FRC and FCA: ‘further improvement’ needed for companies’ climate reporting
UK regulatory bodies acknowledge progress has been made, but more progress is required.
Two UK regulatory bodies – the Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) – have identified ongoing issues with the quality of climate disclosure and data from “premium” listed companies.
They identified a greater need to provide granular data on the effect of climate change and further information on how global warming scenarios may impact asset valuations.
The reports were published simultaneously, with the FRC reviewing 25 larger companies considered to be more impacted by climate change, and the FCA reviewing 170 companies at a high level and 30 companies in more detail.
The FRC report found that companies were able to provide much of the Taskforce for Climate Related Financial Disclosures (TCFD) information expected by the FCA's Listing Rule. It considered this a “significant improvement” in comparison with previous years.
It is encouraging that many companies have stepped up their efforts in providing comprehensive and consistent disclosures on climate-related risks and opportunities, but there is still a lot of room for improvement.
TCFD failings
The FCA also found a significant increase in the quantity and quality of companies’ climate related disclosures. However, the regulator also found cases where companies claimed to have made disclosures consistent with TCFD, when this appeared to be untrue.
It has confirmed these cases are being considered in more detail, with the potential for action to be taken against companies if needed.
The watchdog also found that 80% of listed companies had a net-zero commitment as of 2021, yet when the regulator carried out further analysis, they found these pledges “were often not clear” and risked being misleading as a result.
Further issues identified within the reports included companies balancing the discussion of climate-related risks and opportunities appropriately, linking climate-related disclosures to other risk management and governance processes, and explaining how they have decided which climate-related information should be disclosed.
Sarah Rapson, executive director of supervision at the FRC, said: “It is encouraging that many companies have stepped up their efforts in providing comprehensive and consistent disclosures on climate-related risks and opportunities, as well as the impact of climate on their financial statements, but there is still a lot of room for improvement.
“Together with the FCA, we will continue monitoring and supporting companies to make those improvements going forward.”
The FCA report found over 90% of companies self-reported that they had made disclosures consistent with the TCFD’s Governance and Risk Management pillars, but this dropped to below 90% for the Strategy and Metrics and Targets pillars.
The FRC report also noted its study comes about following the International Sustainability Standards Board (ISSB) publishing two exposure drafts for public consultation in March this year.
The UK government has confirmed it intends to incorporate these standards into the country’s corporate reporting framework.
