BEIS consultation on mandatory climate-related financial disclosures
By Anne Adrain, Head of Sustainability and Reporting
30 March 2021
The UK Government has issued a consultation on mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs.
The consultation proposals build on the expectation, set out in the government’s 2019 Green Finance Strategy, that all listed companies and large asset owners should disclose in line with the Task Force on Climate-related Financial Disclosure (TCFD) recommendations by 2022.
If adopted, the proposals will contribute towards the UK’s intention to become the first G20 country to make TCFD-aligned disclosures mandatory across the economy as set out by the Chancellor on the 9th of November 2020.
The proposals come at a crucial time in the UK Government’s commitment to fight climate change as host nation of this year’s climate change conference, COP 26.
Consultation objectives
The UK Government recognises the recommendations of the TCFD as one of the most effective frameworks for companies to analyse, understand and, ultimately, against which to disclose climate-related financial information. Accordingly, the government proposes to use the TCFD’s four pillar framework of: Governance, Strategy, Risk Management and Metrics and Targets; as the basis of disclosure requirements, with adjustments made where necessary to make requirements coherent with UK company law.
The government’s stated objectives are to increase the quantity and quality of climate-related financial disclosures in a proportionate manner. This is both to ensure market participants have better information to adequately understand climate-related financial risks and opportunities to support the transition to net zero, but also to help companies think about what they need to do to address climate change as an important risk and opportunity for their organisation, operations and people.
The means by which the government intends to achieve these objectives are set out in detail in the consultation document, with key questions set out under each section and on page 31 of the consultation.
Summary of proposals
The proposals can be summarised in a series of key themes as listed below.
Scope
The following entities will fall within the scope for the proposed disclosure requirements:
- All UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies (Relevant Public Interest Entities (PIEs)).
- UK registered companies with securities admitted to AIM with more than 500 employees;
- UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500m.
- LLPs which have more than 500 employees and a turnover of more than £500m.
Mechanism
The proposed changes will be implemented through a Statutory Instrument, using powers under the Companies Act 2006, and powers under the Limited Liability Partnerships Act 2000.
Location of disclosures
Companies will be required to report climate-related financial information in the non-financial information statement which forms part of the Strategic Report. LLPs will be required to report climate-related financial information in either the non-financial information statement which forms part of their Strategic Report or the Energy and Carbon Report which forms part of their Annual Report.
Disclosure requirements on companies and LLPs
To require companies and LLPs to disclose climate-related financial information in line with the four overarching pillars of the TCFD recommendations on a mandatory basis (Governance, Strategy, Risk Management, Metrics & Targets).
Timing
Regulations are to be made by the end of 2021, with regulations coming into force on the Common Commencement Date of 6th April 2022, and to be applicable for accounting periods starting on or after that date.
Guidance
Non-binding Q&A will be produced to support companies in their application of these requirements.
How to respond
Feedback and comments should be submitted to climatedisclosure@beis.gov.uk and all stakeholders with an interest in this area are being encouraged to do so by the deadline of 5 May 2021.