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Proposals to enhance climate-related disclosures by listed companies

  • United Kingdom
  • Corporate
  • Equity Capital Markets
  • Financial services and markets regulation - ESG
  • Financial services disputes and investigations
  • Litigation and dispute management



Financial Conduct Authority consultation on climate-related disclosures

On 6 March 2020, the Financial Conduct Authority (FCA) published a consultation paper in which they proposed to introduce new “comply or explain” disclosure requirements for commercial companies with a UK premium listing which are intended to enhance and clarify existing environmental, social and governance (ESG) related disclosure obligations. Comments on the FCA consultation were initially to be received by 5 June 2020. However, as part of the FCA’s COVID-19 response, the deadline has been extended to 1 October 2020.

The proposals centre on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The FCA are consulting due to the impact climate change threatens to have on all listed companies. The FCA has outlined that climate change itself, or policy responses to climate change, may impact the value of companies’ assets and prospective profits. It is also likely that we will see a growing trend in investors wanting to support and invest in companies that support a transition to a low-carbon economy and they need adequate disclosures to enable them to make those decisions. If listed companies are not providing sufficient information, financial services firms may not reliably be able to disclose to consumers how their products are exposed to climate-related risks and opportunities, nor will they be able to design products that more reliably meet consumers’ needs.

What is the FCA proposing?

Under the proposals, there will be a new listing rule which will require companies on the UK premium list to include a statement include in their annual financial report a statement setting out:

  • whether they have made disclosures consistent with the TCFD’s recommendations and/or recommended disclosures in their annual financial report;
  • where they have not made disclosures consistent with some or all of those recommendations and/or recommended disclosures, or have included disclosures in a document other than the annual financial report, an explanation of why; and
  • where in the annual financial report (or other relevant document) the various disclosures can be found.

This is effectively a “comply or explain” approach, so will be familiar to listed companies from their existing reporting obligations under the Listing Rules in relation to the UK Corporate Governance Code.

In determining whether disclosures are consistent with the TCFD recommendations, listed companies will need to look at additional guidance published by the TCFD.

The proposals are another example of the growing importance of ESG issues, and companies will have to look at their reporting accordingly.

What are the TCFD recommendations?

The TCFD recommendations were published in 2017 to help businesses disclose climate change risks. The recommendations constitute (currently) voluntary climate-related financial risk disclosures for use by companies in providing information to investors, lenders and insurance underwriters about the financial risks companies face from climate change. The core elements of climate change disclosures recommended by the TCFD are structured around four key areas: governance, strategy, risk management and metrics and targets.

Proposed new FCA technical note

To clarify existing obligations set out in EU legislation and the FCA’s handbook, the FCA is also consulting on a new technical note, Disclosures in relation to ESG matters, including climate change. This note aims to draw together a non-exhaustive list of provisions of the Listing Rules, Disclosure Guidance and Transparency Rules, Prospectus Regulation and the Market Abuse Regulation which may apply in relation to ESG matters.

Regulated financial services firms that fall outside the scope of the new rules for certain listed companies

The FCA is separately considering how to enhance climate-related disclosures by regulated financial services firms (including asset managers and life insurers) to enable consumers to buy products that meet their needs from a sustainability perspective and reduce the risk of mis-selling/clients buying unsuitable products. The FCA encourages these companies to make voluntary disclosures in line with the TCFD’s framework for asset managers, alongside their existing disclosure and reporting obligations.

The FCA have recently placed a strong focus on climate-related disclosures with both the FCA’s Regulatory Initiatives Grid (published 7 May 2020) and the FCA’s 2020/21 Business Plan (published April 2020) referencing climate-related enhancements as being an area of focus for the FCA. Regulated financial services firms and senior managers should therefore keep abreast of regulatory developments in this area.

What next?

As part of the UK Government’s Green Finance Strategy, the intention is that listed companies and “large asset owners” will report in line with the TCFD recommendations by 2022. The FCA considers its proposed measures to be a first step towards adoption of the TCFD recommendations.

As noted, comments on the FCA consultation were initially to be received by 5 June 2020. However, as part of the FCA’s COVID-19 response, these must now be received by 1 October 2020. The FCA aim to publish a Policy Statement, along with the finalised rules and Technical Note, later in 2020.

If adopted, the new requirements will apply to accounting periods beginning on or after 1 January 2021 (although this could be further delayed as part of the FCA’s COVID-19 response). If this timing prevails then the first reports which will need to be issued in compliance with the proposed rule would be published in 2022.

Listed companies should already be considering climate-related risks as part of their current disclosure and reporting obligations. However, it is a clear focus for government, regulators and investors. The FCA’s proposed rule and guidance alongside the output of Financial Reporting Council’s review on reporting on the impacts of climate change will provide further material to assist companies and auditors in this area.

Companies, directors and senior managers that do not pay sufficient attention to this area may find themselves facing regulatory action and/or civil proceedings in the future.

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For more information please contact: Kari Mccormick, Ruya Karausta, Hayley Astles and Sarah Turner