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TCFD - Financial Reporting Council Climate Thematic: all stakeholders “must do better”

  • United Kingdom
  • Financial services disputes and investigations


The U.K Government’s recently published TCFD[1]- interim report and roadmap announced its intention to make TCFD aligned disclosures mandatory across the economy by 2025, with a significant portion of those requirements in place by 2023.  Environmental Social and Governance (ESG) considerations were already high on many businesses’ agendas but their paramount status should now be beyond doubt.

The Financial Reporting Council (FRC) recently released the findings of its “Climate Thematic”, the result of a survey of 60 premium listed companies focusing on boards, companies, auditors, professional bodies and investors.  Their central finding is unequivocal – there has been some good work but everyone can and must do more.

For financial services firms, the FRC’s findings should be reviewed in light of the Financial Conduct Authority’s (FCA) announcement on 9 November 2020 that it will introduce new rules from 1 January requiring premium listed companies to make TCFD aligned disclosures on a “comply or explain” basis, with a consultation to follow on extending the scope of those rules to all asset managers, life insurers and pension providers.

Climate and TCFD - What do the FRC want to see?


There are 2 aspects for businesses: governance and reporting.

On governance, boards need to evidence that their business models and strategy integrate climate considerations.  The review highlights that investors continue to want companies to outline how the board considers and assesses climate change. It is important that those involved in governance have some understanding of how climate change will affect the company or have access to relevant expertise in order to make appropriate decisions.

On reporting, investors need more information to assess progress towards board stated goals and climate considerations need to be properly reflected in the financial statements.

 The review also highlights that whilst some companies have set up climate change committees, more information about processes, expertise and training could  have made disclosures about such committees in the annual report more useful.

The FRC is clear that it expects to see higher degrees of clarity and granularity in relation to climate related disclosures with clear illustrations of how these aims and ambitions tie into budgets and business plans.  Firms should not be aiming to meet the minimal legal requirements but should be clearly explaining how climate related goals will be achieved by references to clear milestones, targets and metrics.  Firms should be explaining how they performed against previous climate targets and be fair and balanced in doing so, not simply focusing on the “good news stories”.

The FRC also expects to see honest assessments of climate risks from firms including an examination of climate resilience levels and detailed appraisals of key risk areas.  They caution against focusing only on climate related opportunities and say that if apparent areas of risk are not seen as presenting a threat firms should explain how that conclusion has been reached.  Good reporting will present a consistent message about the most significant climate risks and include all material information.

There appears to be concern on the FRC’s part that, while there is narrative reporting on climate change by almost all companies, only a quarter made reference to climate change in their financial statements.  This is despite the accounting implications of climate change being of clear interest to users of financial statements.  Companies should be concerned by the FRC’s comment that there may have been breaches of accounting standards in this area.


The FRC found a wide variation in how well audit firms were responding to climate change issues in their audits. The best performing auditors have climate change guidance and resources to support their audit teams.  They were also seen to have embedded climate change consideration into their audit training and methodology and to have systems in place to identify audits with significant climate change risks.

Having relevant climate related expertise that audit teams can call on is key. However, audit firms also need to provide clear guidance on when to seek that specialist support and/or guidance from technical teams on climate related risks more generally. Internal monitoring of audit quality carried out by audit firms also needs to take into account climate change considerations.

Auditors need to improve planning and conduct of audits in relation to climate change risks including demonstrating that they have addressed identified risks and assessed the company’s compliance with climate change commitments. Improvements are also required in the explanations being provided to those charged with governance -reporting needs to be tailored rather than generic.


Investors were consulted to survey their expectations of companies but the FRC is clear that investors need to provide more detail on how climate issues are  integrated into the investment process. This is important for the savers and pensioners they represent.

Climate and TCFD - What next for the FRC?

Climate change will remain high on the FRC’s agenda and at page 13 of the review summary they highlight some areas that their future work programme may cover.  Their  Corporate Reporting Review and Audit Quality Review  monitoring may have an increased focus on climate change considerations and the monitoring of climate-related reporting may be incorporated to their annual UK Stewardship Code and UK Corporate Governance Code monitoring as well.

Climate and TCFD - The wider context

The FRC’s report is focussed on governance and reporting by companies listed on the premium segment of the main market of London Stock Exchange. A much wider range of UK companies may become subject to mandatory climate-related disclosures in the future.

HM Treasury’s published Policy Paper: UK joint regulator and government TCFD Taskforce – Interim Report and Roadmap, outlines an indicative path towards mandatory climate themed reporting in relation to seven categories of organisation, being listed commercial companies; UK-registered companies; banks and building societies; insurance companies; asset managers; life insurers and FCA-regulated pension schemes; and occupational pension schemes.

Premium listed companies will become subject to TCFD aligned “comply or explain” disclosures as part of their continuing obligations under the Listing Rules to take effect from 1 January 2021 (so we would see the first such reporting in 2022). Our briefing here considers the FCA’s proposals in more detail.  Under the proposals set out in the Roadmap, the FCA plans to consult on proposed new rules for a wider range of regulated firms in the first half of 2021.  The FCA will coordinate with the Department for Business, Energy & Industrial Strategy’s (BEIS) consultation on TCFD-aligned disclosures under the Companies Act 2006 (CA 2006) noted below.  The FCA will also consider consulting on making the disclosures mandatory.

For UK registered companies, including very large private companies, BEIS expects to consult in early 2021 on proposals which will introduce a requirement into the Companies Act 2006 for such companies to make TCFD-aligned disclosures in the strategic report of their annual report and accounts.  Subject to Parliamentary time, it is anticipated that the relevant law will come into force in 2022.  The precise scope of provisions is yet to be determined.

Climate and TCFD - Conclusion

The FRC’s overall review finding that there is more to do on climate related reporting will not surprise anyone. The report contains some helpful information to assist boards, companies, auditors and investors in addressing current shortcomings. Those firms that don’t engage fully on these issues risk significant future damage to their businesses.


[1] Taskforce on Climate-related Financial Disclosures