News July 2022 The FRC and FCA find significant progress, but further improvement needed under new climate rules

The FRC and FCA find significant progress, but further improvement needed under new climate rules

29 July 2022

The Financial Reporting Council (FRC) and Financial Conduct Authority (FCA) have today published two reports which found that premium listed companies have made significant steps forward in the quality of climate-related information provided in their financial reports, but further improvements are needed.
 
Since 2021, premium listed commercial companies have been required to include a statement in their annual financial report, setting-out whether they have made disclosures consistent with the Task Force on Climate-related Financial Disclosures' (TCFD) recommendations.


The FRC reviewed 25 larger companies more impacted by climate change and found that companies were able to provide many of the TCFD disclosures expected by the FCA's Listing Rule, and climate-related reporting in the financial statements, marking a significant improvement in comparison with previous years.
 
However, there are several areas where companies will need to raise the quality of their disclosures in future years.
 
These include:

  • Providing more granular information about the effect of climate change on different business sectors and geographies.
  • Balancing the discussion of climate-related risks and opportunities appropriately.
  • Linking climate-related disclosures to other risk management and governance processes.
  • Explaining how they have decided which climate-related information should be disclosed.
  • Explaining more clearly how the effects of different global warming scenarios, and their own net zero commitments, may affect the valuation of their assets and liabilities.

 
The FCA reviewed 170 companies at a high level and 30 companies in more detail, and similarly found a significant increase in the quantity and quality of companies’ climate-related disclosures. However, it also found instances where companies said that they had made disclosures consistent with the TCFD’s recommended disclosures when it appeared they had not. It is considering these cases in more detail and may take action as appropriate.
 
Companies should take account of the TCFD’s Guidance for All Sectors when determining the consistency of their disclosures with the TCFD framework. The FCA also reminds companies of other guidance provisions included in its Listing Rules.
 
Sarah Rapson, Executive Director of Supervision at the Financial Reporting Council, said:

 

“It is encouraging that many companies have stepped up their efforts in providing comprehensive and consistent disclosures on climate-related risks and opportunities, as well as the impact of climate on their financial statements, but there is still a lot of room for improvement. Together with the FCA, we will continue monitoring and supporting companies to make those improvements going forward.”


Sacha Sadan, Director of ESG at the Financial Conduct Authority, said:

 

“We are pleased to see improvements in the completeness and consistency of disclosures with the TCFD framework, but there is clearly more to do. We will continue to work with companies, their advisors and the FRC as they further develop their disclosures. We are committed to driving higher standards in the financial industry and we also encourage companies to look ahead to the future implementation of reporting standards in development by the International Sustainability Standards Board.


Read the FRC's report here 

Read the FCA's report here