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Government announces mandatory TCFD-aligned disclosures for larger companies and LLPs
Hot on the heels of the London Stock Exchange, which last week became the first international exchange to publish TCFD-compliant climate reporting guidance for listed issuers, the government has taken steps to make the UK the first G20 country to mandate TCFD-aligned climate-related financial disclosures for qualifying companies and LLPs. On 28 October 2021, it confirmed another step in the UK's Net Zero Strategy by publishing its Consultation Response together with draft Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021. Its stated aim is that these new disclosure requirements will develop best reporting practice amongst larger companies, whilst supporting smaller companies to disclose should they wish to.
Assuming Parliamentary approval, these Regulations will come into force for qualifying companies on 6 April 2022 (and apply in respect of accounting periods falling on or after that date). Corresponding draft regulations for LLPs will follow shortly after that. Companies caught by the new requirements include:
- 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; and
- UK companies which do not fall within the above category but which have more than 500 employees and turnover greater than £500 million.
It is notable that premium-listed companies will be subject to both these Regulations and the FCA's 'comply or explain' Listing Rules regime regarding TCFD-compliant disclosures (the latter of which is expected to be extended to standard-listed companies in due course).
One of the more eye-catching requirements in the Regulations is the qualitative scenario analysis, whereby companies will need to identify and assess how different climate-related scenarios might affect its business model and strategy.
Non-binding Q&A will be produced to support companies in their application of the requirements and as for where disclosures should be made, expect these to be included in the non-financial information statement which forms parts of the company's Strategic Report.
© Stephenson Harwood LLP 2023. Information contained on this page is current as at the date of first publication and is for general information only. It is not intended to provide legal advice.