|
|
FRC supports the objectives of the TCFD and welcomes that it is focussing on financial risks and in particular those that could have a potential impact on future cash flows. FRC believes that this is important in identifying the boundary of information that would be relevant to investors’ decision-making.
As with any project with multiple objectives, there will be instances where a trade-off is necessary. Consistent principles are important, but absolute uniformity in disclosures detracts from careful consideration and communication of information that is relevant for its users.
Whilst climate related risks will be important to many companies any recommendations must be proportionate and balanced, to avoid excessive focus on one set of risks to the detriment of disclosures of the other principal risks and uncertainties a company faces.
Boards must retain responsibility for determining what disclosures, if any, on climate related risks are relevant and material. This requires an understanding of the potential impacts of climate change and legislative responses, and the application of judgement. Identification of factors to be considered by management when making such an assessment will be helpful.
In FRC´s view, it is important for the disclosure recommendations to apply to both financial and non-financial companies as the climate change risks could potentially impact any sector.
The recommendation should provide preparers and their boards an understanding of the factors to consider when assessing, mitigating and, where necessary, reporting the climate change risks they might face. Factors to consider might include the sensitivity of its business model to climate related legislation (for example, the existence of low carbon substitute products or processes); the energy use and carbon emissions of the company, its products and suppliers; the company’s investment planning periods; and the geographical location of operations and its distribution channels. High risk sectors could then be used to illuminate those factors.