The UK government’s introduction of mandatory Task Force on Climate-related Financial Disclosures (TCFD) reporting is a welcome evolution in corporate responsibility.
It’s a significant step, sending a clear signal that safeguarding the environment on which we all depend is now a critical component of commercial success. Failure to build sustainability into financial and strategic planning builds business risk.
Water rising up
Water consumption and effluent management metrics are increasingly vital indicators for investors. Poor water management is recognised as a significant investment risk due to its potential to disrupt normal business operations, a fact long recognised by the World Economic Forum, which suggests that if you want to make progress on all major global challenges, you need to start with water. After all, no business can operate without secure water supplies and, in the context of dwindling supplies, no business will succeed in the future without a sound water stewardship strategy.
So it’s good to see water rising up the corporate agenda, encouraging companies to get a good grip on their water data and, in some cases, incorporating this into net zero plans. Global disclosure experts, CDP, reports that 3,908 companies disclosed on water in 2022 compared to just 345 ten years ago; an increase in excess of 1000%. However, despite efforts to raise the bar, progress remains slow; CDP’s Water A-List dropped from its peak of 118 in 2021 to just 103 in 2022.
Need to do
It’s highly appropriate then, that TCFD is working to accelerate action by recommending that companies disclose on water. This transition from ‘nice to do’ to ‘need to do’ has not taken any of us working in the sustainability arena by surprise. Indeed, for those used to disclosing environmental performance on platforms like CDP, the process and data requirements for TCFD will pose little challenge as they are fully aligned.
The primary TCFD obligations are to consider physical water risks like scarcity of supply, erosion of quality or extreme weather events like flooding and drought. They do not yet explicitly refer to regulatory or reputational water risks. However, given that these can cause equally significant commercial impacts if overlooked, we can anticipate these risks being incorporated into the TCFD framework in due course.
CDP’s five-year strategy encourages action on more issues including land, oceans, biodiversity, resilience, waste and food. Further, it is integrating water security into financial institution disclosures in what it says moves us towards a more holistic, integrated approach that tracks progress against not just climate, but all environmental metrics of relevance.
Balancing act
As TCFD Chair Mike Bloomberg says, ‘Disclosure is one of the most powerful tools we have in the global climate fight,’ but it’s also a powerful tool in creating sustainable businesses – if the process is embraced and regarded positively. The important thing to remember is that all risks can be balanced with opportunities; opportunities for improving efficiency and generating innovation.
Transparency and engagement are the first steps towards this and I, along with many I’m sure, look forward to collaborating with other forward-thinking companies that want to be a part of this tide of change.
