UK Consults on Large Firms’ TCFD Disclosures

Department for Business, Energy and Industrial Strategy regulations scheduled for April 2022 enforcement.

The UK Government’s Department for Business, Energy and Industrial Strategy (BEIS) has published a consultation paper setting out how it aims to legislate, through existing regulations such as the 2006 Companies Act, for publicly quoted companies, large private companies and Limited Liability Partnerships (LLPs) to disclose in line with the Task Force on Climate-related Financial Disclosures (TCFD). Industry has until May 5 to submit their responses.

Dependent on consultation feedback, regulations will be finalised by the end of 2021, coming into force from April 6 2022. The regulations will be applicable for accounting periods starting on or after that date.

The proposals aim to significantly increase the proportion of companies reporting in line with TCFD, providing investors with more of the information they need to manage climate-related risks in their portfolios and stakeholders with more transparency on climate-related matters, the consultation paper noted.

“We are consulting to test the scope of requirements, the depth of requirements, the appropriate guidance, and an appropriate monitoring and enforcement regime,” BEIS said.

Although voluntary TCFD-aligned reporting is widely supported, with more than half (53%) of FTSE 100 companies reporting in line with TCFD recommendations last year, it remains inconsistent across the four pillars: governance, strategy, risk management and metrics and targets. In particular, the percentage of companies disclosing under the ‘Strategy’ pillar is “significantly lower”, BEIS said.

Additionally, BEIS noted that climate-related information is four times more likely to be disclosed within specific sustainability reports rather than financial filings or annual reports. By altering existing regulations to align with TCFD requirements, corporates will be required to include climate-related information in their annual reports, too.

“The proposal executes the Task Force’s mission, to address the absence of material climate-related information in the mainstream financial filings of companies and thus being treated as any other material business risk,” said Mardi McBrien, Managing Director of the Climate Disclosure Standards Board (CDSB).

These proposals will complement efforts undertaken by other government departments and UK regulatory bodies, such as the Financial Conduct Authority (FCA) and Financial Reporting Council (FRC), BEIS said. The FRC will be monitoring and regulating the BEIS’ proposed requirements.

“We will continue to work closely with the FCA and FRC to ensure that our respective requirements and monitoring and enforcement capabilities operate in a coherent and complementary way,” the consultation paper added.

“Having clear and consistent data on the climate-related risks faced by both private and public companies is vital to achieve [net-zero emissions]. It will also support investment managers to better communicate climate risk to their pension fund clients, enabling them to meet their disclosure requirements and better understand the impact of their investment portfolios,” said Sarah Woodfield, Stewardship Manager at the Investment Association.

The FCA previously softened the introduction of mandatory disclosures for UK-listed companies last year, introducing a “comply or explain” caveat in the short-term.

For UK pension schemes, UK Pensions Minister Guy Opperman extended the TCFD reporting deadline by seven calendar months from their individual year-end dates. Parliament also passed the Department for Work and Pensions (DWP) Pension Schemes Act, which gives the DWP power to require UK occupational pension schemes to make climate-related disclosures.

This follows UK Chancellor Rishi Sunak’s speech at the Green Horizon Summit in November 2020, where he said all UK listed companies and large asset owners will be expected to disclose in line with TCFD by 2025.

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