Three potential pitfalls when delivering the TCFD, and how to avoid them.

The TCFD is a relatively new reporting format for businesses, and so there will inevitably be some who misunderstand the brief or the intent behind it. However, these statements will be audited, so the margin for error is significant. As most large companies in the UK will be required to produce a TCFD report for the financial year 2022/2023, it is important to be mindful of some of the issues that may arise.

The issues that may arise.

1. Audit pushed back due to front half and back half of annual report not reflecting correctly, and forecasts missing specific assumptions under IFRS (link to TCFD IFRS document).

Problem:

TCFD disclosures will be audited. For some businesses, an issue will arise from conflicting statements between what your finance team and your sustainability team disclose.

If your audit is pushed back and you are required to re-forecast due to inconsistencies in your assumptions or reporting, it could be very costly.

Solution:

The solution is to integrate your company's finance and sustainability processes, data and systems, backed by a robust controls framework.

2. Poor decision-making in products or services as a result of data gaps and inconsistent reporting.

Problem:

Data quality has already been identified as one of the most significant challenges in sustainability reporting. The frequency with which this information is reviewed may limit an organisation’s ability to respond to any potential challenges to reduction targets or make informed decisions on how to move their business forward.

Solution:

The quantity of data required for TCFD, particularly for Scope 3 emissions, is significant.

As part of the collection process, many organisations will have to build on current reporting and data facilities to support data exchange across their broader value chain. This may include building new data repositories and utilising existing consolidation systems to make sense of this information. This data could grow to be one of the business’s most powerful assets as we transition to a low-carbon economy.

3. Stakeholders losing trust due to missed targets and empty promises.

Problem:

In the long run, the transparency provided by the TCFD reporting will benefit both businesses and the planet. However, if done incorrectly, this exercise could leave a company with significant exposure in the short to medium term. 

For example, Scope 3 (value-chain) emissions will likely account for the majority of a business’s Green House Gas emissions. As a result, achieving the carbon reductions required to hit targets may appear to be beyond control.

Solution:

Sustainable thinking should be part of every activity a business does in order to meet reduction goals. To achieve this, businesses will need to rethink how sustainability is integrated into processes, systems, controls and culture.

By building data and process flows well and integrating people's roles and responsibilities — along with governance and controls, the probability of success is greatly increased.

Achieving planned reduction targets will show investors, shareholders, customers and employees the reliability of the business, building greater trust, and a better position in the market.

Whether it is getting your audit right, improving data quality, or building greater trust with your stakeholders, we can help.

We work with your business, providing direction and ensuring you have the resources you need to be effective and autonomous in reporting under the TCFD. To find out more, see our TCFD Transformation Service.