A chance for SMEs to prosper by disclosing climate-related risks and opportunities

SMEs are integral players in ensuring the UK reaches net zero by 2030, a target set by the UK government. But how can SMEs not only show ‘green’ intentions but actively ensure that every facet of the organisation is addressing climate change issues?

While overlooked by many smaller companies, implementation of climate-related disclosures in accordance with TCFD recommendations offers a great opportunity for SMEs.

At its core, the TCFD is intended “to help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities”. An additional objective is to monitor the climate related risks exposure for a portfolio.

While the UK Government’s proposals for mandatory disclosures are set out in the 2019 Green Finance Strategy, for “all listed companies and large asset owners should disclose in line with the TCFD’s recommendations by 2022” (now specifically April 6th 2022), there are still perception barriers to the business benefits and the effort required to be able to make disclosures.

Anything with “Climate-Related” in its title in the past, sadly has been seen as a Corporate Social Responsibility (CSR) or Environmental issue, and therefore, palmed off to those leading corporate responsibility or communications functions. In the past, climate change reporting was simply viewed as an add on and therefore relegated to the sustainability report and often perceived to be gathering the data, for data's sake. There was no opportunity to look beyond the data to the learnings and business implications to make value judgements and test scenarios.

Thankfully, climate change, in all its manifestations has moved mainstream, front and centre a key part of business strategy, investment strategy and policy-making.

TCFD disclosures have been primarily of interest for larger companies, listed entities and businesses with an international profile. Against this backdrop, you may be surprised that I am advocating for SMEs to consider TCFD as an opportunity to prosper.

TCFD Principles

From the TCFD publications, the recommended core indicators are based on the four pillars: Governance, Risk Management, Strategy and Metrics and Targets (June 2017 Report)

Image from Recommendations of the Task Force on Climate-related Financial Disclosures report.

TCFD - an opportunity for SMEs to prosper

Surely SMEs don’t have the reporting capabilities of larger companies? 

That might be true for many SMEs, but the lack of a history of sustainability reporting could be an advantage as they can avoid the major hurdles experienced by those with a history of reporting, as they usually have no data/reporting legacy issues. Those hurdles can arise via processes built to address antiquated requests for sustainability data. This data is constantly in flux, and since SMEs are more nimble than their larger counterparts, it is easier for them to adjust to the new demands on reporting at a more granular level.

In addition, without a tarnished view of climate change related reporting, TCFD can be seen as a central strategic or financial issue instead of an add-on. TCFD reporting is morphing into the essential and key reporting standard for both financial and non-financial players on climate-related risk.

All companies, whether SMEs or multi-nationals, seek funding and investment opportunities. This is where TCFD can help. TCFD brings transparency to company’s risks regarding climate issues and ensures that they are measured and monitored in a structured way. Investors need this consistency of disclosure and without it they cannot invest confidently. By managing risks, both upside and downside your business can demonstrate an understanding of climate-risks and show that they inform you strategic approach and resource planning. Investors and lenders value this.

World Wide Generation has championed the view that there is no such thing as non-financial reporting, every activity has a financial impact (positive or negative). There is no great divide between the sustainability strategy and the business strategy, it's just a business strategy.

Therefore, we welcome the role of TCFD linking climate change reporting to financial impact - identifying risks and opportunities beyond a sustainability measure and providing the ability to use TCFD data to make real and consistent business/investment decisions. We also support the evolution of climate legislation based on TCFD, which adds clarity and consistency to the reporting process.

How should your SME tackle TCFD?

While TCFD reporting might seem a lot for SMEs to tackle, our top tips would be:

• Visit the TCFD Hub and explore resources to help you get started
• Take it in phases
• Get used to gathering the data
• Tackle those issues you know you can achieve at the beginning and be aware of those issues which are in your pipeline
• It is not necessary to do all of it at once, build on success.

For SMEs who don’t want to go it alone and are looking for a comprehensive solution, we offer G17Eco, a platform that uses ground-breaking data bot and distributed ledger technology, to deliver trusted, comparable and timely impact data to empower all stakeholders with their decision making.

The good news is that G17Eco fully aligns with TCFD principles and reporting, enabling SMEs to monitor, measure, manage and market their sustainability efforts - end to end.

Learn more about G17Eco.