The Financial Stability Board, the international body responsible for monitoring and making recommendations about the global financial system, established the Task Force on Climate-Related Financial Disclosures (TFCD) in December 2015. The TFCD was created to help identify information needed by investors, lenders and insurance underwriters to appropriately assess and price climate-related risks and opportunities.
Climate-related financial disclosure
Since its formation, the TFCD published their Final Report in June 2017 providing detailed recommendations on climate-related financial disclosures, applicable to organisations across sectors and jurisdictions. As a result, multiple jurisdictions have proposed or finalised laws and regulations that require disclosure aligned with the TCFD. According to the TFCD's 2021 Status Report (which is based on over 1,650 disclosure reports from 69 countries), disclosures increased by 9% from 2019-2020, the highest percentage increase ever recorded. However, the Status Report also makes clear that significant work still needs to be undertaken to mainstream consideration of climate-related issues within financial decision-making.
Following the TCFD's Final Report, the FCA have introduced new TCFD-aligned disclosure rules for premium listed companies contained in the FCA Listing Rules. The rules, which apply to accounting periods beginning on or after 1 January 2021, impose further accounting obligations to be included in a premium listed company's annual financial report. A premium listed company must now provide a statement setting out whether they have included climate-related financial disclosures in their annual financial report that are consistent with the TCFD Recommendations and Recommended Disclosures.
If the company has made climate-related financial disclosures in their annual financial report, the report should set out where the disclosures can be found. If the company has included some, or all, of these disclosures in a document other than their annual financial report, the annual report should contain an explanation of why and reference to where the disclosures can be found. If the company has not made these disclosures, the statement should contain an explanation of why and a description of any steps the company are taking or plan to take to be able to make the disclosures in the future.
If it appears to the FCA that there is, or may be, a breach of the rule, the FCA may require the company to appoint a 'sponsor' to advise them on the enforcement of the rule. Sponsors provide guidance to premium listed companies or companies seeking a premium listing and in turn, provide confirmation to the FCA that the company has complied with FCA requirements. The FCA's list of sponsors include large investment banks, smaller corporate finance houses as well as accounting and legal firms.
Future outlook for climate related reporting
It is anticipated that these rules will become more encompassing and wide reaching in the next couple of years. The FCA are now undertaking further consultations on proposals to extend the application of the rules to other regulated entities such as asset managers, life insurers and to issuers of standard listed equity shares.
Climate-related reporting is being increasingly encouraged and practiced by governments and in the private sector, as it provides investors with transparent and highly relevant information on the future of their investments during the world's transformation to a low-carbon economy. Accurate and reliable climate-related reporting allows markets to properly account for and price climate–related risks and opportunities, which in turn rewards those making attempts to lower their carbon emissions, encourages investment in greener projects, and prevents sudden value shifts in unprepared industries.
To ensure compliance with the FCA's Listing Rules as a premium listed company, it is important to contain all the relevant information required in relation to the company's climate-related financial reporting in its annual statement. For further advice on how to achieve this, please contact a member of the White Collar Crime and Investigations team.