The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

The reporting and disclosure requirements outlined by the Task Force on Climate-related Financial Disclosures (TCFD) and the International Financial Reporting Standards Foundation (IFRS) necessitate accurate and granular data.

TCFD

To support companies with climate-related financial disclosures, the Financial Stability Board established the TCFD in 2015.

This framework outlines recommendations for the process, methods and standards companies should follow for a thorough disclosure and breaks down its recommendations into four thematic areas:

• Governance
• Strategy
• Risk management
• Metrics and targets

These are further reinforced by 11 disclosures which ask entities to analyse and describe how climate change will affect their business, from policies and legal matters to services, products and climate resilience.

ISSB

To build on and codify disclosures previously recommended by TCFD on climate-related financial information, the International Sustainability Standards Board (ISSB) published exposure drafts on general sustainability (S1) and climate (S2) disclosures in 2022.

Requiring what is specified in the TCFD, the S2 exposure drafts ask companies to build on this framework’s recommendations by disclosing how their financial positions and performance, future cash flows, strategy and business model will be impacted by climate-related risks.

To satisfy these requests (which are not the limit of the drafts’ recommendations), entities could benefit from granular data which demonstrates the financial impacts the climate crisis will have. Such insight will inform how risks relating to climate change are assessed and priced by lenders, insurance underwriters and investors.

The importance of granular data

While the framework has certainly pushed companies to make more TCFD-aligned disclosures, there is still room for improvement. Only four percent of companies reported climate-related financial information in line with the framework’s 11 disclosure recommendations in 2021.

This issue was also highlighted in the Financial Reporting Council's (FRC) thematic review of the TCFD in 2022 in which the corporate reporting regulator advised companies to move away from providing generic climate information and focus on delivering precise data.

In the executive summary, the review stipulates: “We expect the specificity and granularity of companies’ climate-related disclosures to improve as their processes to manage climate-related risks and opportunities become more fully embedded into governance and management structures.

Identifying the financial impacts of flood risk is one instance where granular data is required.

As set out in Appendix B of the IFRS S2, flood risk is identified as a key climate risk financial disclosure metric in numerous commercial segments.

For example, in the lending segment (within Financials) the number and value of mortgage loans in 100-year flood zones should be disclosed in the financial reporting of lenders. A review of recent flood events illustrates why such disclosure is necessary.

To understand the threat flooding poses to a portfolio of properties in the UK, lenders could consult granular flood risk data.

Data that provides this information in flood maps and data, and which illustrates the predicted depths and extent of all flood sources and how these will impact a single property or entire portfolio.

This degree of insight into flood risk can not only improve reporting and disclosure practices but help to prepare companies for difficult outcomes where risks cannot simply be transferred to insurers or reinsurers.

FloodSmart Analytics from Geosmart Information provides physical risk metrics together with cost data.