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Reporting on climate change

Most businesses are aware of the increasing focus on climate change and the expectations of a wide range of stakeholders to see relevant disclosures in the accounts. These expectations are only set to increase for all companies.

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

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.

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 listed entities 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.

S172 reporting

For reporting periods beginning on or after 1 January 2019, 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.

More information about the Strategic Report, including how to prepare one, can be found on the faculty’s dedicated webpage.

Directors report (Streamlined Energy and Carbon Reporting)

For reporting periods starting on or after 1 April 2019, 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 a new Carbon and Energy report which will form 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.

Financial Statements

In addition to providing climate-related disclosures, all companies need to ensure that the current or future impacts of climate change are reflected appropriately in the financial statements. For example, the impacts of climate change are already affecting the valuation of assets, assumptions used in impairment testing and depreciation rates.

Watch ICAEW’s video to learn more about the effect of climate change on business and how this might impact the preparation of the financial statements. The video ‘Financial Statement Impact’ is one of ten short videos on climate change, produced in collaboration with Deloitte.

These matters are also explored in the faculty’s article on reporting climate change under FRS 102 and the IASB’s article IFRS standards and climate-related disclosures. Although the article is written from an IFRS perspective, many of the points are equally valid to accounts prepared under UK GAAP.

The faculty also has a webinar (available to all) on IFRS Standards and climate-related disclosures.

Task force on Climate-related Financial Disclosures (TCFD)

There are numerous voluntary frameworks on climate reporting. The most prominent of these initiatives is the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Adoption of the TCFD recommendations is currently voluntary. However, in 2019, the Government Green Strategy set out expectations for large asset owners and listed companies to report in line with recommendations of the Task Force on Climate-related Financial Disclosures by 2022.

For more information, including practical guidance, visit the faculty’s webpage on TCFD.

Other guidance