UK to make TCFD aligned disclosures mandatory by 2025

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12 Nov, 2020

The Chancellor, Rishi Sunak, has announced the intention to make Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures fully mandatory across the economy by 2025. This marks an important step in establishing consistent global climate and sustainability reporting standards.

Investors and stakeholders now expect climate-related disclosures in annual reports and financial statements. Recent Deloitte research shows that 90% of companies referred to climate change in their 2019 annual report, with 64% referring to the Task Force on Climate-related Financial Disclosures (TCFD).

HM Treasury has published the interim report of the UK’s Joint Government-Regulator TCFD Taskforce and accompanying roadmap which sets out an indicative path to mandatory TCFD reporting by 2025 – towards comprehensive and high-quality climate-related risk disclosure across the UK economy. The Taskforce was set up after the Government’s Green Finance Strategy was released last year to explore the most effective approach to implementing the recommendations of the TCFD.

The roadmap document notes that comparability of disclosures should ‘optimally be achieved through international standards for climate-related and other sustainability disclosures’. The TCFD Taskforce therefore ‘strongly supports’ the IFRS Foundation’s ‘proposal to create a new, global Sustainability Standards Board, as well as complementary work underway on harmonisation by an alliance of voluntary standard-setting organisations’.

Support for the IFRS Foundation’s proposals has also come from the Department for Business, Energy and Industrial Strategy (BEIS) and other UK regulators such as the Financial Conduct Authority (FCA) and the Financial Reporting Council (FRC). In a joint statement  (link to HM Tresaury website) they indicate that the proposals ‘are an important and timely step as a contribution to addressing the climate emergency’. They say:

We believe that the creation of a new board, within the IFRS Foundation structure, would allow the effective exploration, reconciliation and resolution of ideas and challenges that are relevant to reporting of material sustainability factors (that are most relevant to investors and other market participants) in the first instance, and reporting of wider sustainability impacts in the longer term. We believe that establishing an SSB alongside the IASB will promote much-needed integration of financial and non-financial reporting, within a common architecture. A transparent and robust governance structure should, in our view, be a pre-requisite for establishing an independent and impartial sustainability reporting standard setter. For these reasons, the Foundation is very well-placed to lead this conversation and work, and we are grateful that it has done so.

The progress is strengthened by the commitment of the FCA to introduce TCFD for premium listed companies in 2021, and to consult in the first half of 2021 on extending the scope of these rules, including for asset managers, life insurers and pension providers. This commitment was set out in a speech ‘Green Horizon Summit: Rising to the Climate Challenge’ by FCA CEO, Nikhil Rathi.

A new FCA Listing Rule will be introduced on a 'comply or explain' basis and the FCA generally expects companies to be able to comply. As well as consulting on further extending the Rule to a wider scope of listed insurers, the FCA will also consider further tightening the rule, moving from 'comply or explain' to mandatory disclosure. The FCA will also, in the first half of next year, release proposed TCFD implementation measures for asset managers, life insurers and FCA-regulated pension providers. It aims to bring in rules for the largest firms by 2022.

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