The thematic review reflects the important role that boards, companies, auditors, professional associations and investors play in considering and responding to climate-related issues and provides findings on how each of them is responding to climate-related challenges. It highlights the FRC’s views on current market practice, outlines its reporting expectations, and indicates where it will focus its attention on to ensure that there is an appropriate response to climate change. A summary report is supported by more detailed reports for each of the groups.

The FRC asked a number of questions asked to the respective groups:

• Boards - How are boards taking account of climate-related challenges?
• Companies - How are companies developing their reporting on climate-related challenges?
• Auditors - How are auditors taking account of climate-related challenges?
• Professional associations - How are professional bodies and audit regulators taking account of climate change in their regulatory responsibilities?
• Investors - What do investors want to see?

The thematic reviews key outcomes show that:

• Although it is the board’s responsibility to consider climate-related issues, there is little evidence that business models and company strategy are influenced by integrating climate considerations into governance frameworks. Investors continue to want companies to outline how the board considers and assesses climate change. The FRC indicates that this consideration is even less amongst smaller cap companies.
• There is an increasing number of companies who are providing narrative reporting on climate-related issues. However, while minimum legal requirements are often being met, companies are not meeting the additional demands of users who are calling for additional disclosure to inform their decision making and who are themselves responding to a changing regulatory environment.
• Whilst some companies have set strategic goals such as 'net zero’, it is often unclear from their reporting how progress towards these goals will be achieved, monitored or assured.  The review also indicates that it is often unclear as to whether a 'net zero' objective is central, peripheral or aspirational in the context of a company's strategy.  Whilst companies might acknowledge the government's commitments to 'net zero' in aspirational terms, often in the Chair's statement, the FRC found that it is often difficult to understand how that intention is clearly linked to the company's strategy and objectives.
• Consideration and disclosure of climate change in the financial statements lags behind narrative reporting. The FRC review identified areas of potential non-compliance with the requirements of International Financial Reporting Standards (IFRS).
• The quality of support, training and resources provided to the audit practice varies considerably across firms. The FRC indicates that firms need to do more to ensure that their internal quality monitoring has appropriate regard for climate change considerations.
• From the audits reviewed there were indications that auditors need to improve their consideration of climate-related risks when planning and executing their audits.
• UK professional bodies, and audit regulators in the Crown Dependencies, are responding to climate change, but approaches differ in terms of substance and granularity regarding references to climate-related reporting and the impacts of climate change.
• Investors support the Task Force on Climate-related Financial Disclosures (TCFD) framework, but also expect to see disclosures regarding the financial implications of climate change.

Concurrent with the issuance of the thematic review, the FRC has issued a statement on Non-Financial Reporting Frameworks. In it the FRC pledges its support for global standards for non-financial reporting, welcoming the recent consultation issued by the IFRS Foundation Trustees. It comments:

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.  

In order to assist companies to achieve reporting under TCFD and SASB that meets the needs of investors the FRC has set out some of its future work including:

• An increased focus on climate change considerations in its 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 in its annual UK Stewardship Code and UK Corporate Governance Code monitoring and consideration of whether climate-related amendments are appropriate within future revisions of these Codes, the Guidance on the Strategic Report and associated guidance.
• Highlighting areas of the financial statements of UK GAAP reporters where climate change could be a consideration.
• Investigating developing investor expectations and better practice reporting under TCFD and SASB, plus engaging internationally on the developing approach to reporting frameworks and standards.
• Undertaking a project considering the requirements of audit, emerging role of assurance, and responsibilities of audit committees in this area.

Whilst encouraging reporting under TCFD and SASB would be seen as a step in the right direction, the FRC highlights that it is not just investors that are the only stakeholder with an interest in climate-related reporting. It draws attention to its recently issued ‘Future of Corporate Reporting’ Discussion Paper which proposes to develop a future reporting model that meets the needs of a wider set of stakeholders.

A webinar will be held on 25 November will be held to mark the publication of the thematic review.

The following are available on the FRC website:

• Press release – thematic review with links to the summary report and more detailed reports
• Press release – statement on Non-Financial Reporting Frameworks
• FRC podcast on the thematic review
• Additional FRC podcast
• FRC podcast on climate change and audit