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UK government publishes draft legislation on climate-related financial disclosures

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05 Nov 2021

The Department for Business, Energy & Industrial Strategy (BEIS) has published draft regulations requiring UK public interest entities, Alternative Investment Market (AIM) companies and high turnover companies and Limited Liability Partnerships (LLPs) to make climate-related financial disclosures. The regulations, which amend the Companies Act 2006, will take effect for periods commencing on or after 6 April 2022.

Earlier in 2021 BEIS consulted on proposals to introduce mandatory climate-related financial disclosures for public interest companies, AIM companies, large private companies and LLPs. A draft statutory instrument has now been laid, entitled The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021. This legislation will amend the Companies Act 2006 and introduce new disclosure requirements which are intended to align to the four pillars of the Taskforce on Climate-related Financial Disclosures (TCFD). 

According to BEIS' public release, the UK will become the first G20 country to enshrine in law mandatory TCFD-aligned requirements for Britain’s largest companies and financial institutions. The legislation will take effect for periods commencing on or after 6 April 2022, subject to Parliamentary approval.

Scope

The following entities will be within the scope of the new disclosure requirements:

  • All UK companies that are already required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market, or are 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.
  • LLPs which have more than 500 employees and a turnover of more than £500m.

Location of disclosures

Companies will be required to report climate-related financial information in the non-financial information (NFI) statement, which is also renamed by the legislation to become the non-financial and sustainability information statement (NFSI). 

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, if no Strategic Report is prepared, the Energy and Carbon Report which forms part of their Annual Report.

Disclosure requirements

In-scope entities will be required to disclose the following climate-related financial information in line with the four overarching pillars of the TCFD recommendations:

  • a description of the company’s governance arrangements in relation to assessing and managing climate-related risks and opportunities;
  • a description of the principal climate-related risks and opportunities arising in connection with the company’s operations, and the time periods by reference to which those risks and opportunities are assessed;
  • a description of the actual and potential impacts of the principal climate-related risks and opportunities on the company’s business model and strategy;
  • an analysis of the resilience of the company’s business model and strategy, taking into consideration different climate-related scenarios;
  • a description of how the company identifies, assesses, and manages climate-related risks and opportunities;
  • a description of how processes for identifying, assessing, and managing climate-related risks are integrated into the company’s overall risk management process;
  • a description of the targets used by the company to manage climate-related risks and to realise climate-related opportunities and of performance against those targets; and
  • a description of the key performance indicators used to assess progress against targets used to manage climate-related risks and realise climate-related opportunities and of the calculations on which those key performance indicators are based.

Non-binding Q&As will be produced to support companies and LLPs in their application of these requirements. Regarding scenario analysis, BEIS has stated in its response that qualitative analysis will be sufficient and will ensure that this is clear in the non-binding Q&A. 

A press releasethe feedback statement and the draft legislation are available on the UK Government’s website.

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