Sustainability and Climate Related Disclosures

The Financial Markets Conduct Act 2013 (FMCA) amended in 2021, requires that Climate Reporting Entities (CREs), specified by a threshold of capital or assets, report their climate-related risks using a set of standards developed by the External Reporting Board (XRB).

In order for CREs to take the most benefit from the new requirement, it should be considered as more than just a compliance exercise. In that sense, it is quite similar to conduct risk and associated remediation: the disclosure may lead to structural changes and transform the way a CRE considers its future.

"Perfect is the enemy of done" – because of the complexity brought by the disclosure requirements, it may be preferable to start early and small, and grow in maturity in the subsequent iterations.

Common Issues

Approaching these new disclosure requirements can be a challenge as CREs need to be transparent about their governance and strategic analysis and approach.
It will be essential for senior leadership (both at Board and management levels) to be engaged actively during the activities supporting the disclosure, to ensure a successful integration of new processes in the business model and strategic alignment.
Climate related data is constantly evolving. Financed emissions require an intimate understanding of the businesses lending and investments, and physical risk modelling will become more sophisticated over time.
It is likely that the full palette of services and products that a business provides do not contribute equally to climate-related risks, so defining boundaries in the initial analysis phase can focus key activity on materiality considerations.

Beyond Year 1

Adoption provisions allow for more time to determine the quantification of current and anticipated impacts due to climate risks. Assumptions on the model used will be essential to understanding the limitations and prudential degree associated with the impact estimations.

Transition planning (i.e. how to align the business model to the target state - a decarbonised world) will need to disclose sufficient details on the engagement and implementation strategies, and identify a monitoring strategy to be of value, and need to be endorsed by senior leadership.

Finally, scope 3 emissions are by far the more complex emissions to capture, which includes the scope of financed emissions. Models and estimations for financed emissions will need to keep improving over time to be a decision-useful metric.

Recent Work

Mosaic has experts available to support you.

Expertise includes:

Project Management for the production of the Climate Related Disclosure (under the voluntary regime).
Subject Matter Expertise, demonstrated through analysis of current state, gap analysis, recommendations of way forward, including considerations on record keeping.
Analysis of data providers for addressing physical risk and specific financed emissions needs.
Validation of methodology calculation for specific metrics from data providers.
Workshop facilitation for scenario analysis, climate risks and opportunities.
Supporting client CRD projects with temporary team members who have relevant climate experience.
Operational Emission Calculation: Expertise in data collection and operational emissions calculation.
Draft Disclosure Generation: Experienced in creating climate-related financial disclosures.
Traceability Matrix Development: Skilled in mapping disclosures to requirements with traceability matrices.