BEIS publishes guidance for companies and LLPs on climate-related disclosures

The two sets of regulations are based on the Recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and form part of the government's Net Zero Strategy. Published last October, the government's strategy together with its policy paper entitled 'Greening Finance: A Roadmap to Sustainable Investing' highlight the importance of TCFD-aligned disclosures in developing a wider strategy to give investors and others the information they need to integrate climate change and sustainability considerations in all financial decision-making.

BEIS's non-binding guidance, released on 21 February 2022, answers commonly-asked questions to help qualifying companies and LLPs comply with the regulations and discusses the desired outcomes which companies and LLPs should be aiming for in their disclosures against each of the requirements common to the two sets of regulations. It has elaborated on the duty to describe actual, potential impacts of the principal climate-related risks and opportunities, clarifying that both "physical" (i.e. changing weather patterns and extreme weather events) as well as "transitional" factors most relevant to the company's products and markets must be considered.

Which companies and LLPs fall within scope of the regulations?

The disclosure requirements, intended to engage the most significant companies and LLPs in economic and environmental terms, apply to the following:

• UK companies that have more than 500 employees and either (i) have transferable securities admitted to trading on a UK regulated market (as defined in the UK Companies Act 2006) or (ii) are listed on AIM, as well as banking and insurance companies;
• UK companies which do not fall within the above category but which have more than 500 employees and an annual turnover greater than £500 million; and
• LLPs with more than 500 employees and either (i) are traded or banking LLPs, or (ii) are not traded or banking LLPs but have an annual turnover greater than £500 million.

What are the mandatory disclosure requirements?

Companies and LLPs within scope will be required to include disclosures on climate change-related risks and opportunities in their annual reporting, broadly covering:

• how climate change is addressed as part of their corporate governance;
• how climate change impacts their strategy;
• how climate-related risks and opportunities are managed; and
• what performance measures and targets they apply in managing these issues.

Reporting will also need to be made with reference to climate-related scenarios - modelling which will be unfamiliar before now to many businesses. Companies should include these disclosures in what was previously the Non-Financial Information Statement, now the Non-Financial and Sustainability Information Statement in the Strategic Report. LLPs should include their disclosures in either the Energy and Carbon Report of their Directors’ Report or, for those LLPs which prepare a Strategic Report, in that report.

The guidance confirms that: (i) companies should report at the group level if applicable, meaning that subsidiaries do not have to report separately if already included as part of consolidated group reporting, and (ii) the top UK parent should report in respect of the global operations of the UK group. Notwithstanding that, there is an expectation that reporting should cover whether risks and opportunities are identified at subsidiary level and communicated up through the group.

The regulations will apply to the annual reports and accounts of qualifying companies and LLPs for accounting periods commencing on or after 6 April 2022.