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Climate-related financial disclosure to become mandatory for quoted and large private companies

Posted on 13 April 2021

The Department for Business, Energy & Industrial Strategy (BEIS) has published a consultation paper which proposes to implement mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs.

This consultation comes following reports that fewer than 50 UK public companies and 154 companies are comprehensively reporting in line with the task force on climate-related financial disclosures (TCFD). This is despite the UK Government's 2019 Green Finance Strategy which set out the Government's expectation that all listed companies and large asset owners do so by 2022. Working with a task force of UK regulators, the Government is now accelerating progress on climate risk disclosure with the aim that the UK become the first G20 country to make such disclosures mandatory across its economy.

BEIS considers that this new disclosure regime will compel companies to consider more fully the impact their businesses are having on climate change which will, in turn, help to ease the transition to net zero. It is hoped that the increased transparency will influence and equip decision-makers and investors with the information they need to manage and integrate the current and future financial risks associated with climate landscape into their mainstream strategies.


Regulations to implement the proposals are to be made under company legislation and apply to:

  • all UK companies that are required to produce a non-financial information statement with over 500 employees and that are admitted to trading on a UK regulated market (i.e. the Main Market of the London Stock Exchange), are banking or insurance companies;
  • all UK Companies that are admitted to trading on AIM with over 500 employees; and
  • all UK registered private companies and LLPs with over 500 employees and an annualised turnover of more than £500m.

This is in line with one option for broadening the entities (so-called 'public interest entities') within scope of increased reporting and scrutiny of the proposed new super-regulator, the Audit Regulation and Governance Authority, under the recently announced wider audit and corporate governance reforms.

The regulations will also apply in addition to the FCA's Listing Rule, by which for financial years which commenced on or after 1 January 2021, all UK premium listed companies are required to set out in their annual financial reports, whether they have made disclosures consistent with the TCFD's recommendations (and where they can be found) and, if not, the reasons why.

Disclosure requirements

Under the new regulations, qualifying companies (at group level) will now be required to make disclosures regarding their climate risks and opportunities in their strategic reports, for accounting periods expected to start on or after 6 April 2022.

The disclosures, in line with the TCFD's four overarching pillars, will require companies to provide the following information:

  1. Governance
  • A description of the governance arrangements in place to identify and manage risks and opportunities arising from climate change;
  • Details of who has operational responsibility for climate change (including their experience); and
  • Whether climate change is a matter considered by the company’s audit committee (to the extent there is one).
  1. Strategy
  • A brief description of the company’s business model and strategy (to the extent that the company is not already required to report such information); and
  • A description of how the company’s business model and strategy may change in response to effects relating to climate change, and the trends and factors that affect this change.
  1. Risk management
  • A description of the principal risks and opportunities (including material financial risks and opportunities), relating to transition, physical and regulatory risks arising from climate change which may affect the business and how the company manages those areas of risk and opportunity; and
  • A description of the risk management policies pursued by the company in relation to climate change, any due diligence processes implemented by the company in pursuance of those policies and a description of the outcome of those policies.
  1. Metrics and targets
  • A description of the key performance indicators (with reference to the development, performance, position or impact of the company's business and activities) relevant to the entity’s exposure to climate change risk and opportunity, and the targets set by the business for those key performance indicators.

While compliance with the proposed regulations will make disclosure mandatory, they do not go as far as the FCA's listing rule which requires companies to state how far they disclose, not only under the 4 pillars but also the TCFD's 11 recommended disclosures. The regulations also stop short of mandating 'scenario analysis' in relation to climate change, as it is recognised that it is one of the most challenging areas of the TCFD recommendations (although scenario analysis reporting is encouraged for those companies who are able to develop capability to do it).


It is now well-established that the physical and transition risks arising from climate change have the potential to significantly affect the value of companies and their assets, however, it is evident from the slow uptake in voluntary climate-related disclosures that most companies are still reluctant to face these issues head on.

The implementation of the mandatory disclosure requirements outlined above will undoubtedly compel those caught by the scope of the new regulations to take steps to assess their climate-related risk and opportunities, including ensuring that they have the right governance in place. Whilst it is estimated that the proposed scope of the new regulations will only capture approximately 160 UK companies, it is hoped that their material collective economic and environmental impact will mean that other companies are encouraged to follow suit, taking the UK one step further to a zero-carbon future.

The consultation closes on 5 May 2021 and, subject to Parliamentary approval, the new regulations are intended to be made before the end of the year and come into force from 6 April 2022.

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