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BEIS launches consultation on requiring mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs

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26 Mar 2021

The Department for Business, Energy & Industrial Strategy (BEIS) has launched a consultation on requiring mandatory climate-related financial disclosures by publicly quoted companies, large private companies and Limited Liability Partnerships (LLPs). Comments are requested by 5 May 2021.

The proposals, which have been developed in collaboration with the HM Treasury led TCFD joint Taskforce, come in the wake of the Chancellor’s November 2020 announcement of the intention that Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures will be fully mandatory across the economy by 2025. Consistent with HM Treasury’s roadmap towards mandatory climate-related disclosures (link to HM Treasury website), the proposals are in line with the expectation, as set out in the Government’s 2019 Green Finance Strategy (link to HM Treasury website), that all listed companies and large asset owners will be expected to make disclosures aligned with the recommendations of TCFD by 2022.

The proposed changes would take effect for periods commencing on or after 6th April 2022 and would apply to:

  • all UK companies currently required to produce a non-financial information statement (being UK companies that have more than 500 employees and have transferable securities admitted to trading on a UK regulated market, banking companies or insurance companies (Relevant Public Interest Entities (PIEs));
  • UK registered companies with securities admitted to AIM with more than 500 employees;
  • UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500m (turnover as defined in s474); and
  • LLPs which have more than 500 employees and a turnover of more than £500m.

While companies in scope would not be required to make the eleven recommended disclosures as set out in the Recommendations of the Taskforce on Climate-related Financial Disclosures, they would be required to provide information in line with the four “pillars” of TCFD, being Governance; Strategy; Risk Management; and Metrics and Targets. It is proposed to require in scope companies and LLPs to provide disclosures relating to:

Governance

  • a description of the governance arrangements in place to identify and manage risks and opportunities arising from climate change;
    • who has operational responsibility for climate change, including the experience of that executive or committee; and
    • if the company has an audit committee, whether climate change is a matter considered by the company’s audit committee.

Strategy

  • a brief description of the company’s business model and strategy (to the extent that the company is not already required to report such information);
  • a description of how the company’s business model and strategy may change in response to effects relating to climate change, and the trends and factors that affect this change.

Risk Management

  • a description of the principal risks and principal opportunities, including material financial risks and opportunities, relating to transition risk, physical risk and regulatory risk arising from climate change which may affect the business and a description of how the company manages those areas of risk and opportunity including:
    1. a description of its business relationships, products and services which are likely to cause adverse impacts in those areas of risk, and
    2. a description of how it manages the principal risks; and
  • a description of the risk management policies pursued by the company in relation to climate change, any due diligence processes implemented by the company in pursuance of those policies and a description of the outcome of those policies.

Metrics & Targets

  • a description of the key performance indicators relevant to the entity’s exposure to climate change risk and opportunity, and the targets set by the business for those key performance indicators.

The proposals would not require companies and LLPs to provide detail on scenario analysis but would encourage such disclosure where possible.

Companies will be required to report climate-related financial information in the non-financial information statement which forms part of the Strategic Report (or cross-referenced into that statement). LLPs will be required to report climate-related financial information in either the non-financial information statement which forms part of their Strategic Report or the Energy and Carbon Report which forms part of their Annual Report.

BEIS has stated that it will consider increasing the scope further in 2023. Non-binding guidance will be produced to help support application of the requirements.

press release and the consultation are avail­able on the UK Government’s website.  A Financial Reporting Council (FRC) podcast on the consultation is available on the FRC website.

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