On this page, the Financial Reporting Faculty provides an overview of current UK reporting requirements and signposts relevant practical guidance for preparers.
Current UK reporting requirements
Strategic report - general
Under UK law, all companies that are not small are required to provide an overview of their business, including a description of the principal risks and uncertainties facing the company, in a strategic report. A company that would be entitled to prepare accounts for the year in accordance with the small companies regime save for being or having been a member of an ineligible group is also exempt from the requirement to prepare a strategic report.
The strategic report should contain information that is material to shareholders and helps them assess whether the directors have performed their duty to promote the success of the company. When the directors of a company consider climate change to be a principal risk or uncertainty facing the company, this should be disclosed in the strategic report.
Quoted companies and public interest entities (PIEs) with over 500 employees are also subject to specific reporting requirements on environmental matters within the strategic report, for example, details of policies pursued on environmental matters and the effectiveness of these policies. This information is required to the extent that it provides information that is necessary for an understanding of the development, performance, position (and impact - PIEs only) of the company's business.
More information about the strategic report, including how to prepare one, can be found on the faculty’s dedicated webpage.
Strategic report - S172 reporting
Large companies are required to include a statement in the strategic report which describes how the directors have performed their duty under section 172 of the Companies Act 2006. This duty requires directors to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to the impact of the company’s operations on the community and the environment, among other matters.
View guidance and tips on preparing meaningful Section 172(1) statements.
Faculty members can also view a webinar with Top tips for s172(1) statements and other narrative reporting.
Strategic report - Non-Financial and Sustainability Information (NFSI) Statement
Mandatory climate-related financial disclosure requirements have been brought into UK legislation for certain large companies and LLPs from April 2022. For companies and some LLPs the disclosures are required as part of the NFSI statement, but for LLPs not required to produce a Strategic Report the information is required to be included in the Energy and Carbon report (see below).
The requirements are based on the Task Force for Climate-Related Financial Disclosures (TCFD) recommendations which encourage disclosure across four key areas: governance, strategy, risk management, and metrics and targets. Details of the scope and summary of the new requirements are explained in this article. Government issued Q&A-style guidance on the regulations aims to help reporters understand how to meet the new requirements.
More information, including practical guidance, can be found in the faculty’s factsheet Climate-related Financial Disclosure Regulations.
Faculty members can also view a webinar Introducing the Climate-related Financial Disclosure Regulations.
Directors' report - Streamlined Energy and Carbon Reporting
Large companies, quoted companies, and large LLPs are required to comply with streamlined carbon and energy reporting requirements. For companies, the associated disclosures must be included in the directors’ report. For LLPs, the associated disclosures must be included in the Carbon and Energy report which forms part of the annual report.
More information about these requirements can be found on the faculty’s webpage on the directors report. This page includes links to useful resources including a webinar explaining the carbon and energy reporting requirements.
Companies must consider climate-related matters when applying accounting standards where their effect is material in the context of the financial statements as a whole. When climate-related matters are considered material, disclosures are required in accordance with those standards.
Watch ICAEW’s video Financial Statement Impact produced in collaboration with Deloitte, to learn more about the effects of climate change on business and how this might impact the preparation of the financial statements.
For UK GAAP reporters, these matters are also explored in the faculty’s article on reporting climate change under FRS 102 and the FRC’s factsheet on climate-related matters for FRS 102 reporters.
For IFRS reporters, the IASB have issued some educational material to support inclusion of the effects of climate-related matters on financial statements. The faculty also has a webinar (available to all) on IFRS Standards and climate-related disclosures.
Future UK reporting requirements
IFRS Sustainability Disclosure Standards
As part of the Greening Finance strategy, the UK government has stated its support for IFRS Sustainability Disclosure Standards and indicated an intention to align with those standards in the future. These disclosure standards are in the process of being developed by the International Sustainability Standards Board (ISSB). The ISSB is a standard-setting board within the IFRS Foundation and sits alongside the IASB.
The ISSB's initial focus is to develop standards on general sustainability-related disclosures and climate-related disclosures. Two draft standards were consulted on in early 2022, and the ISSB aim to issue the new standards by the end of 2022. The UK government has stated its intention to create a mechanism to adopt and endorse ISSB-issued standards for use in the UK. The timetable for this is not yet clear.
More information about the work of the ISSB, can be found on the faculty’s dedicated webpage.
UK Green Taxonomy
To address a lack of common definitions about ‘what counts as green’, the UK government is set to implement a UK Green Taxonomy. This taxonomy will clearly define the criteria which specific economic activities must meet in order to be considered environmentally sustainable and, therefore, ‘Taxonomy-aligned’. Certain companies will be required to disclose which proportion of their activities are Taxonomy-aligned. The taxonomy is expected to have six environmental objectives with associated criteria. The first two objectives, expected to be consulted on in 2022, are:
- Climate change mitigation; and
- Climate change adaptation
Consultation and implementation of the full taxonomy is expected to take place over the next few years.
Corporate Reporting Faculty resources
- FRC’s work on ESG and Climate related reporting
- FRC Lab Report: Improving ESG Data Production (August 2022)
- CRR Thematic review of TCFD disclosures and climate in the financial statements (July 2022)
- FRC’s Climate Thematic: reporting aspects (November 2020)
- FRC’s staff factsheet: Climate-related matters for FRS 102 reporters