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FCA consults on enhancing climate-related disclosures by standard listed companies

  • United Kingdom
  • ESG - ESG Corporate
  • Financial services and markets regulation - ESG

24-06-2021

FCA consults on enhancing climate-related disclosures by standard listed companies

The Financial Conduct Authority (FCA) has published a consultation paper setting out proposals to expand the climate-related disclosure requirements applicable to premium listed companies to companies with standard listed equity shares.

Scope of the proposed new rules

The FCA proposes that the new rules for standard listed companies in scope will directly mirror the rules that were introduced in December 2020 for companies listed on the premium segment of the main market. The disclosure requirements are aligned to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations and the requirements for premium listed companies are explained further in our briefing here.

Under the proposed new rule (in Listing Rule 14), in-scope standard listed companies will be required to include a statement in their annual report setting out:

  • whether they have made disclosures consistent with the recommendations of the TCFD in their annual report;
  • where they have not made disclosures consistent with the TCFD recommendations, an explanation of why and a description of any steps they are taking/plan to take to make consistent disclosures in the future;
  • where some or all of their disclosures are in a document other than the annual financial report, an explanation of why; and
  • an explanation of where in the annual report (or other relevant document) the various disclosures can be found.

As with premium listed companies, proposed guidance will assist companies to assess whether their disclosures are compliant with the TCFD recommendations and recommended disclosures.

The proposed new rule would apply to standard listed issuers of equity shares, excluding standard listed investment companies and shell companies. The FCA is targeting commercial company issuers in the standard listed segment. The FCA also invites views on whether the requirements should be extended to issuers of Global Depository Receipts and standard listed issuers of shares other than equity shares, and also to what extent companies issuing standard listed debt and debt like securities should be subject to TCFD disclosure requirements.

The FCA has calculated that the proposals would extend the scope of the Listing Rule disclosure requirements to an additional 148 companies, with a total market capitalisation of around £1 trillion.

The consultation closes on 10 September 2021. The new rule would be introduced on a comply or explain basis, and would take effect for accounting periods beginning on or after 1 January 2022, a year after the rules for premium listed issuers take effect.

Moving towards mandatory disclosure

The FCA note that they have reviewed the compliance basis for both the existing rules for premium listed issuers and the new proposed rules for standard listed issuers. Whilst the FCA notes their support for mandatory climate-related disclosures, they do not believe that now is the right time to consult on transitioning the Listing Rule requirements to a mandatory compliance basis (rather than comply or explain). The FCA believes that consultation on moving to mandatory disclosure should take place once a new TCFD reporting standard has been introduced in the UK.

The FCA also does not propose to require mandatory audit and assurance of the underlying disclosures and statement of compliance at this stage. They note the value of this in the longer term, and encourage companies to consider obtaining third-party verification or assurance on a voluntary basis. 

Other matters covered

The consultation also seeks views on other ESG issues in capital markets, namely green, social or sustainability-labelled debt instruments, ESG data and ESG rating providers. The FCA is not proposing further rule changes for these matters at this stage.

Next steps and how Eversheds Sutherland can help

 The proposed rule changes are the next step in the UK Government’s roadmap to require all UK listed companies and large asset owners to report in line with the TFCD recommendations by 2022. There is some cross-over with the recent consultation from BEIS on proposals to introduce mandatory TCFD reporting for certain UK traded and private companies, as discussed in our briefing here, and the FCA note they are working closely with BEIS to deliver a coherent disclosure regime for companies within the scope of both regimes.

Companies on the standard segment tend to be smaller (the FCA has noted that around two thirds of the in-scope companies have a market capitalisation of below £250 million), so may face greater challenges in preparing climate-related disclosures. Whilst there are a fairly limited number of companies currently in scope of the proposed rule changes, one of the objectives of the Hill Review into the UK listing regime is to increase the attractiveness of the standard segment as a flexible venue for companies of all types to list in London. The rule changes may, therefore, become relevant for an increased number of companies in the future.

Our ESG Solutions and PLC Advisory teams can help companies with TCFD reporting and disclosure and preparing for forthcoming obligations and new legislation in this area. See our brochure below for further details.

 Useful Links

 CP21/18: Enhancing climate-related disclosures by standard listed companies

 ESG Corporate Brochure

 TCFD Brochure