Climate change is one of the defining issues of our time and, by its nature, material to companies’ long-term success. Boards have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long-term. Our 2020 review of climate-related considerations in corporate reporting and auditing found that boards and companies, auditors, professional associations, regulators and standard-setters need to do more.
Development of non-financial reporting
The FRC supports global standards for non-financial reporting as the long-term vision, and welcomes, alongside UK financial regulators and government departments, the recent consultation issued by the IFRS Foundation Trustees. However, reaching international agreement on any new standard setter, funding its operation, and allowing it to develop an appropriate conceptual framework and standards will take some time.
In order to meet the ambition of UK stakeholders to improve the quantity and quality of climate-related and wider environmental, social and governance reporting, we believe some of the existing frameworks can act as steps in supporting the market to move more quickly to meet the information needs of investors and other capital providers. The FRC therefore encourages UK public interest entities voluntarily to report against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics. We encourage companies to reporting on these areas within their next reporting cycle, where possible, and disclosure should be considered in the context of the existing strategic reporting framework in the UK.
Over the short to medium term, the FRC will consider how best to help companies to achieve reporting under TCFD and SASB that meets the needs of investors. Our ongoing work will take account of these issues, for example, our work may include:
- Increasing the focus on climate change considerations in our ongoing Corporate Reporting Review, and Audit Quality Review monitoring work where relevant.
- Undertaking a review of reporting under the Streamlined Energy and Carbon Reporting regulations in 2021.
- Assessing professional associations’ approaches to climate change, including in their regulatory and curriculum-setting functions.
- Incorporating monitoring of climate-related reporting into our annual UK Stewardship Code and UK Corporate Governance Code monitoring and consider whether climate-related amendments are appropriate within future revisions of these Codes, the Guidance on the Strategic Report and associated guidance.
- Investigating developing investor expectations and better practice reporting under TCFD and SASB, plus engage internationally on the developing approach to reporting frameworks and standards.
- Highlighting areas of the financial statements of UK GAAP reporters where climate change could be a consideration.
- Undertaking a project considering the role of assurance, and responsibilities of audit committees in this area.
Encouraging reporting under TCFD and SASB is a step towards enhancing reporting. Investors are not, however, the only stakeholder with an interest in climate-related reporting. As set out in the FRC’s recent thought leadership paper on the Future of Corporate Reporting
, we propose the development of a future reporting model that meets the needs of a wider set of stakeholders. We envisage this system being digitally enabled. We welcome the work of a number of the framework and standard-setters in indicating, via their Statement of Intent
, how existing frameworks may be able to come together to achieve a reporting framework that meets the needs of both investors and a wider set of stakeholders.