The TCFD Listing Rule Disclosure Requirements remain, by far, the most significant climate-related financial disclosure development for premium listed commercial companies. However, these new proposed reporting requirements ("TCFD Companies Act Disclosure Requirements") will (subject to the outcome of the consultation) still have an impact on such companies if they currently produce a non-financial information statement in accordance with the UK Companies Act 2006.2
Elements of the proposed TCFD Companies Act Disclosure Requirements that will be of interest to premium listed companies that currently prepare a non-financial information statement in accordance with the UK Companies Act 2006 include:
- The TCFD Companies Act Disclosure Requirements are intended to be less onerous than the TCFD Listing Rule Disclosure Requirements as they will only require reporting in line with the four pillars of the TCFD recommendations (Governance, Strategy, Risk Management and Metrics and Targets relating to climate risks and opportunities), and will not require reporting in line with the eleven, more detailed, TCFD recommended disclosures. Scenario analysis will also be encouraged, but will not be required. Relevant companies will, however, need to aware of certain differences between the two sets of requirements in order to ensure that both are complied with. For example:
(i) Unlike the TCFD Listing Rule Disclosure Requirements (which do not specify where to include relevant disclosures in the annual report and accounts, and also allow for some disclosures to be included in a separate document), the TCFD Companies Act Disclosure Requirements are likely to specify that relevant disclosures are included in the non-financial information statement that forms part of the Strategic Report (or are cross-referenced into that statement).
(ii) In accordance with the TCFD Listing Rule Disclosure Requirements, relevant companies may omit one or more disclosures as long as they include in their compliance statement: (a) details of the recommendations and/or recommended disclosures that have not been included; (b) the reasons for not including such disclosures; (c) any steps that the company is taking, or plans to take, to be able to make those disclosures in the future; and (d) the timeframe within which the company expects to be able to make those disclosures. By contrast, as the TCFD Companies Act Disclosures are due to be included in the Strategic Report, a relevant company will only be able to omit those disclosures if it: (a) concludes that climate change is not expected to materially affect the company's business model or strategy; and (b) provides a reasoned explanation of the basis on which it has come to that conclusion.
Given the investor focus3 on climate-related issues, it seems unlikely that a premium listed commercial company would come to the conclusion that it did not need to include the TCFD Companies Act Disclosures. However, if a relevant company decided not to comply (but rather to explain non-compliance) with any of the TCFD Listing Rule Disclosure Requirements, it would need to ensure that it did not inadvertently omit any TCFD Companies Act Disclosures.4
- The Government intends to publish non-binding Q&A alongside the new requirements in order to help relevant companies understand what it would be appropriate to disclose under each of the four pillars.
- Specifically in relation to these new disclosure requirements, the Government does not propose amending existing monitoring or enforcement powers of the FRC, altering the current role of the auditors, or requiring companies to obtain third party verification or assurance. However, it is likely that the outcome of the separate consultation on audit and director liability reform will have an impact on monitoring, enforcement and assurance of climate-related disclosures in the future. For example, it is likely that one of the things that a relevant company might be expected to address in its proposed new Audit and Assurance Policy is what level of assurance it intends to obtain in connection with its new Resilience Statement, and (depending on the outcome of the consultation) that new Resilience Statement might be required to include certain TCFD disclosures.
- Whilst the proposed scope of the new requirements includes certain very large non-listed entities, subsidiaries of UK parent companies are likely to benefit from an exemption. The Government proposes including a subsidiary exemption if a company's results and relevant climate-related disclosures are included in a consolidated report of a UK parent company.
- Bearing in mind the proposed scope of entities that will be caught by the new requirements, the Government has set out a relatively fast timetable for implementation. Consultation responses are due by 5 May, and the new rules are expected to apply to financial years beginning on or after 6 April 2022. The TCFD Listing Rule Disclosure Requirements, however, apply to financial years starting on or after 1 January 2021. This means that a company with a 31 December year end will have complied with the TCFD Listing Rule Disclosure Requirements for two reporting cycles before it also needs to comply with the TCFD Companies Act Disclosure Requirements.