We comment on the BEIS consultation on climate-related financial disclosures

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05 May, 2021

We have published our comment letter on the consultation issued by the Department for Business, Energy & Industrial Strategy (BEIS) on requiring mandatory climate-related financial disclosures by publicly quoted companies, large private companies and Limited Liability Partnerships (LLPs).

We welcome this consultation paper as an important step towards the UK government’s goal of achieving transparency in business reporting on climate-related issues across the UK economy.

The four pillars of the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are representative of the way in which businesses are managed and governed and we therefore support their use in framing the proposed requirements. However, we are concerned that if BEIS uses a new set of disclosure requirements, which are worded and structured differently from TCFD, this could be confusing to apply and may lead to a lack of comparability. It could also create further complications when moving to a global climate-related financial disclosure standard that is likely to encompass the four recommendations and eleven recommended disclosures of TCFD.

We therefore strongly advise that BEIS instead bring the four recommendations of TCFD into the legislation as the requirements. In our view, this will provide a clear overview of the required disclosures, set consistent expectations, increase transparency and drive business action. In addition, we recommend that BEIS include a requirement that, in complying with the requirements, companies should have regard to the eleven recommended disclosures of TCFD. In our view, this will facilitate a proportionate approach for in-scope companies and provide a level of specificity that should increase quality of disclosures.

We observe that the proposed scope of the new requirements is similar to, but not the same as, one of the proposals for a revised definition of a Public Interest Entity (PIE) in the BEIS White Paper: Restoring Trust in Audit and Corporate Governance. We recommend that the government consider whether the scope of these requirements can or should be aligned with the outcome of the White Paper consultation once this is known. We also firmly believe that the government needs to review the many and varied scoping regimes and definitions that now exist in the Companies Act 2006 and regulations with a view to simplifying and harmonising them.

Finally, we strongly encourage the government to finalise and publish legislation arising from this consultation to take effect as soon as practicable.

The full response is contained within the comment letter.

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