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UK Government steps up mandatory climate-related financial disclosure plans

Author: ICAEW Insights

Published: 24 Mar 2021

Compulsory climate-related financial disclosures for large organisations moved a step closer after the government published a consultation on new rules for investors to measure and manage climate-related financial risk.

The open consultation from the Department for Business, Energy and Industrial Strategy (BEIS) could pave the way for better ways for investors to measure and manage climate-related financial risk.

BEIS is seeking views on proposals to mandate climate-related financial disclosures by publicly quoted companies, large private companies and large Limited Liability Partnerships (LLPs) – those with more than 500 employees and a turnover of more than £500m.

The government hopes the introduction of mandatory climate-related financial disclosures will provide investors with more of the information they need to adequately understand and manage climate-related financial risks and provide other stakeholders with a greater level of information on climate-related matters. 

In the consultation’s foreword Minister of State for Business, Energy and Clean Growth Anne-Marie Trevelyan, an ICAEW member, and Lord Callanan said that net zero was not optional. “To avoid a disorderly transition, we must equip businesses and investors with the information they need to measure and manage climate financial risk.”

“The work set out in this consultation should not be viewed in a silo,” they added. “We have published a major package of reforms to audit and corporate governance, creating a platform for confident investment, in which climate risk reporting will play an integral part”. 

The proposals are a step towards achieving the government’s ambition for the UK to be the first G20 country to make disclosures in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) mandatory across the economy, as set out in its 2020 Roadmap and Interim Report in November. They are also designed to complement risk disclosure rules for premium listed companies set out by the Financial Conduct Authority (FCA) which have applied to around 460 large firms since January this year.

Clear and consistent framework

Commenting on the consultation Sarah Dunn, Technical Manager in ICAEW’s Financial Reporting Faculty, said: “Climate change is an urgent global issue, and we strongly support efforts to improve the quality and consistency of information provided by UK companies on their climate-related risks and opportunities. We welcome the UK Government’s consultation on this important issue. 

“The TCFD framework has significantly raised the profile of reporting on climate change in recent years and provides a clear and consistent framework for companies reporting in this area,” Dunn continued. ICAEW will be reviewing the proposals in detail in the coming weeks, with a particular focus on the proposed scope and timetable for implementation of any new mandatory reporting requirements, she added. 

To date, risk disclosure guidelines developed by the TCFD have been voluntarily adopted or committed to by around 1,500 companies and organisations worldwide, representing a market capitalisation of over $12tr. However, many listed firms are still yet to engage with the TCFD recommendations, while many of those that have produced TCFD reports have failed to follow all of the guidelines, 

Zsuzsanna Schiff, Manager Audit and Reporting in ICAEW’s Financial Services Faculty, said: “Banks and insurers are at the forefront of TCFD disclosure and making it mandatory for a broader population will play a vital role in greening the financial system as well as driving up standards for all preparers.”

The deadline for response to the consultation is Wednesday 5 May 2021. Regulations are to be made by the end of 2021, with regulations coming into force on 6 April 2022, and applicable for accounting periods starting on or after that date.  

A short webcast introducing the consultation, hosted by ICAEW’s Financial Reporting Faculty in conjunction with BEIS, is available here

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