The Companies (Strategic Report) (Climate-Related Financial Disclosure) Regulations 2022 (“the Regulations”) came into force on 6 April 2022. The Regulations amend the Companies Act 2006 and largely implement recommendations of the Task Force on Financial Disclosures (“TCFD”). In doing so, the UK is the first G20 country to enshrine mandatory reporting requirements aligned with the TCFD into law.
Many companies will already be reporting voluntarily in accordance with the TCFD recommendations, but all affected companies will now need to familiarize themselves with the details of Sections 414CA and 414CB of the Companies Act 2006 to review their climate risk reporting arrangements. and Opportunities.
The Regulations apply to a company incorporated in the UK which has more than 500 employees and which is: (i) a listed company (whose shares are traded on a regulated market in the UK or on the Alternative Investment Market); (ii) a banking company; (iii) an approved insurance company; or (iv) a company with a turnover in excess of £500 million.
The Department for Business, Energy and Industrial Strategy has issued non-binding guidance to accompany the Regulations, but in general terms the following information is required:
- A description of corporate governance and arrangements for assessing and managing climate-related risks and opportunities;
- A description of how the company identifies, assesses and manages climate-related risks and opportunities;
- A description of how the processes for identifying, assessing and managing climate-related risks are integrated into the overall enterprise risk management process;
- A description of: (i) the main climate-related risks and opportunities related to the company’s activities; and (ii) the time periods against which such risks and opportunities are assessed;
- A description of the actual and potential impacts of the main climate-related risks and opportunities on the company’s business model and strategy;
- An analysis of the resilience of the business model and the company’s strategy, taking into account different climate-related scenarios;
- A description of the objectives used by the company to manage climate-related risks and realize climate-related opportunities and performance against these objectives; and
- A description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realize climate-related opportunities and the calculations on which these key performance indicators are based.
In the event of non-compliance with the Regulation (and other legal requirements relating to strategic reports), the Financial Reporting Council’s Conduct Committee has the power to go to court to compel a company to revise its strategic report. The court may order the directors of the company to personally pay the costs of preparing a revised report.
The regulations provide UK businesses with a uniform way to assess the financial impacts of their exposure to climate-related risks and opportunities. Disclosures will reveal how companies are coping with the challenges posed by climate change, which in turn will help investors and stakeholders put climate change at the forefront of their decision-making.
Parallel changes have been made to reporting requirements by certain limited liability partnerships with the introduction of the Limited Liability Partnerships (Climate-Related Financial Disclosure) Regulations 2022.