On 28 October 2021, just in time for the start of COP26, the UK government announced that it is going ahead with its proposals to introduce mandatory climate-related financial disclosure requirements for publicly-quoted companies, large private companies and LLPs. In doing so, the UK is following the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The UK government response notes that the UK is already committed to mandate TCFD-aligned climate disclosures across the economy by 2025.
The changes will be introduced by the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021, which were laid before Parliament on 28 October 2021. The equivalent Regulations for LLPs will be made once the company Regulations have become law.
The entities within the scope of the new requirements are:
- Relevant Public Interest Entities (PIEs) – 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 and insurance companies;
- UK registered companies with securities admitted to AIM with more than 500 employees;
- UK registered companies not included in the categories above, which have more than 500 employees and turnover of more than £500 million (large private companies); and
- LLPs which have more than 500 employees and turnover of more than £500 million.
The new requirements are built around the four pillars of the TCFD recommendations: Governance; Strategy; Risk Management; and Metrics & Targets. In response to feedback, the government has decided to introduce a requirement for companies to include in their disclosure a qualitative scenario analysis, a process that identifies and assesses the effect of different climate-related scenarios on a company's business model and strategy.
The Regulations will come into force on 6 April 2022 and will apply to accounting periods starting on or after that date.
Premium-listed companies are already subject to climate-related disclosure requirements aligned with the recommendations of the TCFD. The FCA intends to extend this requirement to standard listed companies, as well as to asset managers, life insurers, and FCA-regulated pension providers.