRC (International Integrated Reporting Council) and a new initiative by the Big 4 Big Four to simplify sustainability reporting.
With differing regulatory requirements across jurisdictions and no clear comparable framework, it is understandable that some businesses might prefer to stick their head in the sand.
But UK businesses have a more pressing need to get focused on green. After years of dangling a carrot to encourage companies to report on their ESG impact, it is time for the stick. Rishi Sunak announced on 9 November 2020 that the UK will become the first country in the world to make Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures fully mandatory across the economy by 2025. Moving away from the current ‘comply or explain’ approach.
Undoubtedly, there will be high levels of media interest in this reporting. For some institutions who prefer to stay out of the limelight, mandatory reporting will leave no place to hide and potentially force those who would usually prefer to issue a ‘no comment’ into the headlines.
For these brands, there might be a temptation to treat this as a tick box exercise, waiting until the deadline and then reporting the bare minimum. But as we have seen from similar mandatory reporting measures, such as the Gender Pay Gap, those who try to brush out figures quietly under the carpet are often those who face the most scrutiny.
So, what should financial services companies be doing in anticipation of these new measures?
The reality is, given the complex reporting structures currently in place, a lot still needs to be made clear. The government has so far issued an interim report and roadmap, which shows premium listed companies, banks, building societies and insurance companies and occupational pension schemes (over £5bn) first in line for mandatory reporting in 2021-2022.
But whether businesses are in the first tranche of reporting or not, getting prepared, reviewing the existing frameworks and starting to communicate around these measures is an imperative step.
For now, the Financial Reporting Council (FRC), which exists to serve the public interest by setting high standards of corporate governance, reporting and audit, suggests entities report against the TCFD recommended disclosures and the SASB metrics for their sector.
Whichever way businesses decide to tackle this regulation, one thing is clear. Aligning with these frameworks requires thorough planning and preparation. This is not a reporting standard that can be rushed through in the eleventh hour. Businesses should be putting these metrics at the top of their 2021 priority list and acting now to get their plans in order before the mandatory bells start ringing.