TCFD in the UK’s Built Environment

From April 2022, the United Kingdom will be the first country in the G20 to align with the Task Force on Climate Related Disclosures (TCFD)[1] requirements by making legally binding the disclosure of climate risk and opportunities faced by large organisations.

This law will apply to 1,300 of the largest companies in the UK, with the threshold being over 500 employees and £500 million in turnover.

Companies meeting the threshold will have to qualitatively report the climate risks and opportunities they are facing on an annual basis.

This law on climate risks and opportunities disclosure aim to improve the quality and quantity of climate reporting in the UK by targeting the most economically and environmentally significant entities.  

Climate change and Real Estate in the UK

National simulations of climate change effects and impacts made by the Representative Concentration Pathways (RCP)[1] has found that over 500,000 residential and commercial properties in the UK to be at high climate-related physical risk by 2050, which highlights the need to act upon and implement mitigation measures to safeguard existing properties.

In 2019, the UK Government committed to the Net Zero target as recommended by the Climate Change Committee with a 78% in greenhouses emissions required by 2035 compared to 1990 levels. This means all sectors will have to implement climate mitigation measures along with direct emissions and energy reduction targets to comply with upcoming legally binding obligations.

What is in the new legislation?

This new legislation that will enter into force from April 2022 (entitled ‘Reporting on Taskforce on Climate-related Financial Disclosures (TCFD)’) requires eligible organisations to disclose climate-related financial information, risks and opportunities. This law aims to enforce UK’s commitment to the TCFD (Taskforce on Climate-related Financial Disclosure), Net Zero Strategy and UK Green Finance package. 

The core objective of this regulation is to compile all the different climate related physical risks that the United Kingdom companies will face because of climate change as well as the adaptation and mitigation measures that they propose to address these risks.

For now, the mandatory disclosure scheme only targets the 1,300 largest organisations, but if proved successful, it will incorporate smaller businesses and companies[2] by 2025.

Implementing TCFD in the UK’s built environment

In order to map a route for built asset owners who meet the TCFD threshold, the UK Green Building Council (UKGBC) has released a framework to allow for the measuring and reporting of climate-related physical financial risks across the built assets of companies above the threshold. This framework aims to ensure that a consistent and harmonised reporting methodology is available. 

The climate risk reporting framework has five steps. The first one aims to assess the building basic information such as name, locations etc. Then, the following two steps aim to assess baseline and future risks from physical climate-related hazards (i.e, heat wave and droughts, extreme precipitation, cold temperature, storm, winds and hurricanes, wildfire, water scarcity, etc.).

The fourth step provides an overall risk rating scheme for built asset, and the final section step up all the different risks faced by the asset and asks the concerned entity what are the mitigation measures proposed and the timeline for implementing them. In addition, it also prompt the concerned organisation to identify and elaborate risk reduction targets across its portfolio to guarantee an increase of the buildings resilience toward climate-related physical risks.

Why is this important for our clients?

All companies operating in the built environment that have more than 500 employees and £500 million turnover will have to disclose all climate-related financial risks and opportunities that affect their built assets.

As companies investing in the built environment will be uniquely exposed to climate-related physical risks, the implementation of TCFD will be critical to ensuring risks are identified, better understood and adequately mitigated against. Thus, they can rely on the UKGBC reporting framework as critical tool to guide climate risk reporting.

How can Envision help?

At Envision, we actively assist asset managers, developers and investors on identifying the climate-related risks faced by their built asset portfolio and developing the most effective ways to foster adaptation and mitigation strategies. By utilising methodologies such as Net-Zero Pathways and Strategies, BREEAM-In-Use, GRESB, and Life Cycle Assessments, we can actively feed into wider climate-risk reporting as required by TCFD, as well as assisting in the completion of the UKGBC tool.

[1] There are four RCPs ranging from RCP2.6, which represents the lower danger to RCP8.5 which modulates the higher risks.

The study has been conducted by the RCP 8.5, which is the higher risk scenarios. Thus, the numbers reflect the word case scenarios.

[2] To be defined by future report from the UK government